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Omnibus Law Enactment as the Answer for EODB

Updated: Aug 31

By: Clara Viriya (clara.viriya@launcher.id)

Recently, the tempest of democracy has occurred in Indonesia to demand on the rights of the fellow workers which will be affected by the enactment of Omnibus Law. According to Bahlil Lahadalia, Head of Indonesia Investment Coordinating Board, the spirit of Omnibus Law itself is to create more jobs and develop a friendly environment for investors to boost the foreign direct investment in Indonesia. However, there are several bedevil issues to be overcome on these changes, one of which is employment sector. Therefore, it is necessary to look on this matter with the view from Ease of Doing Business (EODB).

EODB as annual studies investigating the regulations that enhance business activity and those that constrain it. EODB presents quantitative indicators on 12 areas of the life of a business which covers: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency, employing workers, and contracting with the government.

Pursuant to Doing Business report by World Bank for 2020, Indonesia is one of the most economies with the most rigid employment regulation, among lower-middle-income economies in East Asia and the Pacific, particularly on hiring. Ease of hiring as one of sub-indicator measured in this report, notes that the use of a fixed-term contract provides employers with the flexibility to adapt rapidly to changes during their operations, temporarily replace employees on leave, and reduce the risk of new business ventures. It also can be served as a channel for young people to obtain job experience, and crucial to boost the youth jobs.

The provision on fixed-term contract which previously regulated in Article 59 of Law Number 13 of 2003 on Employment (Employment Law) requires maximum of 2 (two) years and may only be extended 1 (one) time for a maximum period of 1 (one) year. Meanwhile in Omnibus Law, this period of time provision is deleted to afford the ease of hiring indicator. However, Omnibus Law still prohibits the use of fixed-term contracts for permanent tasks, in which according to the report, nearly 40% of low and lower-middle-income economies which still adapt such legislation is obsolete.

Further, the sub-indicator of ease of redundancy also pose a challenging role for a business in terms of severance payment. Such payment can be difficult or impossible to be disbursed for small firms, where severance payments for redundancy dismissals aim to protect the income of redundant workers. According to research by World Bank in 2018, alternative unemployment protection systems, including unemployment benefits, can be more effective at mitigating the effects of an unanticipated worker dismissal. Although severance payments do not take the worker’s financial condition into account, unemployment insurance collects funds to provide support to workers who require support. As a cultural basis in Indonesia, priority rules for dismissal must be laid off first on the basis of attributes such as seniority, marital status, or number of dependents. Therefore young and part-time workers becomes highly vulnerable group in case of redundancy termination.

Unemployment benefit programs have been proven more effective at reaching these groups. Hence, in Omnibus Law, the government had prepared for a new security program which will be managed by BPJS Ketenagakerjaan based on social insurance principles called Jaminan Kehilangan Pekerjaan that previously not regulated in Employment Law.

Lastly, as to allows both employers and employees to maintain competitiveness by revising legal restrictions on nonstandard working hours in the sub-indicator of flexible working hours, Indonesia has also added the provision on the existence of time and result unit wages which previously not regulated in Employment Law. Time unit wages are wages that determined based on one time, such as daily, weekly or monthly. Meanwhile, result unit wages are wages that determined based on the results of the work that has been agreed upon. Research shows that greater employee freedom in choosing working hours leads to higher productivity. Therefore, Indonesia is also adjusting to these indicators by providing a new concept of wages.

From the above, we can see that the adjustments to several provisions on employment sector in Omnibus Law are made to suit the international standards, in this scenario to fulfil the indicator on how to ease of doing a business.