LEGAL UPDATES BY BEPARTNERS
Australian and Indonesian Law of Employment

How Employees Are Rewarded and Protected

14 March 2022

Indonesia’s legal system has clear reflections of customary law (hukum adat), and balances influences from its culture with modern philosophies. When compared with Australian employment law practices, Indonesian employee leave entitlements acknowledge the customs of the employees and celebrate their beliefs and traditions. The introduction of the Job Creation Law (“Omnibus Law”) however, has altered Indonesia’s law regarding severance pay and minimum wage in a way that opposes Australia’s statutory protection of employee rights.

 

Leave Entitlements

 

From the perspective of an Australian law student, Law No. 13 of 2003 on Employment (“Employment Act”) contains provisions that are a notable demonstration of Indonesian values being reflected in the legislation. Article 93(2)(c) of the Employment Act provides that employees are entitled to three days of paid leave if they are getting married, and two days for other events such as their child being married, baptised or circumcised. Employers are also required to recognise a religious holiday pertinent to each employee. Under Minister of Manpower (“MoM”) No. 6 of 2016, employers are mandated to pay a religious holiday allowance once per year at least seven days prior to the respective holiday. Each of these provisions illustrate a theme of promoting togetherness, celebration and exhibit an understanding of the importance of maintaining culture.

No such laws exist in Australia. If an employee wishes to take paid leave for a significant religious or family event, they must sacrifice the general leave entitlements that they have accrued during the year.[1] Per sections 87 and 96 of the Fair Work Act 2009 (Australia’s primary employment legislation), a full time Australian employee will annually accumulate four weeks’ worth of general paid leave to be used for such occasions, as well as ten days of sick leave. The only other circumstances that an employee can be granted paid leave are in times of mourning. Australian workers can claim two days of compensated leave for the death of a family member, or if themselves or their spouse have a miscarriage.[2]

 

Recent Changes to Employee Entitlements

 

The recent Omnibus Law has triggered a number of cascading changes for Indonesia’s employment law. For employees, it carries implications for their worker benefits such as severance pay, and minimum wage entitlements.

 

Severance Pay

 

Severance pay laws have been altered by Government Regulation No. 35 of 2021 (“GR 35”). Following the introduction of the Omnibus Law, employees who are terminated for various reasons related to company closure are entitled to half the amount of severance pay than they were prior to the legislation.[3] For example, if a company closes because it has made losses for two consecutive years, employees will now receive 0.5x severance pay as opposed to the 1x severance pay they were entitled to before Omnibus Law was enacted. The same can be said for employees of companies that declare bankruptcy. For reference, severance pay is determined by multiplying one month’s salary by the number of years the recipient has been employed.[4] If an employee has been working for less than one year, their requisite severance pay is one month’s salary. This increases incrementally until it reaches the maximum of nine month’s salary for employees who have served for eight years or more. So, with GR 35’s implementation a terminated worker who has been with the business for 3 years will only be able to claim two months’ worth of salary as opposed to four months. There may be cause for concern for employees, considering the turbulent economy during the COVID-19 era and the higher potential for company insolvency. Although employers who fail to pay severance may face criminal charges and fines, less compensation and protection for employees in the face of company closure is generally a negative amendment to the law for workers.

 

Minimum Wage

 

As each province in Indonesia has different living standards and costs, the minimum wage is not uniform across the country. Before Omnibus Law, minimum salary would be varied depending on both the type of industry and in which province, region or city it belonged to. Now, under GR 36 the sector-specific minimum wage has been abolished and every industry must abide by the minimum wage set by their respective local government. The new exception to this rule however, is micro, small and medium-sized enterprises (“MSMEs"). MSMEs can now choose to determine their own minimum wage, differing from that of their local authority (although it must be at least 50% of the average provincial public consumption rate and 25% above the poverty line).[5] The benefit of this is that MSMEs that have struggled as a result of COVID-19 can reduce their wages and channel the funds into maintaining business output. There are potential ramifications to the productivity of MSMEs however, as employees who are paid less may not be able to afford good quality, healthy food, and therefore could compromise their health and efficiency at work.[6] Further, employers who cannot afford to pay the minimum wage are allowed to postpone payment if they obtain agreement from the employee or their union.[7] This could put even more pressure on low-income earners to be able to provide for their families.

 

Australian View

 

Australian law has a primary focus on protecting employees from employer exploitation, which is exemplified by Australia’s policy on severance pay, or redundancy pay as it is known in Australia. Observing the recent reductions in Indonesian employees’ severance pay when a company becomes bankrupt or closes for financial reasons, the Australian approach is comparatively more supportive of the terminated workers. If an Australian company terminates staff due to insolvency and cannot afford to pay the required severance pay, affected parties are entitled to the Fair Entitlements Guarantee (FEG). The FEG is a legislative safety net in which the Australian Government offers financial support of up to 13 weeks unpaid wages, any unpaid annual leave and redundancy pay of up to four weeks for every year the employee worked at the business.[8] Employers can however, reduce the amount of severance pay they have to give if they find other suitable employment for the terminated worker (section 120 Fair Work Act). If the Fair Work Commission deems the new position to be of the same value as their previous role, then the employee may receive significantly less. This follows the underlying principle of leaving the affected party in the same position that they were in before.

 

Another example of how Australian employment legislation upholds the protection of employees can be seen in the nation-wide minimum wage standard provided by section 284 of the Fair Work Act. Across all states and territories, and across all industries and business-types in Australia, each employee is entitled to the same minimum base wage for their age bracket which is reviewed and amended yearly on 1 July by the Fair Work Commission (as stipulated by section 285 of the Fair Work Act). These reviews have amounted to the national minimum wage increasing considerably in the last 5-10 years. It is not acceptable in Australia for an employer to delay payment due to inability to afford wages, if this occurs an employee can receive quick remuneration by lodging a complaint to the Fair Work Ombudsman.

 

Conclusion

 

The comparison between leave entitlements, severance pay and minimum wage in Australia and Indonesia is only one small sample size, there are many other competing views throughout the two nations’ legislation. It is impossible to say that one is more appropriate than the other because the laws reflect the culture, the current economy, the geography, and the needs of the people. Australia and Indonesia do require differing laws, but each country could benefit greatly from understanding one another’s legislative policy.

 

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[1] ‘Cultural & religious holidays’ (Fair Work Ombudsman) [Online] accessed through <https://www.fairwork.gov.au/employment-conditions/public-holidays/cultural-religious-holidays#:~:text=Just%20remember%2C%20it's%20illegal%20for,celebrate%20cultural%20or%20religious%20holidays.>.

[2] Fair Work Act 2009 (Commonwealth), section 104.

[3] Marshall Situmorang, Audria Putri and Aniendita Rahmawati, ‘Indonesia: Indonesia’s New Manpower Regime: Termination of Employment Under Omnibus Law and Its Implementing Regulations’ (Mondaq, 2021) [Online] accessed through <https://www.mondaq.com/employee-benefits-compensation/1107280/indonesia39s-new-manpower-regime-termination-of-employment-under-omnibus-law-and-its-implementing-regulations>.

[4] Ippei Tsuruga and Ekaning Wedarantia, ‘Rules and practices of severance pay in Indonesia – the Labour Law Number 13 of 2003’ (International Labour Organization, 2020, pg. 10).

[5] ‘Minimum Wages Regulations – Indonesia’ (WageIndicator.org, 2021) [Online] accessed through <https://wageindicator.org/labour-laws/labour-law-around-the-world/minimum-wages-regulations/minimum-wages-regulations-indonesia>.

[6] ‘When a Minimum is not the Minimum: Wage Regulatory Exemption for Indonesian MSMEs’ (Indonesia Labour Database, 2021) [Online] accessed through <https://indolabourdatabase.org/2021/11/23/when-a-minimum-is-not-the-minimum-wage-regulatory-exemption-for-indonesian-msmes/>.

[7] ‘Minimum Wages Regulations – Indonesia’ (WageIndicator.org, 2021) [Online] accessed through <https://wageindicator.org/labour-laws/labour-law-around-the-world/minimum-wages-regulations/minimum-wages-regulations-indonesia>.

[8] Attorney-General’s Department, ‘Fair Entitlements Guarantee (FEG)’ (Australian Government) [Online] accessed through < https://www.ag.gov.au/industrial-relations/fair-entitlements-guarantee-feg>.

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