PKWT vs PKWTT: Indonesian Employment Contracts Explained

If you are hiring engineers in Indonesia, you will run into two acronyms early in the process: PKWT and PKWTT. They are the two types of employment contracts Indonesian law recognizes, and the difference between them matters more than most foreign companies expect.

Get the contract type right, and the employment runs cleanly. Get it wrong, and the contract can automatically convert to a more expensive type, with retroactive obligations you did not budget for.

This is a plain-language guide for companies outside Indonesia that are hiring Indonesian engineers, either directly or through a partner like Toba Partners.

What PKWT means

PKWT stands for Perjanjian Kerja Waktu Tertentu. It is a fixed-term contract. Use it when the work has a clear end date or is genuinely temporary.

Examples that fit PKWT:

• A specific project with a defined scope and deadline
• Seasonal or one-time work
• Work that is still in a trial or exploratory phase

The rules under the Job Creation Law and Government Regulation 35/2021:

• Maximum total duration is five years, including any extensions or renewals.
• No probation period is allowed. If you put a probation clause in a PKWT, it is void by law, and that time counts as normal service.
• The contract must be in writing and in Indonesian. A bilingual version is allowed, but the Indonesian version is the legally binding one.
• It must be registered with the Ministry of Manpower within three days (online) or seven days (offline).

When a PKWT ends, the employer must pay uang kompensasi, a compensation payment based on length of service. The formula is straightforward: one month of salary for every twelve months of continuous work, calculated proportionally for shorter periods. For example, an engineer who works under a PKWT for twenty-four months at a salary of IDR 10,000,000 per month would receive IDR 20,000,000 in compensation when the contract ends.

If the employer terminates a PKWT before the end date, the employer must pay the employee for the remaining contract period. If the employee resigns early, the employee may owe the employer for the unexpired period, depending on the contract terms.

What PKWTT means

PKWTT stands for Perjanjian Kerja Waktu Tidak Tertentu. It is an indefinite-term contract, the standard for any role that is part of your ongoing operations.

A simple test: if the person in the role left, would you hire someone else to do the same job? If yes, the role is permanent, and it needs a PKWTT.

Key rules:

• No maximum duration. The contract continues until it is ended through resignation, retirement, termination, or death.
• A probation period of up to three months is allowed, and only in a PKWTT. During probation, the employee must be paid at least the minimum wage.
• Can be made verbally or in writing, though a written contract is strongly advised. If verbal, the employer must issue an appointment letter with the employee's name, start date, job title, and salary.

When a PKWTT is terminated by the employer, the employee is entitled to severance pay (uang pesangon) and long-service pay (uang penghargaan masa kerja). The amounts depend on length of service and the reason for termination.

The base severance formula is one month of salary per year of service, up to nine months for employees with eight or more years. Long-service pay adds additional amounts for longer tenures, ranging from two months for three years of service up to ten months for twenty-four years or more.

The termination reason then applies a multiplier:

• Mutual agreement: 0.5 to 1 times the base formula
• Company efficiency due to losses: 0.5 times
• Force majeure (company still operating): 0.75 times
• Company closure due to two years of losses: 0.5 times
• Employee death or long-term illness: 2 times
• Retirement: 1.75 times

These numbers add up. An engineer earning IDR 15,000,000 per month who is terminated after five years due to company restructuring could be entitled to severance of five months plus long-service pay of two months, totaling seven months of salary, or IDR 105,000,000.

Note: this is a simplified example. Actual severance amounts depend on the specific termination reason, length of service, and applicable collective agreements. We recommend consulting qualified Indonesian legal counsel before making termination decisions.

The table

The risk of getting it wrong

This is the part foreign companies need to pay attention to.

If you put someone on a PKWT for work that is actually permanent, the contract can be automatically converted to a PKWTT by operation of law. This conversion is retroactive. That means if the employment ends, severance is calculated from the original start date, not from the conversion date. Any compensation you already paid under the PKWT is deducted, but the remaining obligation can be substantial.

The conversion happens if:

• The work does not meet the legal criteria for fixed-term employment (it is permanent, not temporary)
• The PKWT exceeds the five-year maximum
• The contract is not in writing or not in Indonesian
• The employer fails to register the contract with the Ministry of Manpower

A software company hiring a backend engineer for ongoing product development is hiring for a permanent role. That engineer should be on a PKWTT, not a PKWT, even if you want to "test" them first. PKWT does not allow probation. If you want a trial period, use PKWTT with a three-month probation clause.

What this means for your company

If you are hiring through an Employer of Record like Toba Partners, you do not need to learn these rules yourself. But you should understand the trade-offs, because the contract type affects your cost, your flexibility, and your risk.

PKWT gives you flexibility. The engagement has a clear end date, the compensation at the end is predictable, and you can walk away at the contract boundary without severance. But it only works for genuinely temporary work. Using it for a permanent role is a compliance risk that can cost more than it saves.

PKWTT gives you stability. The engineer knows they have a long-term position, which helps with retention and commitment. The cost is higher if you need to terminate, but the risk of misclassification is zero.

Most companies hiring engineers for ongoing product work should default to PKWTT with a three-month probation. It is the safer choice, and the probation period gives you a real window to evaluate the engineer before the employment becomes fully protected.

How Toba Partners handles this

When your company signs a service agreement with Toba Partners, we advise you on the right contract type before anything is signed. We look at the nature of the work, the expected duration, and your company's plans, and we recommend PKWT or PKWTT accordingly.

We draft the employment contract in Indonesian (with a bilingual version for your records), register it with the Ministry of Manpower, and manage all ongoing compliance. If the contract needs to be extended, converted, or terminated, we handle the paperwork, the calculations, and the legal process.

Your company does not need to navigate Indonesian labor law on its own. That is what we are here for.