06 Apr 2018
Bureaucratic Reform Gains Traction in Indonesia as Government Streamlines Expat Employment Rules

There was a flurry of reports in the media recently suggesting that the Government planned to institute a major overhaul of the rules governing the employment of expatriates. These reports have turned out to be well-founded, with the newly issued Presidential Regulation No. 20 of 2018 (the “New Regulation”)[i] significantly streamlining the expatriate employment process. The Regulation, which revokes Presidential Regulation No. 72 of 2014 (the “Old Regulation”), was promulgated on 29 March 2018 and will officially come into force three months subsequent to that date.

While Article 4 of the New Regulation reiterates the fundamental principle governing the employment of expatriates in Indonesia (an expatriate may only serve in a position that cannot be filled by an Indonesian), Article 2(2) provides that the utilization of expatriate manpower should have regard to labor market conditions. It is to be hoped that this provision heralds a greater awareness of market forces and a potential for greater flexibility on the part of the Ministry of Manpower going ahead.

Besides the provisions of Article 4 of the New Regulation, other important aspects that are carried over intact from the Old Regulation are the rules requiring every expatriate employee to provide training and knowledge-transfer to an Indonesian “shadow” (with an exception for expatriate directors/commissioners), and the prohibition on an expatriate being employed in a human resources-related capacity and/or in other proscribed capacities, as designated by sectoral ministers/institutions.

It should be noted that in addition to the rules set out in New Regulation, certain economic sectors, such as the oil and gas industry, are subject to additional requirements for the employment of expatriate manpower.

Key Changes

1. RPTKA / IMTA

The most important change brought about by the New Regulation is that a prospective employer will no longer be required to apply for a separate Expatriate Manpower Employment License (Izin Mempekerjakan Tenaga Kerja Asing / “IMTA”) from the Minister of Manpower in order to employ an expatriate. Instead, all the employer needs to do is to submit an Expatriate Manpower Employment Plan (“RPTKA”) to the minister for approval. The approved RPTKA will then double up as an IMTA. In other words, the requirement for a separate IMTA has been abolished.

This change is particularly significant given that the requirement to obtain a specific license before hiring an expatriate has long been deeply entrenched in Indonesian law; indeed, the very first provision on the employment of expatriates in the Manpower Law[ii] (Article 42(1)), makes such a license imperative. At the practical level, the current requirements for securing an IMTA are set out in detail in Minister of Manpower Regulation No. 16 of 2015 on Procedures for the Employment of Expatriate Manpower (“Reg. 16/2015”).[iii]

It should be noted that the New Regulation does not expressly state that the IMTA requirement has been abolished. Nevertheless, this can clearly be inferred from the following:

1. Under Article 5(1) of the Old Regulation, a prospective employer of an expatriate was required to submit an RPTKA to the Minister of Manpower for approval. If approved, this RPTKA would then serve “as the basis for the issuance of an IMTA” (Article 5(3) Old Regulation). By contrast, Article 9 of the New Regulation expressly states that an approved RPTKA will simultaneously constitute the license for the employment of the expatriate (izin untuk mempekerjakan tenaga kerja asing / IMTA).
2. The existing IMTA procedures at the Ministry of Manpower are set out in ministerial and subordinate regulations that were issued pursuant to the Old Regulation. These are all lower in the legal hierarchy than the New Regulation, which is a presidential regulation. Consequently, In accordance with the legal maxim, lex superior derogat legi inferiori, the New Regulation serves to automatically render them invalid. This view is further reinforced by the customary provision contained in Article 38(b) to the effect that all of the regulations that have been issued under the Old Regulation “... shall remain in effect provided that they do not conflict with [the provisions of the Regulation].”

Essentially, what has happened is that the previous IMTA requirement has been replaced by a notification process, Under Article 7(2) of the New Regulation, an RPTKA should provide the following information:

1. Reason it is considered necessary to hire expatriate;
2. Position and/or office of the expatriate within the organization;
3. Duration of expatriate’s employment; and
4. Information on designation of Indonesian employee as expatriate’s “shadow” (for knowledge transfer purposes).

In addition, Article 14 requires the employer to report the following information on the expatriate to the Minister of Manpower:

1. Expatriate’s name, sex, and place and date of birth;
2. Expatriate’s nationality, and number, date of expiry and place of issuance of passport;
3. Position to be held and duration of employment;
4. Declaration of Sponsorship of expatriate by employer; and
5. Educational certificate and information on expatriate’s employment history, or competency certificate, in accordance with job requirements.

Besides the above documentary requirements, the employer must also provide the minister with its constitutive documents, relevant licenses/permits, organizational flowchart, and undertakings related to transfer of knowledge.

Under Article 8 of the New Regulation, an RPTKA must be approved within not more than two days of the date of receipt of the application and all the necessary documents.

For the sake of legal clarity and certainty, it is to be hoped that the Minister of Manpower will expeditiously issue a new regulation to replace Reg. No. 16/2015, or at the very least amend Reg. 16/2015 so as to reflect the changes brought about by the New Regulation.

2. Expansion of Categories of Employer Permitted to Hire Expatriates

There has been quite a considerable amount of confusion over precisely which types of employer may hire expatriates. This confusion has arisen as a result of conflicting provisions as between the Old Regulation and Reg. 16/2015. In the case of the private sector, Article 3 of the Old Regulation provided that an expat could be employed by a limited liability company or a foundation, the representative office of a foreign undertaking, a news agency, a foreign-domiciled undertaking that conducts business in Indonesia, an event organizer, a foreign commercial undertaking that is registered with the authorities, or a legal entity established in accordance with Indonesian law (badan hukum yang didirikan berdasarkan hukum Indonesia). Strangely, Article 4(1)g of Reg. 16/2015 greatly restricts this last category by stipulating that only a “legal entity established in accordance with Indonesian law that is a limited liability company or foundation” may hire expatriates. Further, Article 4(2) of Reg. 16/2015 expressly prohibits a civil partnership (persekutuan perdata), unlimited liability partnership (firma), limited liability partnership (commanditaire vennootschap / CV), cooperative and a number of other types of entity from employing expatriates, save in circumstances permitted by statute law (undang-undang). It has to be said that the imposition of these additional restrictions would appear to not only be in direct conflict with Article 3 of the Old Regulation, but to also conflict with the legal principle that a subordinate regulation should not impose additional burdens or restrictions over and above those that are contained in its head or mandating regulation.

The additional restrictions on the employment of expatriates that are imposed by Reg. 16/2015 now appear to have been negated by Article 3(g) of the New Regulation, which contains a new, catch-all category of employer that is eligible to hire expatriate manpower, namely, a “business undertaking as long as it is not prohibited by statute law” (badan usaha sepanjang tidak dilarang undang-undang).

As in the case of the IMTA rules discussed in section 1 above, this new provision will require changes to Reg. No. 16/2015. In this regard, it is to be hoped that the specific insertion of the rider “as long as it is not prohibited by statute law” immediately after “business undertaking” will serve to discourage the Ministry of Manpower from imposing further restrictions, such as those additional restrictions established by Article 4(1)g of Reg. 16/2015.

In reality, the restrictions under Reg. 16/2015 caused considerable difficulties for those entities that found themselves on the wrong side of them. Many CVs and other types of partnership in Indonesia have achieved considerable scale and could benefit from expatriate input, if allowed to do so. In addition, professional partnerships (such as law firms, accounting firms, architecture practices, and medical partnerships) have been denied the opportunity to hire expatriates in support roles, despite the widely recognized need for foreign expertise.

3. Concurrent Employment

Article 6 of the New Regulation allows expatriates in particular sectors (sektor tertentu) to concurrently work for more than one employer. Previously, only a director/commissioner could serve with more than one company. Presumably, this new provision reflects a greater awareness of the need for flexibility in sectors suffering from shortages of skilled labor, in line with Article 2(2) of the New Regulation.

4. Period of Validity of RPTKA (Expatriate Employment License)

As we mentioned in section 1 above, the approval of an RPTKA doubles up as the granting of an expatriate employment license (replacing the previous IMTA). Under the Old Regulation, an IMTA could be issued for a period of up to one year, after which it could be renewed for a further maximum period of one year, save in the case of a company director or commissioner, in which case it could be extended for a maximum period of two years.[iv] By contrast, Article 11 of the New Regulation provides that an approved RPTKA shall be valid for as long as the employer plans to employ the expat. Based on a literal reading of this article, there would seem to be no time limit on the potential period of validity of an RPTKA, in theory at least. Further, a literal reading of Article 11(2)e would appear to suggest that an RPTKA’s period of validity may be amended, which should include the possibility of its further extension. However, this will depend on how the Ministry of Manpower interprets the New Regulation.

In this regard, it also needs to be remembered that an expatriate may only be employed on the basis of a fixed-term contract under Article 42 of the Manpower Law, meaning that he/she cannot enjoy permanent employee status, that is, uninterrupted employment with the same employer on an open-ended basis.

5. Centralization of Authority in Minister of Manpower

Under the Old Regulation, provincial governments in certain circumstances were given a role to play in the extension or renewal processes for RPTKA and IMTA (see Article 7(3) and Article 9(4) Old Regulation). By contrast, the New Regulation affords no such role to provincial governments, although the Minister of Manpower or an authorized official is required to forward data on expatriate employees to the relevant provincial, county, or municipal manpower agencies within whose jurisdictions the expatriates are employed. Thus, the entire expatriate manpower licensing process from start to finish has now been centralized in the Ministry of Manpower, which should help avoid confusion and overlapping going ahead, provided, of course, that this change is reflected in the implementing regulations to be subsequently issued by the minister.

ABNR Commentary

When President Jokowi assumed office, he pledged that his administration would embark on a concerted economic reform program, including reducing the regulatory and licensing burdens on business. After focusing on the macro aspects for the first couple of years of his administration, beneficial changes are now beginning to be seen at the nuts-and-bolts level, as exemplified by the Regulation, which eliminates an entire layer of burdensome bureaucracy (the requirement to obtain a stand-alone IMTA) from the expatriate employment licensing process. While there will always be those in the business community who would like to see the Government go further, this is certainly a welcome first step. The reality is that in order to compete in a globalized economy, and particularly against nations such as Vietnam, Cambodia and the Philippines that occupy a similar economic space as Indonesia, it is frequently necessary to learn how things can be done better from those with experience, such as expatriates who possess the skills and knowhow that Indonesia needs.

As regards the implementation of the New Regulation, a number of existing regulations at the Minister of Manpower level will clearly need to be amended or replaced, as we have mentioned earlier. It is to be hoped that in doing so, the minister will remain faithful to the New Regulation’s purport and resist the temptation to impose additional restrictions on the employment of expatriates, besides those set out in the New Regulation. (By Indra Setiawanisetiawan@abnrlaw.com &Teuku Ridzky Firmansyah Amintamin@abnrlaw.com)

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[i] Presidential Regulation No. 20 of 2018 on the Use of Foreign Manpower / Peraturan Presiden Republik Indonesia Nomor 20 Tahun 2018 Tentang Penggunaan Tenaga Kerja Asing

[ii] Law No. 13 of 2003 on Manpower / Undang-undang Nomor 13 Tahun 2003 Tentang Ketenagakerjaan.

[iii] Peraturan Menteri Ketenagakerjaan Nomor 16 Tahun 2015 Tentang Tata Cara Penggunaan Tenaga Kerja Asing.

[iv] Minister of Manpower Regulation No. 35/2015 provides that an IMTA is no longer required for directors/commissioners who are domiciled abroad.