Indonesia's New Employment Law Sets Up 2027 Wage Decisions and Wider Worker Protections

Unions receive a law that reaches beyond wages

Indonesia's new Employment Protection Law contains 23 chapters and 313 articles covering wages, contracts, leave, dismissal and severance, with trade union leaders saying it incorporates most of their demands. The immediate test is how those provisions will shape minimum wages for 2027, as employers prepare budgets and regional wage councils await clear instructions.

Andi Gani Nena Wea, president of the Confederation of All Indonesian Trade Unions (KSPSI), said the Indonesian Workers' Struggle Grand Coalition (KBPBI) received an official copy on November 6, 2026. He assessed about 90% of its substance as meeting workers' expectations. KSPSI vice president R. Abdullah said the legislation also accommodates rules governing wages in 2027 and urged unions to maintain order and productivity.

President Prabowo Subianto has signed the legislation. It is identified as Law No. 27 of 2026, with parliamentary approval on October 6 and formal promulgation on October 28. Some statements about wage planning described October 6 as its effective date. Parliamentary approval and promulgation are different legal steps, making the October 28 promulgation date central to understanding the transition.

For workers, the practical changes extend from keeping annual leave separate from government designated collective leave to requiring many employers to reserve money for severance. For businesses, the challenge is turning a large new legal framework into decisions about payroll, staffing and contracts. Several provisions still require further regulations, while the final regional wage amounts for 2027 have not been announced in the accounts describing the transition.

Why Indonesia created a separate employment law

The legislation follows Constitutional Court Decision No. 168/PUU-XXI/2023, issued in 2024, which called for a separate employment law outside the Job Creation Law framework. Manpower Minister Yassierli said the new legislation brings together employment standards previously spread across different regulations and seeks to provide greater legal certainty.

The German Indonesian Chamber of Industry and Commerce, AHK Indonesia, describes contracts, wages, layoffs and severance as central elements of the reform in its employment law overview. It also identifies stronger labor inspection, tighter rules for contracts lasting a fixed period and improved severance protection among the changes.

Article 311 repeals Law No. 13 of 2003 on Manpower and specified employment provisions of Law No. 6 of 2023, which enacted the Job Creation framework. Other parts of the Job Creation Law remain in place.

Article 310 provides a bridge between the old and new systems: existing implementing regulations continue to apply where they are consistent with the new employment law. Implementing regulations are the more detailed rules that explain how a law operates in practice, including procedures, calculations and administrative responsibilities.

Which rules will determine wages in 2027?

The Ministry of Manpower has said the 2027 minimum wage calculation will refer to Government Regulation No. 49 of 2025. That approach uses inflation, regional economic growth and an alpha coefficient ranging from 0.5 to 0.9. Inflation measures price increases, while the coefficient determines how much weight economic growth receives in the calculation.

An alpha of 0.5 to 0.9 is therefore a calculation input, rather than a promised wage increase of 50% to 90%. Regional economic data and the applicable calculation determine the resulting adjustment.

Roy Jinto, another KSPSI vice president, said regional governments and wage councils were waiting for regulatory clarity, with meetings largely confined to coordination. He argued that the new law's transitional provisions contain no clause delaying implementation and questioned continued reliance on the existing wage regulation.

Indah Anggoro Putri, the ministry's director general of industrial relations and labor social security, gave a different account of the transition. Speaking after parliamentary approval on October 6, she said the new law's wage formula would become effective one year after enactment, while identifying Regulation No. 49 of 2025 as the basis for the 2027 calculation.

The disagreement concerns the legal route to the calculation, alongside the size of any increase. Article 310's continuation of compatible older regulations makes the relationship between the new law and the existing wage regulation especially consequential. Workers and companies need an authoritative explanation of which provisions apply during the transition.

A tight calendar for regional decisions

Indonesia sets minimum wages through regional decisions rather than one nationwide amount. Provincial minimum wages are commonly abbreviated UMP, while regency and city minimum wages are known as UMK. Sectoral minimum wages address particular industries.

Previous schedules typically placed provincial wage decisions on November 21 and regency or city decisions on November 30. Those dates provide a reference for the planning pressure facing employers and wage councils; a confirmed timetable for the 2027 process was still being sought.

The main dates show how closely the legal transition and wage preparations overlap:

• 2024: The Constitutional Court calls for employment legislation separate from the Job Creation Law framework.
• October 6, 2026: The House of Representatives approves the Employment Protection Bill.
• October 28, 2026: Law No. 27 of 2026 is formally promulgated.
• November 6, 2026: KBPBI receives an official copy, according to Andi Gani.
• November 21 and November 30: The customary reference dates for provincial and regency or city wage decisions, respectively.

Preparations described by the ministry begin with a request to Statistics Indonesia, known as BPS, for economic and employment data, followed by a response from the statistics agency. Those figures supply the inputs for wage calculations before regional authorities make their decisions.

Subchan Gatot, KADIN's vice chairman for labor affairs, said employers had been waiting for the official document and regulatory guidance before finalizing staffing and financial allocations for 2027. The union coalition's receipt of a copy on November 6 adds a later development to that earlier period of uncertainty.

Leave protections affect everyday working life

Article 118 guarantees at least 12 working days of annual leave after 12 continuous months of employment. The arrangements for taking that leave are to be set through employment contracts, company regulations or collective bargaining agreements.

Article 118(6) also says that when a company implements collective leave designated by the central government, it must preserve the worker's annual leave entitlement. In practical terms, collective leave and the worker's minimum annual leave allocation are treated separately.

The distinction matters to employees who want to choose time away for family needs, travel or rest. A company applying government designated collective leave must plan for that absence while retaining the worker's annual entitlement under the law.

Articles 121 and 123 address maternity leave and pay. Their provisions include at least three months of maternity leave and the possibility of an extension of up to three more months under the relevant conditions. Employers will need to incorporate the applicable leave and wage provisions into workplace arrangements.

A reserve fund for severance payments

Article 253 requires employers to provide a severance reserve fund as a source of payments owed to workers after termination. The fund is to be managed by a government institution, with micro and small enterprises exempt from the requirement.

Severance is money owed when an employment relationship ends under qualifying circumstances. Requiring a reserve seeks to make money available for those obligations when dismissal occurs, rather than leaving the employer to find the full amount at that moment.

Employers that fail to provide the reserve face administrative sanctions. Article 253 lists written warnings, restrictions on business activities, temporary suspension of some or all activities, and revocation of business permits. A government regulation is to set out further procedures for imposing those sanctions.

AHK Indonesia also identifies higher severance benefits for eligible workers among the changes described during the legislative process. The reserve requirement adds a financing obligation alongside the underlying obligation to pay workers what they are owed.

Outsourcing and platform work get specific rules

Article 95 limits outsourcing to supporting services or work outside the direct production process. The listed examples include cleaning, catering for workers, security and worker transport. Outsourcing means a company contracts another business to carry out part of its work, rather than employing everyone involved directly.

Article 97 sets a further condition for state owned enterprises: their outsourcing partners must be subsidiaries of the enterprise and legally incorporated as limited liability companies. The outsourced work must also remain within supporting services or activities outside the company's main operations.

Article 102 addresses certain work relationships based on partnership agreements or other agreements, explicitly including work through digital platforms. It provides for decent income, occupational safety and health protection, social security and other rights agreed between the parties.

Further legislation is planned for work relationships based on partnership agreements, while a ministerial regulation is to govern those based on other agreements. For people earning through digital platforms, the practical reach of the protections will depend partly on those next legal steps.

The law also tightens rules for employment contracts lasting a fixed period. Together, these provisions reach several ways companies organize labor: direct employment, temporary contracts, contracted services and platform partnerships. Each arrangement brings different responsibilities that employers will need to review.

Dismissal restrictions protect family and union rights

Article 230 prohibits dismissal for specified reasons, including marriage, pregnancy, childbirth, miscarriage and breastfeeding. It also protects workers from dismissal because they are related to, or married to, another employee in the company.

Union activity receives protection as well. Employers may not dismiss workers for establishing or joining a union, or for reporting suspected criminal conduct by an employer to the authorities. The article also lists religion, political affiliation, ethnicity, skin color, sex, physical condition and marital status among prohibited grounds.

Protections extend to specified circumstances involving permanent disability, illness following a workplace accident and occupational illness where a doctor cannot yet determine the recovery period. Dismissals based on prohibited grounds are declared legally void under the article.

KSPSI also announced a separate internal leadership decision. Abdullah said the organization had removed a person identified only as LSP as chair of its advisory council following developments in a police investigation into suspected wiretapping and illegal access. He said there was no plan yet to appoint a replacement. The allegations remain under investigation.

Why implementation matters for jobs and incomes

KADIN has called for clear implementing regulations and sufficient preparation, with attention to companies' capacity and competitiveness. Employers must account for wages, severance, outsourcing arrangements and other obligations when deciding production targets, investment and staffing.

Josua Pardede, chief economist at Bank Permata, said uncertainty could lead businesses to postpone recruitment or expansion, or rely more heavily on temporary workers. He also described how wage increases can support household spending.

"A measured increase in the minimum wage can also strengthen workers' purchasing power and support domestic consumption," said Josua.

Josua cited a May 2026 unemployment rate of 4.65%, average monthly wages of about Rp3.39 million and nearly six in ten workers in informal employment. That informal share is roughly 60%, leaving only about 40% in formal work. The figures place the debate about contracts and social protection alongside the debate about wage levels.

Informal workers commonly face less predictable income and limited social protection. Provisions reaching beyond conventional formal employment therefore matter to a large part of Indonesia's workforce, although the detailed coverage depends on the legal arrangements for each type of work.

Andi Gani's assessment signals strong support from his union leadership, while other labor groups have raised concerns about wage provisions, informal workers and public scrutiny of the final legislative stages. The next practical tasks are publishing and explaining the applicable rules, completing regional wage decisions and translating the new protections into workplace procedures.

Key Points

• Law No. 27 of 2026 contains 23 chapters and 313 articles covering wages, contracts, leave, dismissal and severance.
• Parliament approved the bill on October 6, and formal promulgation followed on October 28.
• KSPSI leaders say most union demands were accommodated; KBPBI received an official copy on November 6.
• The ministry identifies Regulation No. 49 of 2025 as the basis for 2027 minimum wage calculations, while unions seek clarity on the transition.
• Workers receive at least 12 working days of annual leave after 12 continuous months, separate from government designated collective leave.
• The law requires severance reserves from covered employers, limits outsourcing and addresses platform work.
• Regional wage decisions and further implementing regulations will determine how major provisions operate in practice.