On 6 October 2026, the House of Representatives (“DPR”) approved the Employment Protection Bill (Undang-Undang Pelindungan Ketenagakerjaan) (the “Draft Bill”). It is intended to be a new, stand-alone statute. Once promulgated, it will replace Law No. 13 of 2003 (“Law 13/2003”) and the manpower chapter of the Job Creation Law (currently Law No. 6 of 2023, which enacted Government Regulation in Lieu of Law “Perppu” No. 2 of 2022). The Constitutional Court required this in Decision No. 168/PUU-XXI/2023 (“MK Decision 168”), which set a two-year deadline expiring at the end of October 2026.

The final text is not yet publicly available, but the direction for employers is already clear. A good part of the flexibility introduced since 2020 is being wound back. Termination becomes slower and more expensive, fixed-term and outsourcing arrangements become tighter, severance returns to the full statutory scale, and more employment practices carry criminal penalties.

Four things to take away:

• Termination is the main event. Under the Draft Bill, if negotiations fail, an employer can terminate only after a final court ruling, and a termination made without agreement or ruling is void.
• The cost base is set to change. The reduced severance multipliers under Government Regulation No. 35 of 2021 (“GR 35/2021”) would be removed, which also proposes an employer-funded severance programme.
• Contract models narrow. Fixed-term contracts are reported to be capped at four years under the draft (the current operative ceiling is five years under Article 8(1) of GR 35/2021 as affirmed by MK Decision 168, which increased from the three-year limit under Article 56(3) of Law 13/2003), and outsourcing is confined to supporting activities, with five named in the draft.
• Nothing is final yet. The law has not been promulgated, a one-year transition period has been reported, and much of the detail will sit in implementing regulations that have yet to be published.

We would treat the coming year as a window for preparation, not a grace period.

Where things stand

The DPR approved the Draft Bill in a plenary session on 6 October 2026, about six weeks after the bill was taken up as a DPR initiative on 27 August. The final law is reported to contain 23 chapters and 313 articles.

It is not yet in force. Promulgation by the President and publication in the State Gazette are still pending, so there is no law number and no official text yet. Under Article 20(5) of the Constitution, a bill that the President has not signed within 30 days of joint approval becomes law automatically and must be promulgated. That puts the outer limit at around 5 November 2026.

On timing, the Ministry of Manpower (“MoM”) has said there will be a one-year transition period from promulgation, with the new provisions applying from 2027 and the new minimum wage formula expected to apply to the 2028 minimum wage. Those are officials' statements to the press, not text we can point to. By contrast, the 27 August version of the Draft Bill (the “August Draft”) would have taken effect on the day of promulgation, with no general transition period. That difference suggests the text changed before final approval.

A caveat on our sources. This update rests on the August Draft (comprising 264 articles) and publicly available information on the final law, as we have not had access to the 313-article text of the Draft Bill. Provisions described below are those of the August Draft, so read them as a strong indication of direction, not final wording. We will update this note once the official text is published.

What is changing for employers

The points below come from the August Draft, checked against press reports of the final law where those exist. We flag where reports differ.

1. Termination (Pemutusan Hubungan Kerja or “PHK”)

The draft treats termination as a last resort and builds a process around that idea. Employers must first show "all efforts" to avoid it, working through a ladder of measures that runs from cutting overtime and shifts and not renewing fixed-term contracts to temporary furloughs and voluntary early retirement. If termination cannot be avoided, bipartite negotiations with the labour union (or directly with the employee, if the employee is not a union member or no labour union exists) must be conducted in good faith and completed within 30 working days. This step is waived only in four circumstances: resignation, expiry of a fixed-term contract, retirement in accordance with the employment agreement or company regulations, and the employee’s death.

If the negotiation fails, termination can go ahead only after a final and binding ruling from the Industrial Relations Court (Pengadilan Hubungan Industrial or “PHI”). A termination without agreement or ruling is void by law, and wages and other entitlements keep running until the dispute is finally resolved. "Efficiency" no longer appears among the listed grounds. Much of this codifies MK Decision 168, and it is the change most likely to alter how restructurings are run.

2. Severance

The August Draft would restore the statutory severance scale. Severance pay (pesangon) ranges from one month’s wages for less than one year of service to nine months’ wages for eight years or more, while long-service pay (“UPMK”) ranges from two to ten months’ wages. The draft treats pesangon as a minimum, consistent with the MK’s ruling. GR 35/2021 currently provides reduced pesangon multiplier for certain termination grounds; the August Draft restores the original levels under Law 13/2003. The MoM has also publicly confirmed that the 0.5× multiplier would no longer apply under the new law. The table below summarises the main termination grounds affected. This change applies only to pesangon, not to UPMK.

To put a number on it, for an employee with eight years of service earning Rp10 million per month, pesangon for termination due to closure resulting from losses would amount to Rp90 million, compared with Rp45 million under the former 0.5× multiplier. This excludes UPMK and other entitlements.

The August Draft also introduces an employer-funded severance programme (jaminan pesangon) administered by BPJS Ketenagakerjaan, with contribution rates to be determined by Government Regulation. The programme would not replace the employer’s payment obligation: the employer remains liable for any shortfall, while any surplus would be returned to the employer.

3. Fixed-term contracts and probation

Under the Draft Bill, a fixed-term contract (PKWT) would run for two years and could be extended twice, by up to one year each time, so four years at most. The currently operative ceiling is five years, including extensions, under Article 8(1) of GR/2021, as interpreted by MK Decision 168, which revised the original three-year limit under Article 56(3) of Law 13/2003. The four-year limit is not yet in force. Written notice of an extension is due at least seven days before expiry, and the contract must be registered within three working days of signing.

A fixed-term contract that is not in writing, or that covers permanent work or work outside the permitted categories, becomes permanent by operation of law. Probation for permanent employees is limited to three months, must be paid at no less than 75% of the position's wage (and never below the minimum wage), must come with social security coverage, and ends with mandatory permanent appointment. Reports say the treatment of contracts already running has not been settled.

4. Outsourcing

The August Draft limits outsourcing to supporting services or work not directly connected with the production process and names five supporting activities: (i) cleaning, (ii) worker catering, (iii) security, (iv) mining and oil and gas support, and (v) worker transport. Whether those five are the whole list is open to argument. The draft's wording ("includes", together with the separate reference to work not directly connected with production) suggests they are examples, while press reports describe a closed list, and one describes four categories with a special rule for mining. If the list is closed, the five would be fewer than the six categories in the currently binding MoM Regulation No. 7 of 2026 (Permenaker 7/2026), which governs all outsourcing arrangements until the new law takes effect, and the point needs checking against the final text. Using outsourced workers on core production would shift the employment relationship to the user company by operation of law. Where the job continues after a change of vendor, service years would carry over for purposes of the fixed-term cap.

5. Criminal exposure

Many obligations that used to sit only in regulations would be backed by criminal penalties under the Draft Bill. These provisions must also be read alongside the new Criminal Code ( Law No. 1 of 2023, in force from 2 January 2026, as amended by Law No. 1 of 2026), which under Articles 45–50 extends criminal attribution to corporations and those who direct them, and under Articles 118–120 provides for corporate fines and additional measures. In the draft, the specific employment offences include withholding diplomas or personal documents as security (up to four years' imprisonment and/or a fine), paying less than 75% of wages during probation or not providing social security (four years), employing children (ten years, up from four), involving children in the worst forms of labour, including through the supply chain (fifteen years), obstructing union membership (five years), and failing to pay overtime or give rest and leave (up to one year, where the old law provided for fines only). Unpaid severance ceases to be a stand-alone offence, though the duty to pay remains.

Also on the radar:

• The August Draft proposes a new minimum wage formula, based on a survey of decent living needs run by the national statistics agency (BPS) together with the wage councils. The current formula is expected to remain in place for 2027.

• Provincial sectoral minimum wages are reported under the Draft Bill to become mandatory and to sit at least 5% above the regional minimum. Under the currently operative Government Regulation No. 49 of 2025 (the second amendment to Government Regulation No. 36 of 2021 on Wages, in force from 17 December 2025), Articles 35C paragraph (1)(a) and 35H paragraph (1)(a) require only that the sectoral rate be higher than the applicable minimum wage; no 5% premium is prescribed by current law. We have not been able to check the 5% figure against the final text, so treat it as unconfirmed until the official text is published.

Employers must also prepare a wage structure and scale, negotiate it with worker representatives or the union, and attach it to the company regulation or collective agreement. Skipping this can lead to administrative sanctions, up to licence revocation.

• A bipartite cooperation forum is reported under the Draft Bill to become mandatory from 10 employees (the current threshold under Article 106 of Law 13/2003 is 50 or more workers), and replacing or retaliating against lawful strikers would become an offence.

• The Draft also proposed statutory protections for platform workers, including social security, reasonable earnings, transparency over algorithms and protection against unilateral account deactivation, and the right to unionise. The August Draft still speaks of a partnership, not employment. This will create a dedicated law within two years.

Where we see the risk

The headline changes are manageable on their own. The harder questions sit in the gaps between them.

The process becomes the risk, not just the cost. A termination that skips a step is void, not merely defective, and wages run in the meantime. PHI cases often take many months or longer, so one procedural slip can leave a long and expensive tail. HR teams that have relied on shortcuts will need to change how they work.

Restructurings and deals. With "efficiency" gone as a stand-alone ground, downsizing, mergers and take-overs will lean heavily on consensual exits. The draft's treatment of mergers and similar events does not line up neatly: the termination ground and its severance provision use different wording. Slips like this are often corrected in final drafting, but those that survive tend to become test cases.

The transition gap. The draft leaves existing implementing regulations in place so long as they are consistent with the new law. That is a workable test on paper and an uncertain one in practice. GR 35/2021, for example, may conflict with the new statute on severance multipliers and contract duration. Nothing in the draft says what happens to fixed-term contracts, outsourcing arrangements or collective agreements already in place. Until the new regulations arrive, expect labour offices, courts and unions to read the gap differently.

Costs that cannot yet be priced. Contribution rates for the severance programme, the new minimum wage formula for 2028, and the 15% housing and medical component of severance, which the draft ties to "those who qualify", are all still open.

Personal exposure. Several offences are aimed at "any person" rather than the company alone, and under Articles 45–50 of the new Criminal Code, liability can reach both the company and those who direct, control or act for it. Practices that many businesses treat as routine, such as keeping original diplomas, discounting probation pay or running informal overtime, would fall squarely within the criminal provisions. This is a governance topic, not just an HR one.

Group structures. Secondments and intra-group labour supply outside the permitted categories carry the same reclassification risk.

What you can do now

The core architecture, meaning the termination process, the severance scale and the limits on contract types, is unlikely to change between now and promulgation. Preparing for it does not need to wait for the regulations.

1. Map your exposure. Break down headcount by contract type, and list fixed-term contracts that would exceed four years in total, employees on probation, and every function supplied by an outsourcing vendor. Add any restructuring, closure or sale you expect in the next 12 to 24 months.

2. Re-cost your exit scenarios. Model severance on the full scale, with no 0.5× reductions, and allow for contributions to the severance programme and for the 2028 minimum wage under a new formula.

3. Do not use the transition period to rush through a restructuring. MK Decision 168 already shapes how courts read terminations. If a restructuring is coming, plan for agreed exits and document the alternatives you considered.

4. Tighten the termination file. Keep warning letters, bipartite minutes and records of offers made as a matter of routine, and brief line managers on the sequence now, because process errors are where cases are lost.

5. Clean up contracts and policies. Stop holding original diplomas or personal documents. Check the probation pay (75% of the position's wage, social security from day one) and review the fixed-term renewal calendar. Make sure there is a written internal channel for reporting violence and bullying. On personal documents, note that copying, scanning, or storing information from an employee's diploma, identity card, or passport constitutes processing of personal data under Law No. 27 of 2022 on Personal Data Protection (“UU PDP”). Document a lawful basis under Article 20 UU PDP for each copy or scan you retain, give employees a privacy notice, restrict access by role, and destroy copies once the retention period ends. Also start preparing for the records-of-processing and written retention-policy requirements under Government Regulation No. 33 of 2026 on the implementation of the UU PDP, which takes effect on 16 January 2027.

6. Audit outsourcing and group arrangements. Test each vendor-supplied function against the five listed activities and the rule on work connected with production, check vendor licensing, and add change-in-law and termination clauses to vendor, secondment and intra-group contracts.

7. Brief the board and pick a point person. With criminal provisions proposed, this belongs with directors, not only HR. The regulations will carry the operating details, so decide now who follows them and who speaks for you through the business associations.

What to expect next

A realistic sequence, subject to the final text:

1. Promulgation, by about 5 November 2026 at the latest. The law number and official text should follow. We will then compare the 313-article text with the August Draft and update this note.

2. A transition period. Officials have referred to one year from promulgation, with application from 2027. The exact start date will depend on the promulgation date and the final transitional provisions.

3. A wave of implementing regulations. The draft calls for them within one year of promulgation, without any consequence if that deadline slips. The main ones to watch are the severance programme, the minimum wage formula, fixed-term and outsourcing details, termination procedures, and the treatment of existing contracts.

4. Possible constitutional review. Once promulgated, the law can be challenged before the Constitutional Court. We would not plan around that outcome, but we would not rule it out either. Inspectors and unions may test the new rules early, particularly on contracts, outsourcing and termination procedures.

In short, the details will come from the regulations, but the shape is set. Companies that use the next year to adjust their contract models and termination practices will have far less to do when the rules take effect.

Basis of this update

This update is general information and not legal advice. It is based on the August Draft Bill and on publicly available information, and it will be revisited when the official text is published. If you would like us to map your workforce against the new rules, review a planned restructuring or look at your outsourcing set-up, please reach out to us at mail@bagusenrico.com.