Impact of Covid-19 upon Employment Sector in Indonesia
15 April 2020



The number of employees that have been terminated (Pemutusan Hubungan Kerja or “PHK”) and are forced to take unpaid leave increases day by day as more companies grapple with the impact of the novel Corona Virus Disease (“Covid-19”) outbreak. For example, the tourism industry, as one of the largest contributors to the Indonesian economy, has taken a substantial plunge. As of 1 April 2020, around 1.200 hotels in Indonesia have been temporary closed, causing unpaid leave and termination of some employees.[1] PT Honda Prospect Motor as one of Honda's car manufacturers has seen their demand decrease by 30% and will temporarily stop production for 14 days, starting from April 13, 2020[2].


Data compiled by the Jakarta Manpower, Transmigration and Energy Agency showed that as of 5 April 2020, a total of 30,137 employees had been terminated by 3,348 companies, while another 132,279 employees had been sent home without pay.[3] With the upcoming religious holiday, this current situation will undoubtedly cause a huge impact upon employees and laborers rights, especially on their wages and religious holiday allowances (Tunjangan Hari Raya or “THR”).


With the ongoing situation, the capital city is ready to impose the large-scale social restriction (PSBB) protocol on 10 April 2020, to further cut the chain of virus transmission after the Covid-19 outbreak which has claimed 141 lives as of 8 April 2020. The Health Minister’s Decree No.HK.01.07/Menkes/239/2020 on PSBB guideline will be effective for 14 days. The PSBB guidelines stipulates large-scale social restrictions consisting of closing schools and offices, limiting religious gatherings, public facilities, social and cultural activities, and other matters related to defense and security, as well as transportation.


Eight industry sectors that provide products and services considered to be essential will remain fully operational to cater to the everyday needs of the public amidst the public health emergency.  These include companies and organizations in the sectors of health, food, energy (including water supply, gas and fuel stations), communications (including telecommunication providers and media), finance (including banks and stock market), delivery of logistics, daily needs retailers (including grocery stores and minimarkets), as well as strategic sectors in the capital.[4] All business, except these eight sectors, are highly urged to work from home.


The implementation of physical distancing/quarantine, working from home and the suspension of business activities policies will undoubtedly lead to a decrease in consumer and business spending which would ultimately result in the loss of business income.[5]

Faced with such a condition, many companies currently have taken actions to temporarily layoffs employees, reduce employees’ wages or reduce the number of employees. However, based on the prevailing laws and regulations in Indonesia, do these actions have legal backing?

A. Covid-19 as a reason for Termination and Temporary Layoffs
With the declining economic conditions due to Covid-19 there have been companies that have taken steps to layoffs temporary employees, there are also those who choose to make wage deductions that vary in size for each company. The hotel and restaurant sector has also seen several terminations of their employees[5],  where the automotive industry has been hit relatively hard as was above mentioned.
As regulated through Law No.13 of 2003 concerning Manpower (“Law No.13/2003”), employees’ termination cannot be executed by the company immediately due to Covid-19. Provisions on employees’ termination can only be done if the company has been declared bankrupt in advance by the court including the court evidence. Besides that, based on Law No. 13/2003, a company can terminate an employee if it can prove the company has suffered financial losses for 2 (two) years consecutively. With the recent issuance of Presidential Decree No.12 of 2020 (“PD No. 12/2020”)[6] , the government has now regarded Covid-19 as a ‘National Disaster’. In the case that the contract between employees and employer explicitly provides that this pandemic is considered as a force majeure event, PD No. 12/20 acts as a stronger legal basis where the company/entrepreneur is afforded by law to dismisses its employees and will be required to pay their employees a 1-time severance pay, 1-time long service reward and 1-time compensation money as per Law No.13/2003. For more details on force majeure please refer to our article on Force Majeure.
Furthermore, a company may terminate its employees because the company has to be closed down due to continual losses for 2 (two) years consecutively nor pandemic but because of rationalization. The company shall be entitled to severance pay twice the amount of severance pay, 1-time long service reward, and compensation money for entitlements according to subsection (4) of Article 156.
Apart from the above provisions, if the company wishes to terminate its employees, the company is required to pay severance pay, long service awards and compensation money in accordance with the service period of employees at the company as stipulated in Article 156 of Law No.13/2003.
In the case of a company experiencing difficulties, termination of employment is unfortunately the last resort. Another alternative that companies can take apart from termination is implementing temporary leave upon its employees for a temporary period[7].  Further explained in Articles 1 and 2 of the Circular of the Minister of Manpower No. 05/1998, it stipulates that a Company that temporarily lays off its employees shall continue to pay their full wages. However, if the company cannot provide full employees’ wages, it can be negotiated with the employees and/or labor unions regarding the amount of wages during the temporary laid off and the period of the temporary layoffs[8].
B. Possible deduction of Employees’ Payroll and THR
In essence, companies cannot make wage deductions beyond those agreed upon by employers and employees in their respective work contracts. This can be excluded if the clause regarding wage deduction is prescribed in a work contract, collective agreement or the company regulations. This wage deduction also applies to certain conditions, such as fines, compensation, and advance payment of wages.
Although, based on the Circular of the Minister of Manpower No. M/3/HK.04/III/2020 regarding Worker/Labor Protection and Business Continuity in the Context of Preventing and Countering Covid-19, it mentions that for companies that limit business activities by considering business continuity, changes in wage levels and ways of payment can be made in accordance with agreement between the company and their employees. However, this does not have a strong legal basis, which may lead to industrial relations disputes, where dispute of rights are defined in Article 1 number 2 of Law No. 2 of 2004 regarding Industrial Relations Disputes Settlement:
“dispute of rights refers to a dispute which occurs due to the non-fulfillment of rights because there is inconformity between the implementation or interpretation of provisions under laws and regulations, employment agreement, company regulation, or collective labor agreement.”
THR is a part of non-wage income. As is the case in a wage, the company shall also pay the THR to employee(s) at least 7 (seven) day before the Religious Holiday. THR is regulated in a number of regulations including Government Regulation No.78 of 2015 concerning Wages and Regulation of the Minister of Manpower (GR No.6 of 2016 concerning THR for employees in the Company).
As per the Minister of Manpower Regulation No.20 of 2016 concerning Procedures for Granting Administrative Sanctions, companies who fail to pay on time or does not pay THR to employees may be subject to consequences in the form of fines or administrative sanctions with accordance to the prevailing laws and regulations. However, for companies that have difficulty paying THR amid Covid-19, they can open a dialogue with employees to reach agreement on other options in paying the THR to employees. The company can propose a suspension of THR payments up to a mutually agreed period or the company can pay THR in stages to employees.

C. Postponement of Employees’ Minimum Wages for the protection of Employees’ Right
Companies are facing issues such as low running income, disrupted production, but the burden of expenditure is keeping the business world on the verge of mass bankruptcy. With the economic decline, companies may not be able to pay finance expenses without any income including their employees’ wages by the end of June 2020[9].
It is stipulated in Law No.13/2003 that the employer is prohibited from paying the employees' wages lower than the minimum wages. However, an employer who is unable to pay the minimum wages can ask for a postponement for the payment of minimum wages to their employees. This postponement of the payment of minimum wages is explained in Article 90 paragraph (2) of Law No.13/2003 wherein the specific article provides clarification on the protection of employees who work in companies. This is needed to be regulated further so that employees are able to continue to work in companies that are experiencing difficult conditions in such times.
The postponement of the payment of minimum wages by a company that is financially unable to pay minimum wages is intended to temporarily release the company from having to pay minimum wages for a certain period of time. If the postponement comes to an end, the company is then under an obligation to pay minimum wages that are applicable at the time of postponement, where the remaining wages that were not paid during the postponement period will be paid to the employee (aggregate amount of remaining wages for the postponement period) subsequent to the end of postponement period[10]
The procedure for the postponement of the payment of minimum wages is regulated in Minister of Manpower and Transmigration Decree No. Kep.231/MEN/2003 concerning Procedures for Postponing the Application of the Minimum Wage. The application for the postponement of the minimum wage payment obligation must be submitted by the employer to the Governor through the provincial Manpower Office no later than 10 (ten) days before the minimum wage is implemented effectively[11].   The application itself must be made in the form of a written agreement between the employer and the employees/labor union, which was made pursuant to an in-depth, honest, and open negotiation between the 2 (two) parties.
Thus, if the employer is in financial distress due to the Covid-19 outbreak and has not been able to pay his employees' wages according to the minimum wage, then the employer can postpone payment of wages by first negotiating with the employees or worker union/ labor union. However, the postponement of payment of the minimum wage by employers to employees does not eliminate the obligation of employers to pay the difference in minimum wages during the postponement period (where the remaining amount of wages that was postponed must be given to the employee after the end of the postponement period).

D. Conclusion

 It is evident that all employment matters in all business sectors are severely affected. The  government has been continuously attempting to decrease the transmission of the Covid- 19 with  the recent enactment of the abovementioned PSBB protocol.
The procedures and mechanisms are clearly stipulated within Law No.13/2003 where other  implementing regulations are put into effect in order to protect and govern the payment to  employees amongst other employment matters. During such current unprecedented times, these  prevailing laws and regulations are now, more than ever, extremely important for the millions of  employees everywhere especially with the nearing religious holidays.
Although termination of employment are the last option for businesses to take, companies can   however take other measures such as implementing work from home or temporary layoffs for a period of time as an approach during this time.
Theoretically, the postponement of employees’ wages is plausible as per the prevailing  laws and regulations; however, practicality suggests otherwise. Specific sectors such as the hotel industry simply cannot afford the privilege to delay the payment of wages to their employees, rather the employees have been told that they have been discharged from their employment status due to the financial strictures. With more than 1.2 million people having lost their jobs since the Covid-19 pandemic[12],  only time will tell as to how long this severe mass termination of employees will last.


If there are any queries with regards to how this may affect your business, please contact us for further legal consultation.


This information does not, and is not intended to, constitute as legal advice; instead, all information, content, and materials are for general information only



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[1] Athika Rahma, ‘Daftar 1.139 Hotel Tutup Akibat Corona, Beberapa PHK Karyawan’, [Online] accessed through

[2] Ridwan Arifin, ‘Dihantam Corona, Honda Stop Produksi Mobil di Indonesia’, [Online] as accessed through indonesia?utm_source=facebook&utm_campaign=detikcomsocmed&utm_medium=btn&utm_content=oto

[3] Tri Indah Oktavianti, ‘Thousands laid off, forced to take unpaid leave in Jakarta as companies hit hard by COVID-19’, [Online] accessed through

[4] Rizki Fachriansyah, ‘Jakarta will impose stronger mobility restrictions on Friday. Here’s what you need to know’, [Online] accessed through

[5] Herdi Alif Al Hikam, Finance Detik ‘Bisnis Terpukul Corona, Pengusaha Tega PHK Karyawan?’, [Online] as accessed through

[6] Presidential Decree No.12 of 2020 regarding The Coronavirus Disease 2019 or COVID-19 as a National Disaster

[7] Point f Circular of the Minister of Manpower No. SE-907/MEN/PHI-PPHI/X/2004 regarding Prevention of Mass Termination

[8] Circular of the Minister of Manpower No. SE-05/M/BW/1998 of 1998 regarding The Remuneration of Employees who are Temporary Laid Off is not towards Termination of Employment.

[9] Ferry Sandy, CNCB Indonesia ‘Loud Alarm from Entrepreneurs: We're Only Strong Until June’, [Online] as accessed through

[10] Explanatory Notes of Law No.13/2003, Art. 90 paragraph (2)

[11] Decree No. Kep.231/MEN/2003, Art. 3

[12] Mohd Shukri Ishak, Bernama ‘COVID-19: Over 1.2 Million Lose Jobs in Indonesia’, [Online] as accessed through <>