Indonesia Job Creation Omnibus Law

Overview

The Job Creation Omnibus Law, officially enacted as Undang-Undang Nomor 6 Tahun 2023 concerning the Ratification of Government Regulation in Lieu of Law Number 2 Year 2022 on Job Creation into Law, represents a significant overhaul of Indonesia's regulatory landscape, particularly in the realm of employment and investment. Initially introduced as Undang-Undang Nomor 11 Tahun 2020, this comprehensive legislation, often referred to as the 'Omnibus Law' due to its extensive scope, aims to streamline regulations, enhance the investment climate, and stimulate job creation across various sectors. The law was proposed by the Indonesian government with the primary objective of boosting economic growth and competitiveness by simplifying bureaucratic procedures and attracting both domestic and foreign investment.

The historical context of this law is marked by a desire to address structural impediments to economic development and job growth, which were exacerbated by global economic shifts and the COVID-19 pandemic. The government identified a need to reduce regulatory complexity and improve the ease of doing business to create more employment opportunities for Indonesia's large workforce. The law consolidates and amends numerous existing laws, including key provisions from Undang-Undang Nomor 13 Tahun 2003 concerning Manpower, making it a pivotal piece of legislation for employment relations in the country. Its introduction, however, was met with considerable public debate and protests, particularly concerning its potential impact on worker rights and environmental protections.

A key innovation of the Job Creation Omnibus Law is its 'omnibus' approach, which involves amending or revoking provisions in multiple laws through a single legislative act. This was intended to create a more coherent and efficient legal framework. Following a ruling by the Constitutional Court that declared the initial Law No. 11/2020 conditionally unconstitutional due to procedural flaws, the government issued Peraturan Pemerintah Pengganti Undang-Undang (Perppu) Nomor 2 Tahun 2022, which subsequently became Law No. 6 Tahun 2023. This legislative journey underscores the government's commitment to implementing the reforms while addressing legal and public concerns. The law's provisions on employment, including those related to wages, working hours, and termination of employment, are central to its impact on pay equity and overall labor conditions.

Definitions

The Job Creation Omnibus Law, through its amendments to the Manpower Law (Law No. 13/2003), provides crucial definitions that underpin its application to pay equity and employment. 'Upah' (wage) is defined as the right of a worker/laborer received and expressed in money as compensation from an employer or job provider, which is determined and paid according to a work agreement, consensus, or prevailing laws and regulations. This definition forms the basis for all remuneration-related provisions, including minimum wage, overtime pay, and severance calculations. The law emphasizes that wages must be paid in Indonesian Rupiah and outlines the components that may constitute a wage, typically including a basic salary and fixed allowances, with specific rules for non-fixed allowances.

Another critical term is 'Upah Minimum' (Minimum Wage), which is the lowest monthly wage that employers are legally required to pay to workers. The law specifies two types: Upah Minimum Provinsi (UMP) and Upah Minimum Kabupaten/Kota (UMK). UMP is set at the provincial level, while UMK can be established at the regency/city level if it is higher than the UMP and meets certain criteria related to regional economic growth and inflation. The formula for calculating minimum wage considers variables such as economic growth, inflation, and a specific index, aiming to ensure a decent living for workers while also considering the company's capacity. Employers are strictly prohibited from paying wages below the established minimum wage, with severe penalties for non-compliance.

While the law does not explicitly define 'equal pay' in a standalone article, the principles of non-discrimination in employment, including in remuneration, are implicitly supported through its framework for wage setting and worker protection. The concept of 'Struktur dan Skala Upah' (Wage Structure and Scale) is introduced as a mandatory guideline for employers in determining wages, which must consider the company's ability and worker productivity. This mechanism, when properly implemented, can contribute to pay equity by providing a transparent and objective basis for wage differentiation within a company, reducing arbitrary pay decisions. The law also defines 'Pekerja/Buruh' (worker/laborer) as any person who works for wages or other forms of remuneration, encompassing a broad range of employment relationships.

Covered Employers

The Job Creation Omnibus Law, through its amendments to the Manpower Law, generally applies to all employers operating within Indonesia, regardless of their size or sector, unless specific exemptions are explicitly stated in derivative regulations. The overarching goal of the law is to create a more conducive investment climate and generate employment, which necessitates a broad application across the business spectrum. This includes private companies, state-owned enterprises, and other entities that engage in employment relationships. The law's provisions on minimum wage, working hours, and worker rights are universally applicable, establishing a baseline for labor standards across the country.

While the law itself does not specify explicit size thresholds for all obligations, certain implementing regulations or existing labor laws that remain in force may contain such distinctions. For instance, obligations related to establishing a 'Struktur dan Skala Upah' (Wage Structure and Scale) are generally expected from all employers, as it serves as a fundamental principle for fair wage determination. However, the complexity of implementation or reporting requirements might vary based on company size, as is common in labor regulations globally. The law aims to simplify business licensing and investment, which inherently impacts businesses of all scales, from micro, small, and medium enterprises (UMKM) to large corporations, by reducing regulatory burdens.

Exemptions or specific considerations might apply to certain sectors or types of employment, which are typically detailed in subsequent government regulations (Peraturan Pemerintah - PP) or ministerial decrees. For example, specific rules may govern particular industries or types of work, such as those involving seasonal labor or highly specialized foreign workers. The law also addresses outsourcing arrangements, stipulating that workers in outsourced companies must still receive protection of their rights, and their employment continuity and rights are guaranteed even if the outsourcing company changes. This provision aims to prevent exploitation and ensure that workers' fundamental rights are upheld irrespective of their employment model.

Employee Rights

The Job Creation Omnibus Law, while aiming to boost investment, also outlines several key rights for employees, primarily by amending and reinforcing provisions from the previous Manpower Law. Workers are entitled to receive wages that meet a decent standard of living, with the government establishing a minimum wage policy to protect this right. This includes the right to receive at least the Upah Minimum Provinsi (UMP) or Upah Minimum Kabupaten/Kota (UMK), which are determined annually based on economic and employment conditions. Employers are strictly prohibited from paying wages below these minimums, and violations carry significant penalties.

Beyond minimum wage, employees have rights related to working hours, rest periods, and leave. The law maintains the general provisions for working hours as stipulated in Law No. 13/2003, typically 7 hours a day for 6 working days a week or 8 hours a day for 5 working days a week, with provisions for overtime pay. Workers are also entitled to sufficient rest time and various types of leave, including annual leave, sick leave, and maternity leave, as well as the right to perform religious obligations. The law also introduces provisions for more flexible working arrangements for certain types of jobs, aiming to adapt to modern work patterns while still protecting worker welfare.

Crucially, the law addresses rights related to termination of employment (PHK) and social security. Workers who experience PHK are still entitled to severance pay, service appreciation pay, and compensation for rights, calculated according to specific formulas. A significant addition is the Jaminan Kehilangan Pekerjaan (JKP) or Job Loss Insurance program, which provides cash benefits, job market information, and job training for workers who lose their jobs, offering a social safety net. Furthermore, the law reinforces the right to form and join trade unions, which play a vital role in advocating for workers' rights and engaging in collective bargaining. These provisions collectively aim to balance employer flexibility with essential worker protections.

Pay Transparency Requirements

The Job Creation Omnibus Law, while not introducing explicit, broad-based pay transparency requirements such as mandatory salary range disclosures in job postings for all roles, does promote a degree of transparency through its emphasis on structured wage systems. The law mandates employers to establish a 'Struktur dan Skala Upah' (Wage Structure and Scale) as a guideline for setting wages. This structure must consider the company's ability and worker productivity. While the law does not explicitly require public disclosure of these scales, their existence within a company implies an internal framework that can contribute to more transparent and equitable wage practices. The development and implementation of such a structure necessitate a clear methodology for determining pay levels for different positions and experience levels.

The requirement for a wage structure and scale serves as a foundational element for internal pay transparency. It means that companies should have a systematic approach to compensation, rather than arbitrary wage setting. This internal transparency can empower employees to understand how their pay is determined relative to their colleagues and job responsibilities. Although the law does not impose external transparency obligations like publishing salary ranges in job advertisements, the underlying principle of a structured wage system encourages a more objective and less discriminatory approach to compensation. This can indirectly support pay equity by making the basis for pay decisions more discernible within the organization.

Furthermore, the law's provisions on minimum wage contribute to a form of pay transparency by setting a clear legal floor for remuneration. The annual determination and publication of Upah Minimum Provinsi (UMP) and Upah Minimum Kabupaten/Kota (UMK) ensure that all employers and employees are aware of the lowest legal wage an employee can receive in a particular region. This publicly available information acts as a benchmark and a transparent standard that employers must adhere to, preventing wages from falling below a socially acceptable level. While not a comprehensive pay transparency mandate, these elements collectively foster a more structured and accountable approach to compensation in Indonesia's labor market.

Reporting & Audit Obligations

The Job Creation Omnibus Law, in its broad scope, does not explicitly detail extensive, standalone pay gap reporting or equal pay audit obligations for all employers in the same manner as some international regulations. However, the law's framework for wage setting and labor supervision implies certain data collection and potential audit mechanisms. Employers are required to establish and implement a 'Struktur dan Skala Upah' (Wage Structure and Scale). While there is no explicit mandate for public reporting of these scales or regular external audits of pay equity, the existence of such a structure means that companies must maintain internal records of their wage policies and practices. These records could be subject to review during labor inspections.

Labor inspections, conducted by the Ministry of Manpower (Kementerian Ketenagakerjaan) and its regional offices, serve as the primary mechanism for monitoring compliance with labor laws, including those related to wages. During these inspections, labor inspectors have the authority to examine company records, including payroll data, to ensure adherence to minimum wage requirements, overtime pay regulations, and the proper implementation of the wage structure and scale. While these are not specifically 'equal pay audits' in the sense of analyzing gender or other demographic pay gaps, they do provide a mechanism for verifying that wages are paid in accordance with legal provisions and established company policies, which can indirectly address discriminatory practices.

The law's emphasis on the government's role in setting minimum wages and ensuring their enforcement also implies a continuous monitoring process at the national and regional levels. Data on economic growth, inflation, and employment conditions are regularly collected by the Central Statistics Agency (BPS) and used by the government to determine the annual minimum wage adjustments. This constitutes a form of macro-level data collection relevant to pay standards. While individual company-level pay gap reporting is not a direct mandate, the overall regulatory environment, coupled with labor inspection powers, provides avenues for oversight and enforcement of fair wage practices.

Governance & Enforcement Bodies

The primary governance and enforcement body for the Job Creation Omnibus Law, particularly concerning its employment cluster, is the Ministry of Manpower (Kementerian Ketenagakerjaan) of the Republic of Indonesia. This ministry is responsible for formulating and implementing policies in the field of manpower, including labor protection, industrial relations, and vocational training. Its functions encompass the supervision of labor laws, the resolution of industrial disputes, and the development of labor standards. The Ministry works through its central office and regional branches (Dinas Ketenagakerjaan at the provincial and regency/city levels) to ensure compliance with the law across the country.

Labor inspectors (Pengawas Ketenagakerjaan), operating under the authority of the Ministry of Manpower and its regional offices, play a critical role in the enforcement process. These inspectors are tasked with monitoring workplaces, investigating alleged violations of labor laws, and ensuring that employers adhere to regulations concerning wages, working conditions, and worker rights. They have the power to conduct inspections, request documents, interview employees and management, and issue warnings or recommendations for corrective actions. The Ministry also engages in socialization efforts to educate employers and workers about the provisions of the Job Creation Omnibus Law, aiming to foster voluntary compliance.

Complaints regarding violations of labor laws, including issues related to pay, can be filed by individual workers or trade unions with the local Dinas Ketenagakerjaan. These complaints trigger investigations by labor inspectors. In cases of disputes that cannot be resolved amicably, the law provides mechanisms for industrial dispute resolution, which may involve mediation, conciliation, or arbitration, ultimately leading to the Industrial Relations Court if necessary. The legal framework also interacts with other government bodies, such as the National Social Security Agency (BPJS Ketenagakerjaan) for social security programs like Job Loss Insurance, and the Constitutional Court, which played a significant role in the law's review and subsequent amendments.

Monitoring & Evaluation

Monitoring and evaluation of the Job Creation Omnibus Law's implementation, particularly in the employment sector, are primarily conducted through the established labor inspection system under the Ministry of Manpower (Kementerian Ketenagakerjaan). Labor inspectors are authorized to conduct routine and unannounced inspections of workplaces to verify compliance with labor regulations, including those pertaining to wages, working hours, and worker benefits. These inspections involve reviewing company records, such as payrolls, employment contracts, and attendance logs, as well as interviewing employees and management. The frequency of these inspections can vary based on risk assessments, previous compliance records, and specific complaints received.

Complaints from workers or trade unions serve as a crucial trigger for investigations. When a complaint is filed, labor inspectors are mandated to investigate the allegations, gather evidence, and determine whether a violation of the law has occurred. This investigative process aims to ensure that workers' rights, including their right to proper wages and fair treatment, are upheld. The evaluation criteria for these investigations typically focus on adherence to minimum wage standards, proper calculation and payment of overtime, compliance with wage structure and scale guidelines, and non-discrimination in employment practices. The outcomes of these investigations can lead to various enforcement actions, from warnings to administrative sanctions and, in severe cases, criminal prosecution.

Beyond individual inspections and complaint investigations, the government also undertakes broader monitoring and evaluation efforts. This includes collecting and analyzing labor market data, such as employment rates, wage levels, and industrial relations trends, to assess the overall impact of the law on job creation and worker welfare. The annual adjustment of the minimum wage, for example, is a direct outcome of a continuous evaluation process that considers economic indicators like inflation and economic growth. While the law does not explicitly mandate specific 'equal pay audits' for companies, the comprehensive oversight by the Ministry of Manpower aims to ensure that the principles of fair and non-discriminatory remuneration are generally observed across the Indonesian workforce.

Enforcement & Penalties

The Job Creation Omnibus Law establishes a range of enforcement mechanisms and penalties for violations of its employment provisions, particularly concerning wages and worker rights. Employers who fail to comply with the minimum wage requirements, for instance, face severe sanctions. The law stipulates that employers who pay wages lower than the established minimum wage can be subject to criminal penalties, including imprisonment for a minimum of 1 year and a maximum of 4 years, and/or fines ranging from at least IDR 100 million to a maximum of IDR 400 million. These penalties underscore the government's commitment to protecting workers' fundamental right to a decent wage.

In addition to criminal sanctions for serious offenses like minimum wage violations, the law also provides for administrative penalties for other infringements of labor regulations. These administrative sanctions can include written warnings, limitations on business activities, temporary or permanent suspension of business operations, and the revocation of business licenses. The severity of the administrative penalty typically depends on the nature and gravity of the violation, as well as the employer's compliance history. Importantly, the imposition of sanctions does not absolve the employer of their obligation to fulfill the workers' rights, such as paying outstanding wages or compensation.

The enforcement process typically begins with investigations by labor inspectors from the Ministry of Manpower. If violations are found, employers are usually given an opportunity to rectify the situation. Failure to comply with corrective measures or repeated offenses can escalate to the imposition of administrative or criminal penalties. Workers or their representatives also have the right to file complaints, which can trigger investigations and lead to enforcement actions. The appeals process for administrative sanctions would generally follow the procedures outlined in administrative law, while criminal cases would proceed through the judicial system, ensuring due process for all parties involved.

Relationship to Other Laws

The Job Creation Omnibus Law fundamentally alters the landscape of Indonesian legislation by amending, revoking, or establishing new provisions across numerous existing laws. Its most significant interaction in the employment sector is with Undang-Undang Nomor 13 Tahun 2003 tentang Ketenagakerjaan (Law No. 13/2003 on Manpower). The Omnibus Law revises many key articles of Law No. 13/2003, particularly concerning employment contracts (PKWT), outsourcing, wages (minimum wage, wage structure and scale), working hours, leave, and termination of employment (PHK). While Law No. 13/2003 remains the foundational manpower law, its provisions must now be read in conjunction with the amendments introduced by the Job Creation Omnibus Law and its implementing regulations.

Beyond the Manpower Law, the Job Creation Omnibus Law also interacts with and amends provisions in other related statutes. For instance, it impacts Undang-Undang Nomor 40 Tahun 2004 tentang Sistem Jaminan Sosial Nasional (Law No. 40/2004 on National Social Security System) and Undang-Undang Nomor 24 Tahun 2011 tentang Badan Penyelenggara Jaminan Sosial (Law No. 24/2011 on Social Security Administering Bodies) by introducing the Jaminan Kehilangan Pekerjaan (JKP) program. This new social security benefit for workers who experience PHK complements the existing social security schemes. The law also touches upon aspects of investment, business licensing, and environmental protection, thereby interacting with a multitude of other sectoral laws and regulations.

In cases of conflict, the Job Creation Omnibus Law, as a more recent and comprehensive statute, generally takes precedence over the specific provisions it amends or revokes in older laws. However, the legal principle of lex specialis derogat legi generali (specific law overrides general law) may still apply where highly specific regulations exist for particular industries or situations, provided they are not directly contradicted by the Omnibus Law. The law's implementation is further elaborated through numerous Peraturan Pemerintah (Government Regulations) and Peraturan Presiden (Presidential Regulations), which serve as crucial derivative regulations that provide detailed operational guidance and ensure consistency with the broader legal framework.

International Context

The Job Creation Omnibus Law, particularly its employment provisions, operates within the broader framework of international labor standards, notably those established by the International Labour Organization (ILO). Indonesia is a member state of the ILO and has ratified several key conventions, including ILO Convention No. 100 on Equal Remuneration (1951) and Convention No. 111 on Discrimination (Employment and Occupation) (1958). While the Omnibus Law does not explicitly use the term 'equal pay for work of equal value,' its provisions on wage setting, the establishment of a wage structure and scale, and the general principles of non-discrimination in employment are intended to align with these international commitments. The law's focus on fair wages and worker protection, even amidst efforts to boost investment, reflects an awareness of global labor norms.

Globally, there is a growing trend towards greater pay transparency and stricter enforcement of equal pay principles, often driven by international instruments and regional directives such as the EU Pay Transparency Directive. While Indonesia's Job Creation Omnibus Law does not yet incorporate all the advanced features seen in some of these international frameworks, such as mandatory gender pay gap reporting for all companies, its emphasis on a structured and transparent wage system (Struktur dan Skala Upah) can be seen as a step towards more equitable pay practices. The law's continuous evolution, including its review by the Constitutional Court and subsequent amendments, demonstrates an ongoing effort to balance economic development goals with the protection of fundamental labor rights, in line with international best practices and the need for a stable and just labor market.

Implementation Timeline

Date	Milestone	Status
2020-10-05	Initial Undang-Undang Nomor 11 Tahun 2020 tentang Cipta Kerja (Job Creation Law) passed by DPR RI.	Adopted
2020-11-02	Undang-Undang Nomor 11 Tahun 2020 officially promulgated.	In Force
2021-02-02	First batch of implementing regulations (PP and Perpres) for UU Cipta Kerja issued.	In Force
2021-02-21	Government completes 51 implementing regulations (45 PP and 4 Perpres) for UU Cipta Kerja.	In Force
2021-11-25	Constitutional Court declares UU No. 11/2020 'conditionally unconstitutional' and orders revisions within two years.	Under Review
2022-12-30	Peraturan Pemerintah Pengganti Undang-Undang (Perppu) Nomor 2 Tahun 2022 tentang Cipta Kerja issued.	Awaiting Entry
2023-03-21	DPR RI approves Perppu No. 2/2022 to become law.	Adopted
2023-03-31	Undang-Undang Nomor 6 Tahun 2023 tentang Penetapan Perppu No. 2/2022 menjadi Undang-Undang (Law No. 6/2023) officially promulgated.	In Force (Amended)

Compliance Checklist

Requirement	Action Required	Deadline
Establish Wage Structure & Scale	Develop and implement a clear 'Struktur dan Skala Upah' considering company capability and productivity.	Ongoing (as per implementing regulations)
Minimum Wage Compliance	Ensure all employees are paid at least the prevailing Upah Minimum Provinsi (UMP) or Upah Minimum Kabupaten/Kota (UMK).	Annually (upon new UMP/UMK announcement)
Overtime Pay	Calculate and pay overtime wages in accordance with legal provisions for hours exceeding normal working limits.	As incurred
Fixed-Term Contract (PKWT) Compensation	Provide compensation money to PKWT workers upon contract completion, proportional to their service period.	Upon PKWT expiry
Severance Pay & Benefits	Ensure proper calculation and payment of severance pay, service appreciation pay, and compensation for rights upon termination of employment (PHK).	Upon PHK
Working Hours & Rest Periods	Adhere to legal limits on working hours and provide mandated rest periods and leave entitlements.	Ongoing
Social Security Contributions	Register employees with BPJS Ketenagakerjaan and make required contributions, including for Jaminan Kehilangan Pekerjaan (JKP).	Ongoing
Non-Discrimination	Ensure non-discriminatory practices in all aspects of employment, including recruitment, promotion, and remuneration.	Ongoing
Labor Inspection Cooperation	Cooperate fully with labor inspectors during routine inspections or complaint investigations, providing requested documents and information.	Upon request
Internal Complaint Mechanism	Establish or maintain an effective internal mechanism for addressing employee grievances, including pay-related issues.	Ongoing
Record Keeping	Maintain accurate and complete records of employment contracts, payrolls, attendance, and other relevant labor documents.	Ongoing (as per legal retention periods)

Sources and References

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