# PKWT vs PKWTT: Indonesian Employment Contracts (2026) URL: https://raintechnovation.com/resources/pkwt-vs-pkwtt-indonesia Published: 2026-11-11 Updated: 2026-11-11 Author: Veri Ferdiansyah Indonesia has two kinds of employment contract. A PKWT (fixed-term) contract may only be used for work that is temporary by nature. It runs for at most two years, can be extended twice by up to a year each, for four years in total, cannot include a probation period, and ends with a compensation payment tied to the employee's service. A PKWTT (permanent) contract has no end date, allows up to three months' probation, and ends through the statutory severance process. A PKWT used for permanent work, or not made in writing, becomes a PKWTT by law. These rules come from Law No. 27 of 2026 on Employment Protection (UU 27/2026), which took effect on 28 October 2026 and replaced the Manpower Law. It cut the PKWT cap from five years to four. Ending a fixed-term contract before its term is still the expensive case: early in a long contract it can cost more than a permanent employee with the same tenure would receive in severance. ## PKWT and PKWTT at a glance PKWT (fixed-term) PKWTT (permanent) Allowed for Work that is one-off or temporary, expected to finish within two years, seasonal, a new product or activity still in trial, or work that is not fixed in type or timing (Art. 87(1)) Any work, including work that is permanent in nature Maximum length 2 years, plus up to two extensions of 1 year each: 4 years in total (Art. 82(2)) No end date Extension Written notice to the employee at least 7 days before the term ends (Art. 82(3)) Not applicable Probation Not allowed; a probation clause is void and the time counts as service (Art. 86) Up to 3 months, at no less than 75% of the position's wage and never below the minimum wage (Art. 92) Form Written, in Indonesian and Latin script, registered within 3 working days (Arts. 83 and 87(3)) Written or oral; an oral contract needs a written letter of appointment (Art. 93) At the normal end Compensation tied to service (Art. 88): months worked ÷ 12 × 1 month's wage Severance under Articles 232 to 249, set by tenure and the reason for termination Ending early The party that ends it owes the other the wages up to the end of the term (Art. 90) Termination procedure and severance (Art. 228) THR, BPJS, PPh 21 Same as permanent Same as fixed-term ## When a PKWT is allowed Article 87(1) of UU 27/2026 limits fixed-term contracts to work that, by its type, nature or activity, will finish within a set time: * work that is done once, or is temporary in nature; * work expected to be finished within a reasonably short time, and within two years at most; * seasonal work; * work connected with a new product, a new activity or an additional product that is still in trial; or * work whose type, nature or activity is not fixed. A PKWT cannot be used for work that is permanent in nature (Art. 87(2)). The elucidation of the law defines permanent work as work that is continuous, not interrupted, not limited in time and part of a production process within one company, or work that is not seasonal. A PKWT that breaks either rule becomes a permanent contract by operation of law (Art. 87(5)), and so does a PKWT that is not made in writing (Art. 85). For a tech employer the practical line is this. An engineer hired to build and run your core product is doing ongoing work, and a PKWT for that role can be challenged as a disguised permanent contract. A PKWT fits work with a defined end: a data migration, a nine-month integration project, a proof of concept for a product you have not yet committed to. UU 27/2026 does not mention daily contracts. Government Regulation 35 of 2021 (PP 35/2021) still allows them for work that varies in timing and volume, paid by attendance, and turns one into a permanent contract once the employee works 21 days or more a month for three consecutive months (Art. 10). PP 35/2021 stays in force wherever it does not conflict with the new law (UU 27/2026, Art. 310), until the implementing regulation that Article 312 requires by 28 October 2027 replaces it. ## The four-year cap A PKWT, whether it runs for a period or until a piece of work is finished, may last at most two years and may be extended only twice, by up to one year each time (Art. 82(2)). That is four years in total, down from the five years PP 35/2021 and Constitutional Court decision 168/PUU-XXI/2023 allowed until October 2026. An employer that wants to extend must tell the employee in writing at least seven days before the contract ends (Art. 82(3)). The law does not say in so many words what happens to a contract that runs past four years. The conversion rule in Article 87(5) covers PKWTs used for work they are not allowed for, and Article 87(1) only allows work expected to finish within two years. A role still running after four years is hard to defend as temporary, so plan on it being treated as permanent. ### Contracts signed before 28 October 2026 The law's transitional provisions (Articles 300 to 309) cover court cases, labour inspections and outsourcing, not fixed-term contracts. Our reading is that a PKWT signed before 28 October 2026 runs to its agreed end, and any extension or renewal signed from that date has to fit the new limits, counting the service already worked. The implementing regulation may say otherwise. Take advice on any contract that would pass four years with its next extension. ## Probation is for permanent contracts only A PKWTT may include a probation period of up to three months (Art. 92(1)). During probation the employer must pay at least 75% of the wage for the position, and never less than the minimum wage, and must provide social security and the employee's other statutory rights (Art. 92(2)). The 75% floor is new: the Manpower Law only required the minimum wage. The probation term has to be written into the contract or the letter of appointment, or there is no probation (Art. 92(4) and (5)). It counts as service (Art. 92(6)), and an employee who meets the requirements must be confirmed as permanent at the end of it (Art. 92(3)). A PKWT may not include probation at all. If it does, the probation clause is void and the time still counts as service (Art. 86). A one-year PKWT with a three-month trial at the start does not work: the trial has no effect, and ending the contract in month two is an early termination with the costs described below. ## Form and registration A PKWT must be in writing, in Indonesian and in Latin script (Art. 83(1)). A bilingual contract works, but if the two versions differ, the Indonesian text prevails (Art. 83(2)). A PKWT in another language exposes the employer to a written warning or a fine (Art. 84). Every written employment contract has to state, at a minimum, the employer's name, address and business; the employee's name, sex, age and address; the job; the place of work; the wage and how it is paid; the terms of work, with both parties' rights and obligations; the start date and term; the place and date it was made; and both signatures (Art. 77(1)). It is made in at least two copies, and the employee gets one (Art. 77(3) and (4)). An employer may not require or hold an employee's diploma or personal documents as security (Art. 78). The employer must register each PKWT with the central or regional government within three working days of signing (Art. 87(3)). The employee and labour inspectors can access the registered contract (Art. 87(4)). ## What ending each contract costs ### PKWT at the end of its term When a PKWT ends on any of the grounds in Article 81(1), the employer must pay the employee a compensation amount according to their length of service (Art. 88). An employer that does not pay faces a warning, a fine or a suspension of business activity (Art. 89). The amount will be set by the implementing regulation (Art. 88(3)). Until then, the PP 35/2021 formula applies: one month's wage for twelve months of service, pro-rated for any other length, so months of service divided by 12, multiplied by one month's wage of basic pay plus fixed allowances (PP 35/2021, Arts. 15 and 16). If the PKWT is extended, compensation is paid at the end of the original term and again at the end of the extension (Art. 15(4)). Foreign workers on a PKWT are not entitled to it (Art. 15(5)). For a Tier 2 engineer on IDR 21,480,000 ($1,200) a month, a 24-month PKWT ends with compensation of 24 ÷ 12 × 21,480,000 = IDR 42,960,000 ($2,400). ### PKWT ended early This is the expensive case. A party that ends a PKWT before its term, or for any reason outside Article 81(1), must pay the other party damages equal to the employee's wages up to the end of the term (Art. 90). PP 35/2021, Article 17, adds the compensation for the period already worked. Say you end a 12-month PKWT for the Tier 2 engineer after five months because the project was cancelled: Payment Calculation IDR Damages for the remaining term (Art. 90) 7 × 21,480,000 150,360,000 Compensation for time worked (PP 35/2021, Art. 17) 5 ÷ 12 × 21,480,000 8,950,000 Total 159,310,000 (about $8,900) The rule runs both ways. An employee who resigns before the end of a PKWT owes the employer damages equal to their wages for the remaining term. The Article 81(1) grounds that end a PKWT without damages are the employee's death, the end of the term, completion of the work, **a termination agreement both parties sign (perjanjian bersama)**, a final industrial relations ruling, and a specific circumstance or event written into the employment contract, company regulation or collective agreement. The termination agreement is new to the list: the Manpower Law's Article 61(1) did not include it. A cancelled project still does not end a PKWT by period on its own, so either write that circumstance into the contract or negotiate the exit. ### PKWTT termination A permanent contract ends through the procedure in Article 228: the parties must first try to avoid the termination, then negotiate (bipartite talks, which must finish within 30 working days), and the termination only stands once there is a signed agreement or a final ruling from the industrial relations court. Severance is made up of severance pay, long-service pay and compensation of rights, each scaled by tenure and multiplied according to the reason for termination (Arts. 232 to 249). Our guide to [termination and severance in Indonesia](https://raintechnovation.com/resources/indonesia-employee-termination-severance-costs) covers the formula and the procedure. ## What stays the same on both contracts The contract type does not change the statutory package. Fixed-term and permanent employees are both owed THR once they have a month of service (Minister of Manpower Regulation 6 of 2016, Art. 2), both must be enrolled in [BPJS](https://raintechnovation.com/resources/bpjs-indonesia-employer-guide) from day one, and PPh 21 is withheld the same way. One difference is timing: a PKWT that expires before a religious holiday carries no THR for that holiday. See our [THR guide](https://raintechnovation.com/resources/indonesia-thr-employer-guide) and [PPh 21 guide](https://raintechnovation.com/resources/pph-21-ter-indonesia-employer-guide). ## What changed in October 2026 Constitutional Court decision 168/PUU-XXI/2023 ordered the legislature to move employment law out of the Job Creation Law into a separate law. Parliament passed the Employment Protection Bill on 6 October 2026, and it was signed and promulgated as UU 27/2026 on 28 October 2026. It took effect that day (Art. 313) and revoked the Manpower Law, Law 13 of 2003, in full (Art. 311). For fixed-term and permanent contracts: * **Shorter cap:** two years plus two one-year extensions, four years in total, down from five (Art. 82(2)). * **Extension notice:** the employee must be told in writing at least seven days before the term ends (Art. 82(3)). * **Ending by agreement:** new. A signed termination agreement ends a PKWT without remaining-term damages (Art. 81(1)(d)). * **Probation pay:** new. A PKWTT probation pays at least 75% of the position's wage (Art. 92(2)). * **Unchanged:** no probation in a PKWT, early-termination damages, registration within three working days, the Indonesian-language requirement, and conversion to a permanent contract when the rules are broken. The detailed rules on fixed-term contracts and compensation will come in an implementing regulation due by 28 October 2027 (Art. 312). Until then, PP 35/2021 applies wherever it does not conflict with the new law (Art. 310). We will update this guide when the regulation is issued. ## Which contract to use * An ongoing engineering role: a PKWTT, with up to three months' probation to assess fit. It is the contract the law expects for permanent work, and it carries no remaining-term liability. * A project with a real end: a PKWT by completion of work, with the scope and the definition of done written into the contract, and a term that fits within two years. * Uncertain headcount: a PKWT is not a safer trial. It cannot have probation, and ending it early costs the rest of the term unless both sides sign a termination agreement. If you hire through an [Employer of Record](https://raintechnovation.com/services/employer-of-record), the EOR signs the employment contract as the legal employer. RainTech's EOR can use either a PKWT or a PKWTT, depending on the role and how long you need it. Whichever you choose, agree up front who bears the cost if the engagement ends before the contract does. ## FAQs ### Can a PKWT be extended beyond four years? No. Under Article 82(2) of UU 27/2026, a PKWT runs for at most two years and can be extended twice, by up to one year each time. The five-year limit under PP 35/2021 ended when the new law took effect on 28 October 2026. ### Can a fixed-term contract include a probation period? No. A probation clause in a PKWT is void and the time counts as service (Art. 86). Probation of up to three months is only available in a permanent (PKWTT) contract, at no less than 75% of the position's wage (Art. 92). ### Do PKWT employees get severance pay? Not severance in the PKWTT sense. They receive a compensation payment at the end of the contract according to their service (Art. 88). Until the implementing regulation sets a new formula, it is months worked divided by 12, multiplied by one month's wage (PP 35/2021, Arts. 15 and 16). ### What happens if we end a PKWT early? Unless one of the Article 81(1) grounds applies, including a termination agreement both sides sign, you owe the employee their wages up to the end of the term (Art. 90), plus compensation for the time already worked (PP 35/2021, Art. 17). ### Does a PKWT turn into a permanent contract automatically? It does if it is not made in writing (Art. 85), or if it is used for work that is permanent in nature or otherwise outside what a PKWT is allowed for (Art. 87(5)). A daily contract does if the employee works 21 days or more a month for three consecutive months (PP 35/2021, Art. 10(4)). ### Do contracts signed before 28 October 2026 have to change? The law has no transitional rule for fixed-term contracts. Our reading is that an existing PKWT runs to its agreed end, and any extension signed from 28 October 2026 has to fit the four-year cap, counting the service already worked. Take advice before extending a contract that would pass four years. ## Sources * Law No. 27 of 2026 on Employment Protection (UU 27/2026), Articles 77 to 94, 228 to 249 and 300 to 313: [JDIH Kementerian Sekretariat Negara](https://jdih.setneg.go.id/detailperaturan?jns=UU&no=27&thn=2026&ref=cms.raintechnovation.com) * Government Regulation No. 35 of 2021 on Fixed-Term Contracts, Outsourcing, Working Hours and Termination (PP 35/2021), Articles 10 and 15 to 17, in force where consistent with UU 27/2026: [JDIH Kemnaker](https://jdih.kemnaker.go.id/peraturan/detail/1723/peraturan-pemerintah-nomor-35-tahun-2021?ref=cms.raintechnovation.com) * Constitutional Court decision 168/PUU-XXI/2023: [Mahkamah Konstitusi](https://www.mkri.id/public/content/persidangan/putusan/putusan_mkri_11215_1730375514.pdf?ref=cms.raintechnovation.com) * Minister of Manpower Regulation No. 6 of 2016 on THR: [JDIH Kemnaker](https://jdih.kemnaker.go.id/peraturan/detail/1207/peraturan-menteri-nomor-6-tahun-2016?ref=cms.raintechnovation.com) This guide reflects Law No. 27 of 2026 as promulgated on 28 October 2026, and PP 35/2021 where it remains in force. USD amounts are converted at IDR 17,900. It is general information for employers, not legal advice for a specific case.