Understanding PKWT Compensation: Rights, Formulas, and Legal Deadlines

Legal Basis:

1. Indonesian Law Number 6 Year 2023

2. Indonesian Law Number 13 Year 2003

3. Indonesian Government Regulation Number 35 Year 2021

In Indonesian labor law, the Omnibus Law (Indonesian Law 6/2023) and its derivative, Government Regulation No. 35 of 2021 (PP 35/2021), have introduced a significant shift regarding fixed-term employment contracts, known as PKWT. One of the most crucial changes is the mandatory PKWT Compensation Pay. Here is a comprehensive breakdown for legal professionals and corporate stakeholders.

Foundation

Under PP 35/2021, employers are legally obligated to provide compensation pay to PKWT employees upon the expiration of their contract. This applies to employees who have completed at least one month of continuous service.

Deadline

Timing is critical for compliance. Compensation must be paid:

• Upon the completion of the contract duration.

• Upon the completion of a specific project (if the contract is based on output).

• Crucially: Every time a contract is extended, the compensation for the previous period must be settled before the extension begins.

The Calculation Formula

The law provides a clear, proportional formula to ensure fairness:

(Period of Service / 12) x 1 Month of Salary

Common Misconceptions

• Resignation: Does a worker still get compensation if they resign before the contract ends? Yes. Under the current regulation, compensation is still owed for the months actually served.

• Probation: PKWT contracts cannot include a probation period. Any such clause is considered null and void by law).

• Foreign Workers (TKA): It is important to note that compensation pay does not apply to foreign workers employed under PKWT.

Risk of Non-Compliance

Failing to pay PKWT compensation is not just a financial oversight; it is an administrative violation. Persistent non-compliance can lead to sanctions, ranging from written warnings to the restriction of business activities.

Lex Sector Prespective

At Lex Sector, we view PKWT compensation not merely as an additional cost, but as a strategic compliance pillar. For corporations, ensuring precise calculations and timely payments is key to maintaining healthy industrial relations and mitigating the risk of disputes at the Industrial Relations Court (PHI).