Company Regulations (PP) Vs Collective Agreements (PKB) - Crucial Rules of the Indonesian Labour Framework in 2026

Understanding the Foundation of the Indonesian Labour Framework

For many foreign entrepreneurs entering Indonesia’s thriving markets, whether in Bali’s hospitality sector, Lombok’s emerging resort developments, or Sumbawa’s energy and infrastructure projects, employment compliance can quickly become one of the most challenging aspects of doing business. The country’s labour regulations are extensive, detailed, and deeply rooted in protecting workers’ rights while balancing employers’ operational needs.

Understanding the Indonesian Labour Framework is not just a legal formality, it’s a fundamental step toward building a sustainable business. Within this framework lie two essential instruments that govern workplace relationships: Company Regulations (Peraturan Perusahaan or PP) and Collective Labour Agreements (Perjanjian Kerja Bersama or PKB). Both documents outline the rights, obligations, and disciplinary rules that shape daily operations, yet they differ significantly in scope, creation process, and legal weight.

In this article, we’ll unpack how these two pillars function within the Indonesian Labour Framework, clarify their differences, and highlight why understanding them is critical for maintaining compliance. You’ll also learn the key steps every foreign business owner should take to ensure that their HR practices align with national laws, helping your company avoid costly disputes while fostering a transparent, lawful, and productive work environment.

Defining Company Regulations (PP) in the Indonesian Labour Framework

Within the Indonesian Labour Framework, Company Regulations (locally known as Peraturan Perusahaan or PP) serve as the cornerstone of internal governance for many businesses operating in Indonesia. A PP is a formal written document established by the employer to outline the company’s internal working conditions, employee rights and obligations, and disciplinary procedures. It becomes mandatory when a company employs more than ten workers or when no Collective Labour Agreement (PKB) exists within the organization.

The legal foundation for PP lies in Indonesia’s Manpower Law No. 13 of 2003, as amended by the Job Creation (Omnibus) Law and its derivative regulations. These laws specify that every employer meeting the threshold must draft a PP and submit it to the local manpower office for approval. According to guidance from Widyawan & Partners Library and Tricor Global, the PP remains valid for two years, after which it should be reviewed and updated to align with new regulations or company changes, an essential compliance step within the broader Indonesian Labour Framework.

Typically, a PP includes crucial provisions such as working hours, leave entitlements, overtime arrangements, health and safety standards, termination procedures, and disciplinary measures. It may also regulate employment types, such as permanent (PKWTT) and fixed-term (PKWT) contracts and how they transition under specific conditions, as referenced in the Indonesia Labour Database.

For instance, a foreign-owned PT PMA in Bali employing 20 local staff and no labour union must prepare a PP to clearly define workplace expectations and prevent misunderstandings. This not only helps in maintaining fairness and transparency but also signals legal compliance to local authorities. In essence, a properly drafted PP strengthens organizational stability and minimizes disputes, making it a vital instrument within the evolving Indonesian Labour Framework.

Understanding Collective Labour Agreements (PKB) in the Indonesian Labour Framework

Within the Indonesian Labour Framework, a Collective Labour Agreement (Perjanjian Kerja Bersama or PKB) is a formal agreement negotiated between an employer (or group of employers) and a recognized labour union representing the employees. Unlike Company Regulations (PP), which are unilaterally drafted by employers, the PKB is the product of mutual negotiation and consensus, then officially registered with the local Manpower Office to gain legal effect.

The legal foundation for PKB is established under Articles 118–124 of the Manpower Law No. 13 of 2003, as amended by the Job Creation Law and related implementing regulations. As noted by Suria Law and Kontrak Hukum, the PKB typically has a validity period of two years and may be renewed or renegotiated upon expiration. It binds both the employer and the employees within the company, serving as a key component of industrial harmony under the Indonesian Labour Framework.

A standard PKB covers essential matters such as employee rights and obligations, wage structures and increments, overtime compensation, working hours, dispute resolution mechanisms, grievance procedures, and union rights. The agreement aims to ensure fair treatment and protection for workers while providing employers with a clear framework to manage workforce relations effectively.

For example, a large hotel chain in Bali employing hundreds of staff and hosting an active union might negotiate a PKB to establish transparent wage scales, overtime premiums, annual bonus systems, and conflict resolution procedures. This negotiated document reflects both sides’ commitment to maintaining stable industrial relations, a critical element of the Indonesian Labour Framework.

Ultimately, having a PKB demonstrates maturity in employer-employee relations. It provides not only stronger legal protection for workers but also ensures predictability for employers, especially foreign companies navigating Indonesia’s complex employment environment.

Key Distinctions Between Company Regulations (PP) and Collective Agreements (PKB) in the Indonesian Labour Framework

For foreign companies entering Indonesia’s employment landscape, understanding the differences between Company Regulations (PP) and Collective Labour Agreements (PKB) is crucial to maintaining compliance under the Indonesian Labour Framework. Although both instruments regulate workplace relationships, they differ significantly in scope, process, and legal authority.

1. Scope of Parties Involved

The first distinction lies in who participates in creating these instruments. A PP (Peraturan Perusahaan) is drafted solely by the employer and applies internally to all employees within the company. It serves as a unilateral declaration of internal rules, covering working hours, leave entitlements, disciplinary procedures, and other employment conditions. In contrast, a PKB (Perjanjian Kerja Bersama) is a bilateral agreement negotiated between the employer and a recognized labour union or employee representatives. This makes the PKB a more democratic mechanism within the Indonesian Labour Framework, as it embodies negotiation and mutual consent.

2. Legal Priority and Enforcement

In companies where both PP and PKB exist, the PKB takes precedence. According to AdcoLaw, if a union is established and a collective agreement is registered with the Manpower Office, the PKB automatically overrides the company’s internal PP. The rationale is that negotiated agreements reflect employee representation and thus hold stronger binding power under Indonesia’s labour laws.

3. Creation Process and Legal Requirements

The process of developing each document also differs. The PP is drafted unilaterally by the employer but must still be reviewed and ratified by the local Manpower Office before implementation. Meanwhile, the PKB requires a structured negotiation process, documented discussions, and eventual registration. This negotiation ensures fairness and transparency, core principles of the Indonesian Labour Framework.

4. Applicability and Practical Scenarios

By law, companies employing more than 10 employees and lacking a union must implement a PP. On the other hand, when a labour union reaches the required membership threshold or requests a negotiation, a PKB becomes mandatory.

For example, a foreign-owned wellness studio in Lombok with 25 local staff and no union must establish a PP. But once a union forms and initiates collective bargaining, a PKB replaces the PP as the governing document. Understanding these differences is essential for foreign business owners to prevent non-compliance and to build sustainable employment relations under the Indonesian Labour Framework.

Why the Indonesian Labour Framework Is Crucial for Foreign Businesses in Bali, Lombok & Sumbawa

For foreign investors expanding into Indonesia, especially in Bali, Lombok, and Sumbawa, understanding and complying with the Indonesian Labour Framework is not just a regulatory obligation, but a strategic necessity. The framework governs every aspect of employment, from how contracts are written to how disputes are resolved, ensuring both workers’ rights and business continuity.

1. Compliance with Labour Instruments and Employment Structures

Foreign-owned entities (PT PMA) must adhere to all major components of the Indonesian Labour Framework, which include Company Regulations (PP) or Collective Labour Agreements (PKB), depending on workforce conditions. In addition, foreign businesses must comply with employment contract structures, whether fixed-term (PKWT) or indefinite (PKWTT), along with regulations governing wages, benefits, and termination. According to Gadjian, these instruments collectively serve as a legal safety net, ensuring that all working relationships remain transparent, fair, and compliant.

2. Regional Enforcement and Oversight

In practice, enforcement of the Indonesian Labour Framework is highly localized. The local Manpower Offices in Bali and West Nusa Tenggara (which includes Lombok and Sumbawa) play an active role in reviewing and approving both PP and PKB submissions. Each region may interpret compliance requirements slightly differently, particularly in tourism-driven areas like Bali or emerging investment zones such as Sumbawa. Therefore, foreign investors must account for these regional nuances when structuring their HR policies and compliance documentation.

3. Legal and Operational Risks of Non-Compliance

Failing to adopt the appropriate labour instrument, whether a PP or PKB can lead to serious consequences. According to Widyamataram University’s legal journal, non-compliance may result in labour disputes, union action, or even invalidation of employment policies. These issues can delay operations, attract fines, or harm a company’s reputation among regulators and local communities.

4. Long-Term Benefits of Compliance

When properly implemented, both PP and PKB bring substantial advantages. They clarify employee expectations, standardize management decisions, and reduce the likelihood of conflict. Most importantly, adherence to the Indonesian Labour Framework demonstrates respect for Indonesia’s regulatory ecosystem, a vital step for any foreign business aiming to build a sustainable, reputable operation in Bali, Lombok, or Sumbawa.

By embedding these principles early, investors create a compliant foundation that supports growth while minimizing legal exposure in Indonesia’s dynamic employment environment.

Implementing Compliance: Step-by-Step Guide to Setting Up PP or Negotiating PKB

For foreign businesses expanding into Indonesia, especially in Bali, Lombok, or Sumbawa, establishing either Company Regulations (PP) or a Collective Labour Agreement (PKB) is a vital compliance step under the Indonesian Labour Framework. These documents formalize the working relationship between employers and employees, ensuring that local labor laws are observed and internal policies are enforceable. Below is a structured process to help business owners navigate this critical aspect efficiently.

Step 1: Conduct a Workforce Assessment

Start by evaluating the company’s current labor situation, number of employees, presence of a union, and the types of employment contracts in place. If your business has more than 10 employees but no union, you’ll likely need to prepare a PP. If a union exists, or your workforce has expressed collective representation, a PKB is typically the right approach within the Indonesian Labour Framework.

Step 2: Decide Between PP or PKB

Foreign investors should determine early whether they fall under the PP or PKB category. According to Manpower Law No. 13/2003, PP is mandatory for companies without unions, while PKB applies when collective bargaining takes place. This decision directly influences how your HR policies are drafted, communicated, and approved by local authorities.

Step 3: Drafting the Company Regulations (PP)

If your business proceeds with a PP, ensure it aligns fully with national labor laws. The document should cover core areas such as working hours, overtime policy, employee conduct, disciplinary procedures, leave entitlements, and termination protocols. Under the Indonesian Labour Framework, these internal rules act as your company’s legal backbone and must be reviewed and legalized by the Manpower Office (Dinas Ketenagakerjaan).

Step 4: Negotiating the Collective Labour Agreement (PKB)

When a PKB is required, the process involves negotiation between employer representatives and the registered labor union. Both parties must agree on terms such as wages, overtime rates, leave, and bonuses. Once finalized, the PKB must be signed, stamped, and registered with the local Manpower Office. This ensures its legal validity and recognition under the Indonesian Labour Framework.

Step 5: Reporting and Monitoring Compliance

After submission, the Manpower Office will review and issue acknowledgment of registration. Businesses should also monitor expiration dates, PPs are typically valid for two years, while PKBs last up to two years with the option for renewal.

Step 6: Integration into Company Operations

Once approved, integrate the PP or PKB into daily operations. Train HR teams, update employment contracts, and adjust payroll systems accordingly. Communicating these policies transparently to employees reinforces compliance and improves organizational trust.

By following these six steps, foreign companies can build a compliant and efficient HR foundation, one that aligns perfectly with the Indonesian Labour Framework while supporting long-term business growth and stability.

Avoiding Compliance Pitfalls: Common Mistakes Foreign Employers Make

Navigating Indonesia’s employment landscape can be complex, especially for foreign-owned companies new to the Indonesian Labour Framework. While most investors focus on business licensing and taxation, labor compliance is often overlooked—leading to costly disputes or invalid employment structures. Below are the most common mistakes foreign employers make when dealing with Company Regulations (PP) and Collective Labour Agreements (PKB), along with tips to prevent them.

1. Treating PP and PKB as the Same Document

One of the most frequent misconceptions is assuming that PP and PKB serve the same function. In reality, PP outlines unilateral company policies, while PKB is a negotiated agreement between employers and workers’ unions. Under the Indonesian Labour Framework, companies must choose one depending on their employee structure, having both incorrectly applied can create overlapping or contradictory rules.

2. Drafting PP Without Reflecting the Latest Labour Reforms

Some foreign companies draft or reuse outdated Company Regulations without incorporating updates from Government Regulation (PP) No. 35/2021, which governs contract duration, outsourcing, and termination. As Moores Rowland Indonesia notes, failure to reflect these reforms may lead to non-compliance and expose employers to legal challenges from staff or unions. A regularly updated PP ensures internal rules remain aligned with evolving labour laws under the Indonesian Labour Framework.

3. Neglecting to Register the PKB

Even after successful negotiation with unions, some employers forget to register their PKB with the local Manpower Office (Dinas Ketenagakerjaan). Without registration, the agreement lacks legal standing, and its clauses cannot be enforced. According to studies published by Widyamataram University, unregistered PKBs are considered null and void, rendering months of negotiation useless.

4. Failing to Align PP/PKB with Employment Contracts

A company’s PP or PKB must match the terms stated in individual employment contracts, including wage structures, leave entitlements, and termination procedures. Mismatched documents can cause internal confusion, disputes, or audit findings during manpower inspections.

5. Lack of Legal Review and HR Integration

The best prevention strategy is proactive compliance. Engage a legal consultant early, conduct HR policy audits, and ensure all employment-related documents, from PP to PKWT contracts work cohesively within the Indonesian Labour Framework.

By addressing these pitfalls early, foreign employers can protect both their operations and their workforce, ensuring long-term stability and compliance in Indonesia’s dynamic employment environment.

Sustaining Compliance: Monitoring and Updating Labour Documents

The Indonesian Labour Framework is not static, it continuously evolves through reforms such as the Omnibus Law of 2023 and Government Regulation No. 35/2021. These updates reshape employment terms, contract duration, and severance entitlements, meaning that a once-compliant Company Regulation (PP) or Collective Labour Agreement (PKB) can quickly become outdated.

For foreign-owned businesses operating in Bali, Lombok, or Sumbawa, regular monitoring is not optional, it’s essential. Regional labour offices may apply specific interpretations of national rules, and local norms can influence how policies are enforced. Conducting an annual review of your PP or PKB ensures ongoing alignment with both national and regional requirements.

To stay compliant, companies should implement a structured audit process involving HR and legal teams. This includes:

• Assessing whether new labour regulations affect existing clauses.
• Updating and re-registering PP or PKB when necessary.
• Communicating policy changes clearly to all employees.

Maintaining a well-monitored and regularly updated PP/PKB demonstrates corporate responsibility and reinforces a company’s commitment to the Indonesian Labour Framework, safeguarding its legal standing and workforce harmony in the long run.

Final Thoughts: Building Compliance Through the Indonesian Labour Framework

Company Regulations (PP) and Collective Labour Agreements (PKB) are not just administrative requirements, they are foundational elements of the Indonesian Labour Framework. For foreign businesses setting up in Bali, Lombok, or Sumbawa, understanding and implementing these documents correctly ensures lawful, transparent, and harmonious employment relations.

Overlooking or confusing PP and PKB can expose a company to legal disputes, penalties, and reputational damage. Each document plays a distinct role, and both are vital in maintaining compliance and protecting both employer and employee rights.

Foreign investors should take proactive steps: assess their workforce structure, determine whether PP or PKB applies, and engage experienced local consultants to ensure full alignment with current regulations. By prioritizing compliance from the start, businesses can operate confidently, anchored within Indonesia’s evolving legal landscape and supported by a strong, fair, and sustainable employment framework.