A company may be confident that it is hiring contract employees, while in the eyes of the law, that person has been a permanent employee for months. This change in status occurs automatically, without any letter and without any system triggering a warning. The consequences are only felt when the employment relationship is terminated, and at that point, the company's obligations have already changed.
Here are four triggers that cause a fixed-term employment agreement (PKWT) to legally change into a permanent employment agreement (PKWTT), along with their legal basis.
1. The work is indeed permanent
Article 59 paragraph (1) of Law 13/2003 as amended by Law 6/2023 limits PKWT to five types of work: completed or temporary; expected to be completed in a relatively short time; seasonal; related to new products or activities that are still in trial; and work whose type or activity is not permanent. Paragraph (2) closes the door for work that is permanent, which is defined in the explanation of the article as continuous work, uninterrupted, not time-limited, and part of the production process. Paragraph (3) states the consequence without additional conditions: PKWT that does not meet paragraphs (1) and (2) legally becomes PKWTT.
2. The total contract duration exceeds five years
Government Regulation 35/2021 Article 8 establishes PKWT based on a maximum duration of five years. If extended, the total duration including extensions must not exceed five years, and the length of service is calculated from the first employment relationship, not from the last contract.
There is an update that is often overlooked here. The second type of PKWT, based on the completion of a job, could originally be extended until the job was completed without a time limit according to Government Regulation 35/2021 Article 9 paragraph (4). Through Decision Number 168/PUU-XXI/2023 pronounced on October 31, 2024, the Constitutional Court reinterpreted Article 56 paragraph (3) of Law 6/2023 to mean "the duration for completing a specific job must not exceed a maximum of 5 (five) years, including if there are extensions." Both types of PKWT now have a five-year limit.
3. Daily work agreements exceed the threshold of 21 days
Government Regulation 35/2021 Article 10 allows daily work agreements for jobs with changing time and volume, provided that the worker works less than 21 days in a month. Paragraph (4) provides the threshold: if the worker works 21 days or more for three consecutive months or more, the daily agreement is no longer valid and the employment relationship legally changes to PKWTT.
This threshold can be crossed without any management decision. What matters is the attendance record.
4. The contract is not made in writing
In the same decision, the Constitutional Court interpreted Article 57 paragraph (1) to mean "fixed-term employment agreements must be made in writing using the Indonesian language and Latin letters," replacing the previous, looser formulation.
Probation period in contracts: void from the moment signed
Article 58 of Law 13/2003 jo. Law 6/2023, which is reiterated in Article 12 of Government Regulation 35/2021, states that PKWT cannot stipulate a probation period. If included, the clause is void by law and the length of service is still counted. A probation period of a maximum of three months is only valid for PKWTT according to Article 60 paragraph (1) of Law 13/2003, and during this period, the wage must not be below the minimum wage.
Two deadlines and one formula attached to every PKWT
Registration. Government Regulation 35/2021 Article 14 requires PKWT to be registered online no later than three working days after signing. If online registration is not available, it must be registered in writing at the district or city labor office no later than seven working days.
Compensation money. Articles 15 to 17 require it when PKWT ends, for workers with at least one month of continuous service. The formula is length of service divided by 12 multiplied by one month's wage, so 12 full months equate to one month's wage, based on the basic wage plus fixed allowances. Compensation does not apply to foreign workers, and for micro and small enterprises, the amount is determined by agreement. If either party terminates the employment relationship before the contract ends, compensation is still mandatory, calculated from the duration already served.
Article 61 of Government Regulation 35/2021 imposes gradual administrative sanctions on this obligation: written warnings, business activity restrictions, temporary cessation of production tools, to business activity freezing.
The regulatory direction has not stopped. Minister of Manpower Regulation 7/2026 on Outsourcing, effective from April 30, 2026, is prepared among other things as a follow-up to the same Constitutional Court decision. Regarding the termination of the employment relationship, the severance pay figures are discussed separately in the table of length of service and multipliers for termination reasons.
The fundamental differences between the two are also discussed by Rendi Novalia in the Industrial Relation Analyst class. If you prefer to see the explanation directly, there is a clip available.
Sources
- Government Regulation Number 35 of 2021 on Fixed-Term Employment Agreements, Outsourcing, Working Hours and Rest Periods, and Termination of Employment (full text), JDIH Ministry of Manpower.
- Metadata and status of Government Regulation Number 35 of 2021, JDIH BPK.
- Summary of Decision Number 168/PUU-XXI/2023, Constitutional Court of the Republic of Indonesia.
- Law Number 13 of 2003 on Manpower, JDIH Ministry of Manpower.
- Metadata of Minister of Manpower Regulation Number 7 of 2026 on Outsourcing, JDIH BPK.