BCW INDONESIA

Job Creation Déjà vu:

Job Creatio
A Closer Look on Indonesia’s
Government Regulation in Lieu of
Law on Job Creation
n Deja Vu:

On the last working day of 2022, Coordinating Minister for Economic Affairs Airlangga
Hartarto flanked by the Coordinating Minister for Political, Legal and Security Affairs
Mahfud MD and the Vice Minister of Law and Human Rights Edward Omar Sharif Hiariej,
announced that the government had just issued Government Regulation in Lieu of Law No.
2/2022 on Job Creation (Peraturan Pemerintah Pengganti Undang-Undang 2/2022 tentang
Cipta Kerja or Perppu CK).1

The looming shadows of recession, inflation, and stagflation as well as geopolitical conflict
became the government’s main justifications for the regulation, especially as the country
aims to return to a state budget deficit of under three percent (from previously six percent
during the COVID-19 Pandemic) and achieve an investment target of IDR 1.200 trillion.

The regulation was framed as the government’s response to the Constitutional Court’s
ruling less than two years ago that the Job Creation Omnibus Law was “conditionally
unconstitutional,”2 where if no procedural changes to the lawmaking process were made
by 2023, the law would automatically be declared unconstitutional and had to be revoked.
The Constitutional Court ruling seemed to validate the public criticism, marked by a series
of student and union demonstrations that had followed the law’s drafting process.

Impact & Substantial Highlights

The original Job Creation Omnibus Law released on 2020 aimed to make sweeping
changes throughout the bureaucracy, but most importantly, the new regulation signaled
the Government of Indonesia’s commitment to entice foreign investments. In the next six to
twelve months, various implementing regulations will be expedited to set the law into
motion, and some key sectoral changes introduced by the newer version of the Job
Creation Law have caught public attention.

Topic Amendments Public Response

Outsourcing The previous Omnibus Law had The Indonesian Workers
previously removed the clause Organization (OPSI) criticized that
related to outsourcing; however the government has free reign over
this was changed by the Perppu the types of jobs that can be
CK that has reincluded the outsourced – creating uncertainty
stipulation that companies are for workers and businesses. They
permitted to outsource certain believe that the Perppu CK should

1 https://setkab.go.id/pemerintah-terbitkan-perppu-cipta-kerja/
2 https://bisnis.tempo.co/read/1668656/18-organisasi-sipil-ungkap-pelanggaran-atas-putusan-mk-dalam-uji-formil-uu-cipta-kerja
 jobs. The government will issue a stipulate that only “supporting
government regulation that will functions” be outsourceable so that
define the types of jobs that can there are clear limitations to what
be outsourced. the government can allow in the
implementing regulations.3

Minimum The Perppu CK refined and Labour unions in Indonesia have

wage adjusted the minimum wage responded to the promulgation of
formula by factoring current Perppu CK.
economic growth, inflation and
related index. The emergency law
Head of the Indonesian Trade
stipulated that formulas for
Union Confederation (KSPI), Said
calculating the minimum wages
Iqbal commented that they are
will further be regulated through
against the Perppu as there is no
a government regulation.
100% assurance governors can
determine the UMK due to the
Governors are required to wording of its related clause.
determine the Provincial
Minimum Wage (UMP) and can Similar critic was also given due to
determine the District/City the Perppu CK’s wording on
Minimum Wage (UMK) if the “related index” that will be used to
results of the calculation of the determine UMP and UMKs. Iqbal
UMK are higher than the UMP. stated that the “related index” will
be determined by the government
Perppu CK obliges employers to and will be an unfair indicator when
adjust the wages of their calculating wages.4
workers/laborers who have
worked for more than one year or
more.
Employees’ Perppu CK continues to ensure KSPI commented that clauses
rights relating that companies and workers have under the Perppu CK are perceived
to rest and rest time. The issue of holidays to be worse than the Omnibus Law
reemployment will later be regulated based on on employees’ rights. Regarding
the agreement between the the right to rest, KSPI criticized that
company and workers or long leave period (one month) after
laborers. Indonesia as a member six years of work have the
of the International Labor possibility to not being paid.5
Organization (ILO) states that the
maximum working time for
workers or laborers is 40 hours a
week.

According to Perppu CK, workers

have at least one day off a week.
It is stated in the emergency law
that the working time will be
divided into two:

3 Pasal Outsourcing di Perppu Cipta Kerja Bikin Pengusaha dan Pekerja Bingung - Bisnis Liputan6.com
4 https://nasional.kontan.co.id/news/kspi-isi-perppu-cipta-kerja-tak-sesuai-harapan-buruh
5 Tolak Perpu Cipta Kerja, KSPSI Bakal Lakukan Aksi Sejuta Buruh Bulan Ini - Bisnis Tempo.co
 1. Seven hours a day
working time that
amounts to six workdays
in a week
2. Eight hours a day working
time that amounts to five
workdays in a week

And that every employer must

adhere to the stipulation.

Additionally, the Perppu CK

stipulates at least 12 days of leave
for employers that must be given
to workers and the law gave more
leeway for employers to provide
long leave period for workers,
instead of the previous
Manpower Law that stipulated
certain years of employment must
be fulfilled first before having the
rights for long leave.
Incentive for Through Perppu CK, the A member of the mining industry
the mining Government of Indonesia clarified that the 0% royalty only
sector officially exempts production fees applies to coal production for
of coal royalties of up to 0% for downstream projects, so it does
coal companies downstream not apply to the company’s entire
operations. coal production.

Royalties for coal mining As such, the clause may not be

companies holding Coal Mining enough to address the lack of
Business Work Agreements investment towards downstream
(PKP2B) or Special Mining coal production.6
Business Permits (IUPK) are 14%.
It is a continuation of the Mining Furthermore, a member of
Law whereby requesting for an parliament has criticized the move
extended PKP2B, a project that is as it will mean that the country
certain with value-add is would not be able to profit from the
required. windfall gain of coal’s current price
surge.7
Halal The Perppu CK will instate a new This change will most likely incite
body under the Ministry of protest from the MUI. As through
Religious Affairs named the Halal the promulgation of the Omnibus
Products Certification Committee Law previously have sparked
(KFPH) that will have the authority consistent protest by MUI since its
to determine the “halal”-ness of a authority is reduced by the Ministry
product for the issuance of halal of Religious Affairs on halal matters.
certification. Previously, the sole
institution responsible for the

6 https://www.cnbcindonesia.com/news/20230104190254-4-402871/blak-blakan-esdm-soal-pengusaha-batu-bara-dikasih-royalti-0
7 https://www.theiconomics.com/politics/anggota-komisi-vii-ini-kritik-royalti-0-hilirisasi-batu-bara-di-perppu-ciptaker/
 matter is the Indonesian Ulema The policy change was also
Council (MUI). criticized by academics where the
new institution will have its halal
Another new clause determined mechanism questioned on its
that a product’s halal certification validity. It will also be challenging
validity remain unchanged to ascertain a food products’ halal
should the product’s ingredients certification as food ingredients
remain the same. These can change frequently.9
amendments are done to
expedite process of halal
certifications, especially for SMEs,
and for Indonesia to complete all
its halal product certification by
2024.8

Public Response

The original Job Creation Omnibus Law faced rife criticism both procedurally and
substantially, mainly from students, workers, and environmental groups. Procedurally, the
passage of the law was deemed flawed due to inadequate public consultations by the Job
Creation Task Force as access to the bill’s draft was limited and public consultations were
perceived as one-sided. Among the biggest issues within the law were relaxed rules on
severance pay, changes to the minimum wage formula, contract labor and outsourcing, and
a rule that required environmental studies be required only for high-risk investments.10

Similar criticisms have been expressed towards the government regulation in lieu of law as
its announcement seemed highly impromptu, and substantially, the newer version of the
Job Creation Law is mostly unchanged from its predecessor, even garnering comments
that it has merely been copy-pasted.11 Furthermore, legal experts have asserted that the
use of a Government Regulation in Lieu of Law is a mere workaround to circumvent the
need for parliamentary approval in the name of economic urgency.12

Apart from protests from legal experts as well as labor and green groups, the Indonesian
Employers Association (Asosiasi Pengusaha Indonesia or Apindo) have also expressed their
surprise at the unexpected new law. It has been reported that only selected corporations
have been engaged to discuss with the government on the new law.

“It's funny, we're the ones providing jobs, we're the ones providing salaries, and we're not
invited to discuss (the new Job Creation Law) at all. Suddenly, (the law has been passed),
and as far as I know, to our knowledge, the others (employers) were not involved as well,”
remarked the Chairman of Apindo Hariyadi Sukamdani during a press conference in early
January.13

8 https://insightplus.bakermckenzie.com/bm/employment-compensation/indonesia-the-new-job-creation-government-regulation-in-lieu-of-law_1/
9 https://www.republika.co.id/berita/ro2yb0282/jaminan-produk-halal-di-pengesahan-perpu-ciptaker
10 https://kumparan.com/ilham-maghriby/melihat-nasib-uu-cipta-kerja-pasca-1-tahun-putusan-mahkamah-konstitusi-1zJZ2rC1pNG/1
11 https://nasional.kompas.com/read/2023/01/02/11411571/serikat-pekerja-tuding-isi-perppu-cipta-kerja-sekadar-copy-paste
12 https://nasional.kompas.com/read/2023/01/03/16531831/pakar-kritik-perppu-cipta-kerja-harusnya-untuk-kegentingan-memaksa-bukan
13 https://bisnis.tempo.co/read/1675363/tak-dilibatkan-dalam-perpu-cipta-kerja-apindo-teman-teman-lain-juga-gak-diajak-bicara
On the other hand, a few economists have also expressed their approval of the new law.
Esther Sri Astuti, Program Director of the Institute for Development of Economics and
Finance agrees that the Job Creation Law can help attract more investments, with the caveat
that proper measures be taken to synchronize, socialize, monitor, and evaluate its
implementation.14

What now?

As the country enters 2023, and the election year is just around the corner, President
Jokowi’s strategy to swiftly pass the new Job Creation Law seems to be a preemptive move
against possible political horse-trading over the law in 2024. By securing its legitimacy as
quickly as possible, the President is not just aiming to provide certainty for investors but
also to dedicate what little time his administration has left to shape and adjust the
bureaucracy accordingly.

However, President Jokowi’s Job Creation law is not completely out of the woods yet. With
Parliament reentering a new session, the government regulation in lieu of law will be up for
approval. Without parliamentary approval, the regulation may well be revoked. A request
for a judicial review of the regulation has also been submitted to the Constitutional Court
by several concerned groups. Nonetheless, Jokowi may well have it his way at the end as
the President has a strong political coalition within the parliament and a brother-in-law in
the Constitutional Court.

The government still has much homework to be done and alleviating public concern – from
concerns over more unforeseen regulatory changes and the quality of the investments
being attracted to concerns over how the law would be implemented – would be on top of
the list. Though the law may be designed to mitigate impending economic uncertainty, the
passage of the law has resulted in even more uncertainties as public trust toward
government and investors may be deeply affected and in turn, may receive unintended
backlash.

To navigate such uncertainties, a communication strategy that marries strong government

relations with a grounded public affairs approach would be necessary, to keep abreast of
precipitous policy and public sentiment changes. Finding opportunities to advocate
feedbacks or concerns on the Perppu CK is essential for stakeholders impacted by this
emergency law, as its implementation timeline will still be uncertain with the parliament and
judicial reviews. This window of opportunity must be supported by a strong network that
can connect the concerned parties with the right government representatives as even major
associations such as Apindo felt left out in providing feedback to the Perppu CK.

BCW will also continue to monitor further changes and their potential impact on doing
business in Indonesia.

Contributors: Rizkina Aliya (Account Director), Naufal Armia Arifin (Account Manager),
Danny Widiatmo (Assistant Account Executive)

14https://www.gatra.com/news-561731-nasional-perppu-cipta-kerja-diapresiasi-ekonom-namun-dikritik-pakar-hukum.html