13 Nov 2026
Protection First: Indonesia’s New Labor Law and What It Means for Employers

On 28 October 2026, the Indonesian Government promulgated Law No. 27 of 2026 on Manpower Protection (Pelindungan Ketenagakerjaan) (“Law 27/2026”). It repeals Law No. 13 of 2003 on Manpower (“Manpower Law”) and the labor cluster of Law No. 6 of 2023 on Job Creation (“Job Creation Law”), and is now the main statute governing employment in Indonesia. As its name suggests, it puts worker protection first and brings significant changes for employers on termination, severance, fixed-term contracts, outsourcing, wages and criminal exposure.

Background

Law 27/2026 responds to Constitutional Court Decision No. 168/PUU-XXI/2023 of 31 October 2024, under which the Court found that labor rules were split across two statutes that did not fit together, that key matters such as severance sat in government regulations rather than in a statute, and that the amended texts were hard to follow. The Court gave lawmakers two years to enact a stand-alone labor law. Law 27/2026 met that deadline with three days to spare.

When It Applies

Law 27/2026 took effect on its promulgation date, 28 October 2026, with no grace period. It requires the Government to issue implementing regulations by 28 October 2027. Until then, existing Government Regulations (“GR”) continue to apply, only to the extent they do not conflict with the new law. These include GR No. 35 of 2021 on Fixed Term Contracts, Outsourcing, Work and Rest Hours, and Employment Termination (“GR 35/2021”) and GR No. 36 of 2021 (as amended) on Wages. Court cases registered, and criminal cases under investigation, before 28 October 2026 continue under the old law. There is no transitional rule for fixed-term contracts already running or for terminations not yet in court, so the new law appears to apply to them immediately.

A More Pro-Worker Law

The Job Creation Law aimed to make the labor market more flexible. Law 27/2026 reverses much of that flexibility: shorter fixed-term contracts, a closed list for outsourcing, a requirement to undertake preventive measures prior to terminating employment, no termination for efficiency, higher severance and a termination process that requires agreement or a final court decision. It also goes beyond the old Manpower Law, for example with a ban on withholding diplomas, a severance reserve fund, mandatory long leave and wider criminal liability. Some employer-friendly points remain: the 15% housing and medical compensation in the severance package has not returned, several offences are now administrative rather than criminal, and the minimum wage index is capped.

Key Changes for Employers

Fixed-term contracts (PKWT). The maximum term falls from five years to four (two years, plus two extensions of up to one year each). PKWT is limited to five types of non-permanent work, must be made in Bahasa Indonesia (or, if bilingual, the Bahasa Indonesia text shall prevail), and must be registered by the employer within three working days. A PKWT that breaches certain rules becomes permanent by law.

Outsourcing. Outsourcing is limited to four support services: cleaning, worker catering, security and worker transport. Outsourced workers used in direct production become workers of the user company by law. Mining and oil companies (state-owned or private) may also outsource mining and oil support services, but only through their own subsidiary in the form of a limited liability company (Perseroan Terbatas or “PT”). State-owned enterprises (“SOEs”) may outsource only to their own PT subsidiary. Companies have until 28 October 2027 to comply; existing outsourcing agreements remain valid until they expire.

Foreign workers. Employers now need both an approved foreign manpower utilization plan and a separate approval to use foreign workers. The exemption for shareholder directors and commissioners is gone, and foreign workers still may not hold HR positions. 

Diplomas. Employers may no longer require or hold workers’ diplomas or personal documents as security, except for employer-funded education and training. Breach leads to administrative sanctions, and the employer must return the documents. 

Probation. During probation (maximum three months, permanent worker only), the employer must pay at least 75% of the position’s wage and must confirm the worker once they pass probation.

Apprenticeships, informal and platform work. Apprenticeships are limited to job seekers, are not considered as employment, and may last no more than six months. Informal sector workers gain rights to fair pay and social security. Law 27/2026 also introduces a new category of “specific work relationship”, covering those working under partnership or similar agreements. It expressly includes digital platform work and carries rights to decent income, safety and social security, and severance by agreement when it ends.

Supply chain audits. Medium and large companies must audit their entire production and distribution supply chain to ensure it is free of the worst forms of child labor (i.e. slavery, pornography/prostitution, production and/or distribution of alcohol and drugs, and other work that may endanger children’s safety, health or morals). Law 27/2026 sets no audit standard or frequency.

Minimum wages and wage structure. Governors must now set provincial sectoral minimum wages, which the Job Creation Law had abolished. Regency and city-level minimum wages remain optional. Minimum wages are based on decent living needs (Kebutuhan Hidup Layak or KHL) or a formula with an index capped at 0.5–1, whichever is higher. Employers must attach the wage structure and scale to the company regulation or collective labor agreement, so pay ranges will be visible to workers and unions.

Overtime and leave. Law 27/2026 drops the GR 35/2021 exemption from overtime pay for certain positions. Long leave of 30 days after every five years of service is now mandatory, and employers can no longer deduct collective leave (cuti bersama) from annual leave. Maternity leave follows the Mother and Child Welfare Law (Law No. 4 of 2024): three months on full pay, extendable by three months on medical grounds (full pay for the fourth month, 75% for the fifth and sixth).

Termination

Consistent with the previous regime, termination remains a last resort. However, Law 27/2026 sets out the preventive measures more clearly than before. Before terminating, employers must follow ten prevention “stages”, from reducing overtime and shifts to offering voluntary early retirement, and should document each one. Bipartite negotiations are then mandatory and must finish within 30 working days. Without the worker’s agreement, the employer may terminate only after a final and binding court decision. A termination without either is null and void, and the employer must reinstate the worker; failing to reinstate is a crime. The Job Creation Law route of simply notifying the worker, and reporting the termination to the authorities if they did not object, no longer exists.

Efficiency is no longer a ground for termination. Law 27/2026 lists 15 grounds for termination, including a new ground for permanent closure by the owner, but efficiency is not among them. Ongoing businesses that want to reduce headcount will in practice need mutual agreements. There is also no route to immediate dismissal for gross misconduct or “urgent violations” under GR 35/2021: even serious misconduct must go through warning letters, a negotiated exit or the court.

Severance

The basic severance and long-service pay tables are unchanged, but the 0.5x multipliers are gone. Key changes include:

Law 27/2026 does not restore the 15% housing and medical compensation that the Job Creation Law removed. Where an employer has not set separation pay (uang pisah), it may be set at a minimum of one month’s wage.

Employers must also provide a severance reserve fund (dana cadangan pesangon), managed by a government institution, with sanctions up to license revocation. Micro and small businesses are exempted. The contribution rate and other details await a GR. Unpaid worker entitlements become debts secured on all the employer’s assets.

Criminal Sanctions

Law 27/2026 contains 29 criminal articles, with fines under the new Criminal Code categories. Minimum penalties for individuals are gone, but companies face fines of at least Category IV (IDR 200 million). New offences include fatal safety failures, not enrolling workers in social security, failing to reinstate, deliberately not paying severance and denying inspectors’ access. Several company regulation-related obligations are now administrative offences only. Liability attaches to individuals, so boards should allocate responsibility for labor compliance.

What Has Gone and What Is New

Gone are efficiency as a ground for termination, dismissal for urgent violations, termination by notice, the 0.5x severance pay multipliers, the overtime pay exemption and separate daily work agreements. New are informal sector and specific work relationship rules, protection duties towards workers and women, supply chain audits, SOE and mining outsourcing through subsidiaries, mandatory steps to prevent termination, the severance reserve fund and lower union thresholds for collective bargaining.

ABNR Commentary

The change to termination is the most significant feature of Law 27/2026. Without the efficiency ground, without the notification route and with the need for a final court decision, employers will now have to negotiate most restructuring, at a higher cost. Many details, especially on the severance reserve fund, fixed-term contracts and outsourcing, await implementing regulations due by 28 October 2027. Employers should use this period to review terminations in progress, fixed-term contracts, outsourcing arrangements, company regulations and severance exposure. 

By Partners Indra Setiawan (isetiawan@abnrlaw.com) and Ridzky F. Amin (tamin@abnrlaw.com), and Senior Associates Tifanny Natalia (tnatalia@abnrlaw.com), Marintan Panjaitan (mpanjaitan@abnrlaw.com), Abdurachman Sidik (aalatas@abnrlaw.com) and Adrian Panata (apanata@abnrlaw.com).

This publication is a general overview and does not constitute legal advice. No liability is accepted for any reliance on it. Readers should seek advice from a licensed local practitioner on specific matters.