PKWT vs PKWTT: Understanding Employment Contracts in Indonesia

When hiring employees in Indonesia, you will encounter two types of employment contracts: PKWT (Perjanjian Kerja Waktu Tertentu) and PKWTT (Perjanjian Kerja Waktu Tidak Tertentu). These translate to fixed-term and permanent contracts respectively.

A common misconception among foreign employers is that these are interchangeable options, and you can simply pick whichever suits your budget or flexibility preferences. However, Indonesian labor law does not work this way.

The type of contract you must use is determined by the nature of the work itself. A marketing manager running ongoing campaigns for your company cannot be placed on a fixed-term contract just because you want to “test” them first.

Similarly, a construction worker hired for a specific building project cannot be placed on a permanent contract if the work genuinely ends when the building is complete.

Getting this classification wrong leads to real problems.

Employees can file claims with the Industrial Relations Court and the Manpower Office can impose sanctions. Moreover, contracts you signed can be automatically converted to permanent status, bringing retroactive obligations for severance and benefits.

This guide explains how to determine which contract type applies to each role and what obligations come with each.

The Legal Framework Governing Employment Contracts

Employment contracts in Indonesia are governed by the Manpower Law (Law No. 13/2003), which was substantially amended by the Job Creation Law (Law No. 11/2020, later revised through Government Regulation in Lieu of Law No. 2/2022). The implementing regulation that provides detailed rules is Government Regulation No. 35/2021, which covers fixed-term contracts, outsourcing, working hours, and termination.

Under this framework, Indonesian law recognizes only two categories of employment relationship:

• PKWT is for work that is temporary, project-based, seasonal, or otherwise limited in duration.
• PKWTT is for work that is permanent and ongoing.

There is no third option, and you cannot create hybrid arrangements that fall outside these two categories.

The law places the burden on employers to classify correctly. If there is ambiguity, regulators and courts tend to favor the employee.

Therefore, if you put someone on a fixed-term contract for work that looks permanent, the contract does not protect you. The employee can challenge it, and if the challenge succeeds, the employment relationship is treated as permanent from day one, with all the obligations that entails.

When PKWT Applies

PKWT contracts are restricted to specific categories of work defined in Article 59 of the Manpower Law and elaborated in Government Regulation No. 35/2021.

You cannot use PKWT simply because you prefer shorter commitments or want to avoid severance obligations. The work itself must fit one of the following categories.

1. Work that will be completed within a defined period

This covers projects with a clear scope and end point.

For instance, a property developer hiring a project manager to oversee a specific condominium construction would qualify for PKWT. The building will be finished, the project will end, and the role will no longer exist.

Similarly, a company implementing a new ERP system might hire an implementation specialist for the 18-month rollout. Once the system is live and stable, that specific work is done.

The key test is whether the work has a natural endpoint that is not artificially created by the employer. You cannot take an ongoing role and impose an artificial deadline just to use PKWT.

2. Seasonal or cyclical work

Work that depends on weather, agricultural cycles, tourism patterns, or other recurring but temporary conditions falls into this category.

A hotel in Bali hiring additional staff for the peak tourist season from June to November would qualify. Similarly, a palm oil plantation hiring extra workers for the harvest period would qualify.

The work is genuine and necessary, but it does not exist year-round. Once the season ends, the specific demand disappears until the next cycle.

3. Work related to new products or activities still in trial phase

When a company is genuinely testing something new, the employees working specifically on that trial can be hired under PKWT. A manufacturing company piloting a new production line for a product that may or may not go into full production would qualify. A tech company testing a new service in a limited market before deciding whether to scale would qualify. The trial must be genuine. If you have already decided to proceed and are just labeling it a “pilot” to use fixed-term contracts, that will not hold up under scrutiny.

4. Non-permanent work

This is a catch-all category for work that is inherently temporary or irregular. An events company hiring production crew for a specific conference or festival would qualify. A film production company hiring crew for a specific shoot would qualify. The work is real, but it is tied to a specific undertaking that will conclude.

If the work does not fit into one of these categories, you cannot use PKWT regardless of your preferences. For example, a company that hires an accountant to manage their books cannot use PKWT because financial management is an ongoing function.

When PKWTT Applies

PKWTT is the default contract type for most regular employment situations. If you are hiring someone for a role that will exist as long as your business operates, that role requires PKWTT.

If the work is essential to your ongoing operations rather than tied to a specific project or time period, that work requires PKWTT.

If you are not sure, consider a simple test: if the current employee left, would you hire someone else to do the same job? If yes, the role is probably permanent.

A software company whose lead developer quits will hire another lead developer. The role continues regardless of who fills it. That continuity indicates PKWTT.

Contrast this with genuine PKWT situations. If a construction project manager finishes the building and leaves, the company does not necessarily hire another project manager for the same building. The project is done.

That discontinuity indicates PKWT was appropriate.

Some employers try to use PKWT for clearly permanent roles as a way to “test” employees before committing to permanent status.

This is legally incorrect.

If you want to evaluate an employee before making a long-term commitment, use PKWTT with a probation period. That is what probation periods are for.

PKWTT allows up to three months of probation during which you can assess performance and fit. PKWT does not allow probation at all. Using PKWT as a trial period for a permanent role inverts the logic of the law and creates compliance risk.

PKWT Contract Requirements

If you have determined that a role genuinely qualifies for PKWT, the contract must meet specific formal requirements. These are legal obligations, and failure to comply can affect the validity of the contract.

The contract must be written in Indonesian

PKWT cannot be a verbal agreement. It must be documented in writing, and that writing must be in Bahasa Indonesia.

You can create a bilingual version with English alongside Indonesian for the convenience of foreign parties, but the Indonesian text is the legally binding version.

If there is any conflict between the Indonesian and English versions, the Indonesian version prevails.

If you execute a PKWT only in English, the contract may be treated as invalid, which would mean the employment relationship defaults to PKWTT status.

The maximum duration is five years

Under Government Regulation No. 35/2021, the total duration of a PKWT relationship cannot exceed five years, including all extensions and renewals.

This is a significant change from earlier regulations that imposed shorter limits with more complex extension rules. Now the rule is straightforward: five years total, then done.

If you initially hire someone for two years and extend twice for 18 months each, you are at five years. Any further extension would convert the relationship to PKWTT.

Note that this limit applies per employee per company. You cannot reset the clock by having the employee resign and rehire them a week later.

No probation period is allowed

PKWT contracts cannot include probation. If you insert a probation clause into a PKWT, that clause is automatically void. The employee is fully employed from day one with all associated rights.

This is another reason why using PKWT to “test” employees makes no sense. You cannot actually test them because there is no probation. If you want a trial period, you need PKWTT.

Mandatory Registration

PKWT contracts must be registered with the local Manpower Office (Dinas Ketenagakerjaan). The deadline is three working days after signing if you register online through the WLKP (Wajib Lapor Ketenagakerjaan Perusahaan) system, or seven working days if you register offline.

Registration does not affect the validity of the contract between employer and employee, but failure to register can result in administrative sanctions against the company.

PKWTT Contract Requirements

PKWTT contracts have different and generally more flexible formal requirements, though they come with more substantial obligations regarding termination.

Can be written or verbal

Unlike PKWT, a PKWTT can be established verbally. Indonesian law recognizes verbal employment agreements as valid and binding.

That said, relying on verbal agreements is risky for employers. That is because without written documentation, disputes become harder to resolve since you may have different understandings of job scope, salary, or other terms.

If a verbal PKWTT exists, the employer is required under Article 63 of the Manpower Law to issue an appointment letter containing the employee’s name, start date, job type, and salary.

In practice, a written contract is strongly advisable even though it is not legally required.

Probation is permitted

PKWTT contracts can include a probation period of up to three months. However, during probation, the employee must receive at least the applicable minimum wage and all statutory benefits including BPJS enrollment.

Moreover, the probation period must be explicitly stated in writing. You cannot impose probation retroactively or claim it was implied. At the end of probation, if you choose not to continue the employment, you can terminate without the full severance obligations that would apply to a confirmed permanent employee.

This is the correct mechanism for evaluating new hires.

No registration required

PKWTT contracts do not need to be registered with the Manpower Office. However, you still have obligations to register the employee with BPJS Kesehatan (health insurance) and BPJS Ketenagakerjaan (employment insurance) within 30 days of their start date.

These social security obligations apply to all employees regardless of contract type.

Compensation for PKWT Employees

One of the significant changes introduced by the Job Creation Law is the requirement to pay compensation (uang kompensasi) to PKWT employees when their contract ends.

This applies regardless of whether the contract expires naturally, is terminated early by the employer, or ends because the employee resigns.

The obligation exists because the employee completed work under a fixed-term arrangement, and Indonesian law now requires recognition of that service.

The compensation formula is based on length of service:

Compensation = (Months Worked ÷ 12) × One Month’s Salary

“Salary” for this calculation means base salary plus fixed allowances.

Variable allowances, bonuses, and other irregular payments are excluded from this.

If your compensation structure does not include fixed allowances, you use the base salary alone.

To illustrate: an employee works under PKWT for 24 months with a monthly salary of IDR 10,000,000. When the contract ends, their compensation is (24 ÷ 12) × IDR 10,000,000 = IDR 20,000,000.

An employee who works for 8 months at IDR 6,000,000 would receive (8 ÷ 12) × IDR 6,000,000 = IDR 4,000,000.

Since the maximum fixed term contract duration is 60 months (five years), the maximum compensation is five months’ salary. If you extend a contract, compensation is typically paid at the end of each contract period, not accumulated until the final end.

So an employee on a two-year PKWT that gets extended for another two years would receive compensation at the end of year two, then again at the end of year four.

On the other hand, employees must have worked at least one continuous month to be eligible for compensation.

Foreign workers (TKA) are excluded from this requirement entirely. The compensation obligation applies only to Indonesian employees.

Severance for PKWTT Employees

When a PKWTT employee’s employment ends through termination (not voluntary resignation), the employer must pay severance (uang pesangon) and long-service pay (uang penghargaan masa kerja).

The amounts depend on two factors: the employee’s length of service and the reason for termination.

The base severance formula under Government Regulation No. 35/2021 provides one month’s salary for each year of service, up to a maximum of nine months’ salary for employees with eight or more years of service.

Moreover, long-service pay adds additional amounts for longer-tenured employees, ranging from two months’ salary for three years of service up to ten months’ salary for 24 or more years.

The reason for termination then applies a multiplier to these base amounts.

For example, an employee with 10 years of service who is terminated due to company restructuring might be entitled to severance of 9 months’ salary plus long-service pay of 4 months’ salary, for a total of 13 months’ salary at 1x the multiplier. If they earned IDR 15,000,000 per month, that would be IDR 195,000,000 in termination payments.

If a PKWTT employee resigns voluntarily, they are generally not entitled to severance. Depending on company policy and the circumstances, they may receive separation pay (uang pisah), but this is typically much smaller than full severance.

These substantial termination costs are one reason some employers try to misuse PKWT for permanent roles. The logic is that PKWT compensation is cheaper than PKWTT severance. But this calculation ignores the legal risk.

If the PKWT is challenged and found invalid, the employment converts to PKWTT retroactively, and you owe severance based on the full period of employment anyway, plus potential penalties and legal costs.

What Happens When You Misclassify Fixed Term and Permanent Contract

Using PKWT for work that should be PKWTT is one of the most common employment compliance failures in Indonesia.

The consequences can be significant, and they tend to surface at the worst possible time, usually when the employment relationship is ending and the employee has reason to pursue every available claim.

If an employee or the Manpower Office challenges a PKWT and demonstrates that the work does not fit the legal criteria for fixed-term employment, the contract is automatically converted to PKWTT by operation of law.

This conversion is retroactive to the start of employment. The employee is deemed to have been a permanent employee all along, with all the rights that entails.

Automatic conversion also occurs if a PKWT exceeds the five-year maximum duration, or if the employer fails to meet the formal requirements (such as having the contract in writing and in Indonesian).

Once conversion happens, the employer faces several exposures.

If the employment subsequently ends, severance must be calculated based on the full period of service, not just from the conversion date. Any benefits or protections the employee should have received under PKWTT must be provided or compensated.

Quick Comparison of PKWT vs PKWTT Employment Contracts

Aspect	PKWT (Fixed-Term)	PKWTT (Permanent)
Appropriate for	Project-based, seasonal, trial-phase, or non-permanent work	Ongoing work that is part of core operations
Maximum duration	5 years total including extensions	No limit
Probation	Not permitted	Up to 3 months
Contract format	Must be written, must be in Indonesian	Can be written or verbal
Registration	Required within 3-7 days	Not required
End of contract	Compensation based on months worked	Severance if terminated (not if resigned)
Foreign workers	Required (TKA cannot use PKWTT)	Not available for foreign workers

How Emerhub Can Help

Employment classification in Indonesia requires careful attention to both the legal requirements and the practical realities of each role. The consequences of getting it wrong include automatic conversion to permanent status, back payments, administrative sanctions, and legal disputes.

Emerhub provides employment support for companies operating in Indonesia.

Our services include:

• drafting and reviewing employment contracts to ensure they meet current regulatory requirements
• advising on workforce structure to determine appropriate contract types for each role
• handling PKWT registration with the Manpower Office
• calculating compensation and severance obligations
• providing ongoing HR compliance support as regulations evolve.

If you are hiring in Indonesia for the first time or reviewing your existing workforce structure, we can help you get the classification right from the start.

For foreign companies looking to hire in Indonesia, Emerhub offers employer of record service to ensure remote hiring in compliance with local laws.

Contact us to discuss your employment needs.