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[Back] 18/03/2021
18/03/2021

Indonesian Gov’t Resists Temptation to Burden Employers with Full Cost of New Unemployment Scheme

 

February 2021 saw the issuance of a raft of new government regulations to give effect to the reformist Job Creation Law (colloquially, the Omnibus Law), which entered into force on 2 November 2020. In this ABNR legal update, we discuss Government Regulation No. 37 of 2021 on the Job Loss Security Program.

 

In what some see as a “sweetener” to persuade labor unions to accept reductions in statutory termination and other benefits under the Omnibus Law,[1] the government incorporated a new unemployment benefit and job-seekers assistance scheme in the legislation. Employers had originally feared that they would have to shoulder the full cost of the scheme, but it transpires that that will not be the case.

 

The nuts and bolts of the new scheme, known as the Job Loss Security Program (Program Jaminan Kehilangan Pekerjaan / “JLSP”) are now in place following the issuance of Government Regulation No. 37 of 2021 on the Job Loss Security Program (the “Regulation”),[2] an implementing regulation for Law No. 40 of 2004 on the National Social Security System[3] (as amended by the Omnibus Law). 

 

Rather than being established as a stand-alone scheme, JLSP is fully integrated into the National Social Security Program (“NSSP”), which is operated by state social security provider BPJS.

 

As the first-ever unemployment benefit scheme in Indonesia’s history, JLSP officially kicked off on 2 February 2021, when all eligible Indonesian employees were automatically enrolled as participants in the program.

 

Despite mandatory participation for all formal-sector employees and employers (from sole traders up to multinational corporations), the scheme leaves a number of large gaps. For example, it only applies to existing employees. Thus, those looking for their first job and the long-term unemployed are not covered. Further, the informal sector is completely excluded, despite employing 50-60% of Indonesia’s workforce, according to some estimates.[4] So, while the scheme will provide some welcome breathing space for workers who lose their jobs, it does not attempt to provide universal coverage.

 

Participants

 

Those who are eligible to participate in the program consist of (i) existing employees who are enrolled in the NSSP at the time of commencement of JLSP; and (ii) new employees who are enrolled by their employers subsequently.

 

In all cases, a participant must satisfy the following criteria:

 

  1. Indonesian nationality,
  2. Under 54 years of age at time of enrollment, and
  3. In a relationship of employment with an employer.

 

New participants should be enrolled online with the BPJS.

 

Premiums

 

Premiums are pegged at 0.46% of the employee’s monthly wage, with 0.22% to be paid by government and 0.24% by employer. Importantly, however, the employer’s 0.24% share will be taken from the premiums it already pays under the existing NSSP. Thus, employers should not have to pay anything on top of what they are already paying.

 

The maximum qualifying monthly wage is set at Rp 5 million (USD 346), meaning that if the employee earns a wage that is higher than Rp 5 million, anything above the Rp 5 million cutoff figure will be disregarded for the purpose of calculating premiums.

 

Benefits

 

The program offers participants the following benefits:

 

  • Cash benefit: 45% of monthly wage for the first 3 months, and 25% for the following 3 months. As mentioned above, the maximum wage for the purpose of the scheme is artificially pegged at Rp 5 million (USD 346). Thus, a newly unemployed worker on a pre-termination wage of Rp 5 million will be entitled to a monthly payment of Rp 2.25 million (USD 156) for 3 months, followed by Rp 1.25 million (USD 86) per month for a further 3 months.

 

  • Access to labor market information, including job vacancy data and/or career guidance information.

 

  • Job training.

 

Both permanent and non-permanent employees may access the scheme’s benefits, provided that they (i) have been terminated by an employer, and (ii) have fulfilled the minimum contribution requirements before termination. An employee who voluntarily resigns, suffers permanent total disability or retires is ineligible to access benefits under JLSP.

 

As regards the “minimum contribution requirements” mentioned above, the Regulation is rather unclear as to what precisely these are. However, going by a literal reading of the relevant article, it appears that premiums must have been booked for the participant in at least 12 of the 24 months, and for at least 6 consecutive months, immediately prior to termination. However, this interpretation is subject to confirmation by the BPJS.

 

The right to JLSP benefits will be forfeited in a situation where the employee:

 

  • fails to submit a claim within the first 3 months following termination; or
  • secures a new job.

 

Sanctions for Employers

 

An employer who fails to enroll an employee in the program must provide the following benefits to a terminated employee:

 

  1. cash benefit, to be based on the relevant JLSP cash benefit calculation, which must be paid to the employee as a lump sum; and
  2. job training.

 

Micro-scale businesses are exempt from these two obligations.

 

Commentary

 

A number of our clients had previously expressed concerns about the possibility of employers being lumbered with the cost of paying for JLSP. That the government has avoided the obvious temptation to shift the burden onto the shoulders of employers will thus be very welcome news, particularly at this time of economic hardship resulting from Covid-19. However, there is always the possibility of backtracking on this in the future, particularly if the cost of the scheme were to spiral out of control.

 

From the macro perspective, the introduction of JLSP once again focuses attention on how a range of new benefits introduced in recent years has led to soaring welfare expenditure. As shown by the financial problems currently dogging state social security provider BPJS, paying for all the new benefits is not easy, even without the additional cost of JLSP.

 

By partner Mr. Indra Setiawan (isetiawan@abnrlaw.com) and associate Ms. Tifanny Natalia (tnatalia@abnrlaw.com).

 

[1] Undang-Undang No. 11 Tahun 2020 tentang Cipta Kerja

[2] Peraturan Pemerintah No. 37 Tahun 2021 tentang Penyelenggaraan Program Jaminan Kehilangan Pekerjaan

[3] Undang-undang No. 40 Tahun 2004 tentang Sistem Jaminan Sosial Nasional

[4] See Jakarta Post: https://www.thejakartapost.com/news/2020/04/03/70-million-informal-workers-most-vulnerable-during-pandemic.html

 

 

This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.