The government is considering ending the controversial contract worker scheme passed in 2003, which has increasingly been used by companies to hire workers outside the boundaries of the country’s tight labor laws that make it almost impossible to fire employees.
Employer associations, which have been objecting to the labor law ever since it was passed, immediately objected to the announcement, saying it was nothing but a ploy to attract votes during the presidential election season. In 2007, the Indonesian Employers Association (Apindo) made an unsuccessful push to scrap or modify the law.
When the law was passed, it was envisioned that it would give employers the flexibility to outsource certain noncore jobs to contractors who had the ability to remove workers they found to be substandard. However, because it is so hard for Indonesian businesses to hire new workers, and even more difficult to get rid of them, local companies seized on the outsourcing loophole to move millions of people off the permanent employee books.
According to US economist Steven H. Hanke, Indonesia’s labor laws are so strict that the country ranks among the least competitive in terms of rigidity of hours worked, difficulty of firing and firing costs. Each firing, Hanke wrote in a 2007 Globe Asia column, costs an average of 108 weeks of an employee’s salary.
Those problems, he wrote, have cut into Indonesia’s labor market competitiveness and at least in part explain why millions of the nation’s workers are being forced to go overseas in search of jobs.
As of last December, although the country’s labor force amounted to 112 million people, only 28.7 million were employed in the formal sector. Of those, 60 percent were contract workers, according to Djimanto, the secretary general of Apindo.
“I think the outsourcing of workers should be halted,” said Erman Soeparno, the manpower and transmigration minister. Prior to the passage of the law, Erman said, employers had a three-month probation period to evaluate staff and decide whether to keep their workers, after which time they became permanent employees.
“The employee then would have definite rights,” Erman said, adding that changes to the law were being discussed by the working committee of National Tripartite Agency for Industrial Relations.
“The agency will see whether it is good for all parties, both for employers and employees,” Erman said. “The law must be revised; we need a breakthrough.”
But Apindo chairman Sofjan Wanandi counseled caution, especially during this year’s elections. “The revision may not be done this year because it may also need approval from new House of Representatives members after they are seated,” he said.
Employers, he added, did not think the current outsourcing scheme should be scrapped because it had proved an efficient way to operate within the strict limits of the formal labor law.
The association is also seeking to revise clauses involving strikes, contract terminations and compensation which they believe have placed a substantial burden on employers.
Hariyadi B. Sukamdani, also of Apindo, said that the law discouraged businesses from hiring permanent staff, forcing them to turn to outsourcing schemes.
The current law, he said, requires companies to sequester 18 percent of their permanent workers’ salaries to cover social security payments, or Jamsostek, and 13 percent to cover contract terminations. Employers pay out another 11 percent for provincial minimum salaries.