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As Indonesia is set to approve the draft of the Omnibus Law on job creation, how will it impact the tech industry?

Written by Khamila Mulia Published on 

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The bill is expected to attract more investors but many say it will harm labor rights and the environment.

Dini Maria is a content writer who works in a Jakarta-based tech startup. As the COVID-19 pandemic hits many industries and businesses, Maria is worried about her job, fearing that the crisis might eventually affect her company and her position.

“Many startups have been forced to let go of their employees due to the crisis, and I’m worried that it would happen to me one day. Moreover, the Omnibus bill is said to be passed soon, which has raised my concerns,” Maria, who used a pseudonym as she preferred to not reveal her real name, told KrASIA.

The Omnibus bill on job creation, which officially entered the national legislation program in December 2019, has sparked controversy, as opponents say it mainly benefits businesspeople and investors, and is detrimental to the rights of local workers. Yet, Indonesia is planning to pass the Omnibus Law this October, according to local media reports.

The government is adamant that the bill will attract more investment, create major job opportunities, and boost economic growth in the country. That reassurance has not found popular support.

“My understanding is that the Omnibus bill has been criticized because it could allow companies to terminate their employees and extend outsourcing practices, which doesn’t sound very good for ordinary workers like me,” said Maria.

Opponents of the Omnibus Law say the bill would harm workers’ rights. Photo by Hobi industri on Unsplash.

What is the omnibus bill?

Commonly, an omnibus billomnibus means “for all” in Latinis a proposed law covering a number of diverse and unrelated topics. Widodo’s proposed bill includes 11 regulations supposedly directed at simplifying business licensing, investment requirements, employment, as well as empowering and protecting micro, small, and medium enterprises (MSMEs). If approved, the law will replace earlier provisions on the same regulated subjects.

Yet, opponents of the bill have signaled how the new regulation could instead eliminate some labor rights such as paid leave and severance pay, among other complications, according to the Jakarta Legal Aid Institute (LBH), which in April released a paper explaining its position.

LBH has recommended that the government halt the entire discussion process and withdraw the bill from the national legislation program, as the bill “tends to only accommodate the interests of investors and businesspeople while placing workers on the weaker side.”

Various communities and organizations such as workers, farmers, and student groups have also held protests at the House of Representatives’ office over the past few months, while the bill faces derision on social media, with hashtags such as #TolakOmnibusLaw and #TolakRUUCiptaKerja collecting thousands of views and shares.

Opponents have criticized the hashtag #IndonesiaButuhKerja (“Indonesians need jobs”), which has been used in support of the bill by influencers and key opinion leaders (KOLs), many of whom have admitted to receiving payments to promote bill-related content. However, these influencers did not disclose their client’s identity.

The government rejected all allegations and emphasized that the new set of rules were designed while taking into account workers’ rights. The administration also denies its involvement in supporting online campaigns that are in favor of the bill.

Read more: Should Indonesia regulate its social media influencers?

Beneficial for startups? Yet concerns are raised regarding labor rights

Startups’ employees will be affected by the implementation of the omnibus law on job creation, according to LBH Jakarta. The bill will allow businesses to extend the outsourcing practice of commissioning third-party vendors to manage certain departments of their businesses, thus increasing the number of outsourced positions, which on average receive fewer benefits than permanent employees.

According to Indonesia’s current Manpower Act, outsourcing is only allowed for certain types of work that are not directly related to the company’s core business and don’t have career paths, namely security officers, cleaning services, phone operators, call centers, and factory machine technicians. However, there are already many companies that stray from these regulations, and as the new bill is set to remove those restrictions, critics worry that more businesses will use outsourcing systems, affecting workers’ positions.

Maria already had an unpleasant experience as an outsourced employee in the past, when she was laid off by her previous employer as the company pivoted its business. “I think outsourcing practices are pretty common in startups and other businesses. The Omnibus bill could worsen the condition, letting companies hire outsource workers for years without job certainties,” she said.

According to Afia Fitriati, co-founder and CEO of HR startup Gadjian, tech startups are closely related to the gig economy. As businesses in relatively new industries that carry high risks, startups might choose to outsource their employees or hire freelancers for efficiency reasons.

“But of course, this depends on the business model and strategy of each company. Although [hiring outsourced labor] is cheaper, it could lead to high turnover rates, which are not good for business in the long run,” said Fitriati.

Tech startups are relatively similar to the gig economy, requiring a fast-paced work environment. Photo by Al-Ghazali on Unsplash.

Citizens are also worried about a simplification promoted by the bill, which will allow companies to terminate permanent employees when they do not achieve the desired performance. Gina Golda Pangaila, legal VP of a Jakarta-based tech company, explained that even after the approval of the bill, a company cannot fire employees for no apparent reason, as it must explain clearly in the which conditions in the contract have been infringed upon to lead to termination.

“The bill is not perfect, there are several points that need to be clarified so that it does not become a loophole in the future. But I think the Omnibus bill on job creation aims to create a better balance for employers and workers. Companies need to fulfill their employees’ rights while workers are expected to work better with these new rules,” Pangaila said.

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A new challenge for local talents in the tech ecosystem?

The bill also relaxes requirements for foreigners willing to work in Indonesia. Currently, the bureaucratic procedures for obtaining a work permit in the country are quite complex.

As the move could increase foreign expertise in the local tech ecosystem, local workers are worried about having fewer job opportunities.

“There is certainly a need for foreign expertise in some scopes of work, especially in the tech industry,” information technology minister Johnny G Plate said to local media, emphasizing that foreign skilled workers are essential during the construction or development phase of the tech ecosystem.

According to a survey by the Indonesian E-commerce Association (idEA), Indonesian startups spend IDR 210 million to 1.1 billion (USD 14,000–73,825) to recruit talent at the leadership or chief level, due to the lack of critical and technical skills needed by tech companies.

According to Plate, foreign workers could transfer their knowledge so that local employees can gain skills and abilities, especially those related to the latest technologies. However, startups are also expected to employ more local workers once the tech ecosystem matures, Plate added. 

Gadjian’s Afia Fitriati believes that looser requirements for foreign talents will be beneficial for tech startups, because there is currently a tech talent shortage in Indonesia. “If startups can’t find a good IT expert or engineer, they might look for talents abroad or even set up an office there. Many big tech companies are doing this, but it is very expensive. If skilled foreign talents can easily come here to support local tech startups, it’ll help grow our ecosystem faster,” she said.

However, Chandra Firmanto, managing partner of venture capital firm Indogen Capital, thinks that companies should always prioritize local talents over foreign workers.”When entering a new market, foreign investors or companies will bring their directors to lead the company, but other positions will be filled by the locals for better localization and efficiency.”

Targeting more investment

Firmanto explained that current regulations go against foreign investors willing to open a business in Indonesia. “Indonesia is a promising market with a large young population and high consumptive rate. Nonetheless, the current rules are unclear; there would be some hidden taxes or fees that burdening investors or companies, so they would prefer to set up an office or factories in neighboring countries like Vietnam or Thailand,” Firmanto said.

Foreign investment could play an important role in supporting economies, especially in the wake of the crisis caused by the COVID-19 pandemic. Although the omnibus law may not have a direct impact on venture capital investment, better regulation will play a role in maturing the digital economy ecosystem, Firmanto argued.

Through the omnibus law, the IT ministry is also designing regulations to attract investors for 5G implementation. Speaking to local media, the IT ministry’s representative, Adis Alifiawan, said that investors are reluctant to make investments in 5G infrastructure as the existing regulations are not clear. “We now need triple sharing, network sharing, and spectrum sharing which have not been regulated in the previous legislation,” Alifiawan said. 

However, as the bill streamlines the investment process and business licensing, it also relaxes environmental standards for business activities that require an environmental impact analysis (Amdal). This has drawn criticism from the general public and environmentalists. In August, three of Indonesia’s civil society groups—Greenpeace Indonesia, Indonesia for Global Justice, and Indonesian Centre for Environmental Law (ICEL)—released an investment warning statement on how the Omnibus law is threatening Indonesia’s sustainable investment.

In spite of all the controversy surrounding the bill, the law’s proposal has reached its final stage, with the government aiming to pass the bill next month.

Fitriarti said although the bill represents “a good purpose” to advance the nation’s economy, the government also needs to support people who might be impacted by the new laws. “The government must prepare programs to help those who lose their jobs for any reason. In addition, law enforcement must always be guarded together to ensure that it does not only benefit certain parties.”

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