Will Indonesia’s new labor law deliver on its promises?

The new Labor Protection Law, approved by the House of Representatives on Oct. 6, promises stronger severance entitlements, tighter dismissal rules and greater employment security. But stronger legal protections mean little if employers circumvent restrictions on temporary employment or fail to pay compensation. The real test of the new law lies not in its promises but in whether its provisions translate into effective protection for workers when their livelihoods are most vulnerable.

The legislation moved from a House initiative to final approval in less than six weeks after formal deliberations began on Sept. 14. This compressed timetable enabled lawmakers to meet the Constitutional Court’s deadline but left little time for public scrutiny of its 313 articles. Consultations were held, but assessing their significance requires understanding how competing proposals were considered and incorporated.

Transparency over the agreed provisions is therefore essential. Pending access to the final text, government and union explanations provide a basis for assessing the reform’s direction, although its precise obligations and safeguards still require verification.

Manpower Minister Yassierli outlined 13 areas of reform covering employment protection, workforce development and enforcement. These include paid maternity and miscarriage leave, safeguards for workers with disabilities, a prohibition on withholding job applicants’ diplomas and protections for job seekers, trainees and apprentices. Other measures address flexible work arrangements, outsourcing at state-owned enterprises, competency certification, employment data and wage-setting institutions. Additional labor inspectors and a Labor Inspection Committee are intended to strengthen enforcement.

Across these reforms, two tests stand out: whether workers receive compensation when their employment ends and whether restrictions on temporary employment arrangements improve job security.

Severance protection brings the first test into focus. According to government explanations, the new law has removed a provision allowing severance payments to be reduced to half the prescribed amount. This strengthens workers’ financial entitlements, but a larger entitlement provides limited relief if payment remains uncertain.

The proposed severance reserve could address that gap by requiring funds to be set aside before dismissal occurs. Advance funding would reduce workers’ dependence on an employer’s financial condition at a time when its resources may already be depleted. It could also make employment costs more predictable for businesses by spreading funding obligations over time.

The reserve’s effectiveness, however, depends on its design. Contributions must reflect payment obligations, accumulated funds must be protected if an employer becomes insolvent, and workers need a clear mechanism for receiving timely payments. An accounting provision on a company’s balance sheet would not offer the same security as funds held separately and protected for workers.

Implementing regulations must establish how the reserve is funded, safeguarded and accessed, with consequences for employers that fail to contribute. They must also clarify how payments will be made when an employer disputes a dismissal or the amount owed. Otherwise, funds could be available while workers remain unable to access them.

Temporary employment presents a different challenge. Government and union explanations indicate that fixed-term contracts will be limited to four years and apprenticeships to six months. These limits could constrain prolonged temporary employment arrangements, but restricting the duration of individual contracts or placements does not necessarily change how employers fill permanent staffing needs.