For foreign investors and business owners in Bali, 2026 brings a sharpened focus on employment law compliance. As the Indonesian government tightens enforcement under the derivatives of the Job Creation Law, the ambiguity between internal rules and formal union agreements has become a major liability zone. Many expats mistakenly assume a translated handbook from their headquarters is sufficient, only to face criminal fines of up to IDR 50,000,000 for failing to register the correct legal instrument with the local Manpower Office.
The choice—or obligation—to implement either Company Regulations (Peraturan Perusahaan or PP) or a Collective Labour Agreement (Perjanjian Kerja Bersama or PKB) is not merely administrative; it defines your entire industrial relations strategy. A mismatch here can lead to invalid termination clauses, “illegal” overtime disputes, and significant back-pay claims. Understanding the distinction is the first line of defense against an increasingly litigious labor environment in Indonesia.
This guide clarifies the critical differences between these two instruments and how they interact with Government Regulation (PP) No. 35/2021. Whether you are running a boutique villa management company in Canggu or a furniture export facility in Jepara, aligning your internal rulebook with national law is non-negotiable. We provide the step-by-step compliance roadmap to ensure your business remains on the right side of the Ministry of Manpower regulations.
Table of Contents
- Defining the Legal Instruments: PP versus PKB
- Mandatory Requirements for Companies with 10+ Employees
- Core Differences in Drafting and Authority
- Interaction with PP 35/2021 and Omnibus Law
- Real Story: How Stefan Navigated a Union Dispute in Tabanan
- Step-by-Step: Creating Valid Company Regulations
- The Negotiation Process for Collective Labour Agreements
- Risks of Non-Compliance and Expired Regulations
- FAQ's about Company Regulations and PKB
Defining the Legal Instruments: PP versus PKB
To navigate the legal landscape effectively, one must first understand the fundamental definitions. Company Regulations (PP) are a set of written rules regarding working conditions and discipline, drafted unilaterally by the employer. While the employer must consider input from worker representatives, the final authority rests with the company, subject to government ratification. This is typically the starting point for most businesses.
In contrast, a Collective Labour Agreement (PKB) is a bilateral contract negotiated between the employer and a registered trade union. It is a product of consensus. Once a PKB is signed and registered, it replaces the PP as the primary governing document for the employees it covers. Understanding the nuance of company regulations vs PKB Indonesia frameworks is essential, as the move from a PP to a PKB signals a shift from managerial prerogative to shared governance with a union.
Mandatory Requirements for Companies with 10+ Employees
Under the Manpower Law, any company operating in Indonesia with at least 10 employees is legally obliged to have approved Company Regulations (PP). This applies to all staff, including permanent (PKWTT) and contract (PKWT) workers. The requirement is strict: operating without a ratified PP is a regulatory violation that exposes the company directors to criminal sanctions and fines ranging from IDR 5,000,000 to IDR 50,000,000.
It is crucial to note that you cannot have both a PP and a PKB applying to the same employees for the same terms. If a PKB is successfully negotiated with a union, the PP becomes void for the workers covered by that agreement. However, for smaller entities or those without a union, the PP remains the mandatory standard. Foreign owners often overlook this “10-employee” trigger, assuming their informal contracts are sufficient, which is a dangerous oversight in the 2026 regulatory climate.
Core Differences in Drafting and Authority
The primary distinction lies in the drafting process and the balance of power. A PP is drafted by the employer. While the law requires a “consultation” phase with worker representatives, the company retains the final say on the content, provided it does not contradict valid laws. This allows for faster implementation and greater control over company culture and disciplinary procedures.
Conversely, a PKB is a negotiation. It requires the agreement of the labor union. If the union does not agree to a clause—for example, regarding bonus calculations or shift patterns—the clause cannot be included. This negotiation process can be lengthy and, if deadlocked, can lead to industrial disputes. Therefore, unless a union is already present and demanding a PKB, most legal experts advise foreign investors to maintain a robust, compliant PP for as long as legally possible to preserve operational agility.
Interaction with PP 35/2021 and Omnibus Law
All internal rules, whether PP or PKB, must align with higher-level regulations, specifically Government Regulation No. 35/2021 (PP 35/2021). This regulation governs fixed-term contracts, outsourcing, working hours, and termination. A common pitfall is drafting a PP that uses old formulas for severance pay or overtime that were valid pre-2020 but are now obsolete.
If a clause in your company regulations vs PKB Indonesia document contradicts PP 35/2021—for instance, by offering less than the statutory severance pay—that clause is null and void by law. In a dispute, the court will apply the government regulation, not your internal rule. Therefore, 2026 is a critical year for auditing existing PPs to ensure they fully integrate the latest statutory provisions to avoid “null and void” risks during termination proceedings.
Real Story: How Stefan Navigated a Union Dispute in Tabanan
Meet Stefan, a 45-year-old furniture manufacturer from Germany. He runs a high-end export facility in Tabanan, employing about 60 local artisans. For years, Stefan operated with a simple “Employee Handbook” translated from his German HQ, which he believed was sufficient.
In late 2025, a newly formed union unit within his factory demanded a formal Collective Labour Agreement (PKB), citing that his overtime policies did not match Indonesian law. Stefan initially refused, leading to a “work-to-rule” strike that threatened a major shipment to Hamburg. The humid air of the factory floor grew heavy with tension as production stalled.
Realizing he was out of his depth, Stefan engaged a corporate consultant and a trusted tax management company to audit his payroll liabilities. They discovered his old handbook was legally toothless. The tax team helped him calculate the precise financial impact of transitioning to a PKB versus updating his PP. Armed with accurate data, Stefan negotiated a fair PKB that codified performance bonuses in exchange for flexible shift patterns. The strike ended, and Stefan learned that in Indonesia, a formalized, compliant rulebook is the best insurance against industrial disruption.
Step-by-Step: Creating Valid Company Regulations
Creating a valid PP involves more than just writing a list of rules. First, draft the regulations in Bahasa Indonesia (the governing language). English translations are for your reference only. The content must cover rights and obligations, working conditions, company discipline, and the validity period (maximum 2 years).
Next, conduct the mandatory consultation with worker representatives. Document this meeting with an attendance list and minutes; this evidence is required for submission. Finally, submit the draft and supporting documents to the local Manpower Office (Dinas Ketenagakerjaan). The PP is only legally binding once it receives a ratification decree (SK Pengesahan) from the government.
The Negotiation Process for Collective Labour Agreements
Negotiating a PKB is a formal industrial relations process. It begins when a registered union requests a negotiation. The company is legally obligated to engage in “good faith” negotiations. Both parties form a negotiation team and conduct meetings based on the principle of musyawarah (deliberation for consensus).
Once an agreement is reached, the PKB is signed by both parties and registered with the Manpower Office. Unlike a PP, the government does not “approve” the content of a PKB in the same way; they “register” it, assuming that because it was agreed upon by a union, it is fair. However, if negotiations deadlock, the process moves to mediation or the Industrial Relations Court, highlighting the higher risk profile of the PKB route compared to the company regulations vs PKB Indonesia standard.
Risks of Non-Compliance and Expired Regulations
The risks associated with mismanaging these instruments are severe in 2026. The most immediate risk is the expiration of the PP or PKB. A PP is valid for two years. If it expires and is not renewed, the company legally operates without valid regulations, reopening the door to the IDR 50 million fine and creating a legal vacuum where employees can challenge disciplinary actions.
Furthermore, relying on a “Global Code of Conduct” instead of a localized PP is a critical error. Indonesian courts rarely recognize foreign-language or global policies that have not been ratified by the local Manpower Office. In termination disputes, a lack of a ratified PP often results in the court ruling in favor of the employee, forcing the company to pay maximum severance packages plus potential damages.
FAQ's about Company Regulations and PKB
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Can I have a PKB without a union?
No. A Collective Labour Agreement (PKB) requires a registered trade union as a counterparty. If there is no union, you must use Company Regulations (PP).
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How often must I renew my Company Regulations?
Every two years. You should begin the renewal process 3 months before the expiration date to ensure continuous coverage.
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Does a PKB apply to all employees?
Generally, yes, a PKB applies to all employees in the company, not just union members, unless specific clauses state otherwise for certain managerial levels.
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What happens if my PP contradicts the Manpower Law?
The specific clause that contradicts the law is null and void (batal demi hukum). The provisions of the prevailing law (e.g., PP 35/2021) will apply instead.
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Is the IDR 50 million fine real?
Yes. While enforcement varies, the Manpower Law explicitly sets criminal sanctions for failing to have a PP/PKB when required. It is often used as leverage by authorities during other disputes.
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Can I write my Company Regulations in English?
You can have a bilingual version, but the Bahasa Indonesia version is the only one that matters legally. The ratification by the Manpower Office is always on the Indonesian text.
