Indonesia is reining in how widely companies can use outsourcing and fixed-term contracts, reversing some recent pro-business flexibility. Parliament passed the bill on Tuesday following several weeks of low-key labor demonstrations. The exact legal text has not yet been released.
After years of loosening hiring and firing rules to entice investment, this move pulls the pendulum back toward worker safeguards. It unwinds parts of the broad Job Creation Law that former President Joko Widodo put in place in 2020 and that was revised in 2023.
Labor rules change the cost base of every company operating in a country. Market Briefs covers that policy free every morning.
According to Manpower Minister Yassierli, the legislation removes a provision that, in certain cases, allowed severance to be calculated at 50 percent of the standard amount. It will also raise the hurdle for dismissing employees on efficiency grounds. The measure adds a severance reserve so funds are on hand when layoffs occur.
In October 2024, the Constitutional Court instructed lawmakers to carve employment rules out of the 2023 package and enact them as a separate labor statute within a two-year window. The Indonesian Employers Association has previously cautioned that the new approach could lift costs and chill investment, and it did not immediately provide comment.
Tighter contract rules reach wages, hiring, and foreign investment alike. Get the free Market Briefs daily newsletter and follow the impact.
