When Company Regulation is Necessary & What to Include in Your Company Regulation

Company regulation, employee handbook, company operational procedures, or whatever terms you want to use, is basically a guideline to regulate the employment relationship between the company as an employer and the employee. Company regulation is made to ensure that company management is safe, organized, and fair. As an expert in employment sector from a US-based law firm, Nancy Cooper says, “company regulation can serve as a playbook and spell out the rules of the game for employees about what is expected of them.” The bigger your company gets, the more important to develop your company regulation in order to avoid potential conflict and to make your employees aware of your company’s expectation.

Company regulation based on Indonesian Law

The prevailing Indonesian Law in the employment sector is Law No. 13/2003 concerning Manpower (“Law 13/2003”). Law 13/2003 stipulates that company regulation shall refer to a set of rules and regulations made in writing by the employer which specify work requirements and the company’s discipline and rule of conduct. Besides referring to the laws and regulations in the employment sector, the company is allowed to set out more specific terms and conditions as the guideline and to build the company culture as embodied in such company regulation.


Who will be responsible to arrange a company regulation?

As the employer, the company shall be held liable to arrange a company regulation as it is the obligation of the company, as mentioned in Article 5 of Minister of Manpower Regulation No. 28/2014 concerning the Procedure of Arrangement and Authorization of Company Regulation and Arrangement and Registration of Collective Labor Agreement (“Permenaker 28/2014”). However, in the process of company regulation arrangement, your employees are allowed to give their suggestion and contribution to the draft of company regulation. In fact, this matter is stipulated under Article 6 of Permenaker 28/2014.

Feedback from the employees is deemed necessary since the purpose of company regulation is to regulate how the employees act in the workplace. Therefore, when it is possible, you can ask for their input in order to give you a different perspective on what is their expectation and their needs. This feedback can also be beneficial for you to create a better company culture to enhance the productivity of your employees which leads to the efficiency of your company as well.


When do you need company regulation?

According to Article 2 paragraph (1) of Permenaker 28/2014, if a company has employed 10 (ten) persons in minimum, the company is obliged to have a company regulation. Aside from the obligation based on the laws, company regulation is necessary when your company is getting bigger in order to create consistent work standards, serves as a guideline for employees to handle certain situations within the company, and also to provide a clear and fair treatment for the employees. In case of dispute occurs between the company and the employees where the employees submit a lawsuit against your company, the company regulation serves as your evidence.

Company regulation is required to be authorized by the manpower official in district level since the validity of the company regulation depends on the authorization from the manpower official. Pursuant to Article 108 paragraph (1) of Law 13/2003, company regulation is valid after being validated by the authorized government official. Thus, you need to submit the application to the manpower official in district level in order to obtain the authorization of your company regulation.


Important provisions in your company regulation

Indonesian laws only stipulate the company regulation in general, whereas the details and specific clauses under company regulation are based on the discretion of the company, insofar as the clauses do not violate the laws. For instance, Law 13/2003 regulates that employees that have worked for 1 (one) year consecutively shall be entitled to 12 (twelve) days of annual leave. Thus, you are prohibited to provide annual leave in less than 12 (twelve) days, yet you are allowed to stipulate annual leave more than 12 (twelve) days.


Provisions required by law

Although the contents of company regulation are based on the option of the company, there are certain provisions that must be included in company regulation. Based on Article 2 paragraph (2) of Permenaker 28/2014, a company regulation at least shall fulfill:

  • rights and obligations of the company;
  • rights and obligation of the employees;
  • work requirements;
  • company’s code of conduct;
  • validity period of the company regulation; and
  • further provisions under the laws and regulations.


Additional provisions to protect your company

Before you start to draft your company regulation, you need to consider the important things to you as a business. What do you consider as the deal breaker? If you think when your employee leaks the confidential information of your company is a deal breaker, you can put it as a severe violation and the consequence would be the termination of employment relationship without any grace period for the employees. If your company is a digital marketing agency, the dress code can be casual but in certain circumstances such as meeting with client, the dress code should be formal attire to maintain the professionalism and reputation of your company. Those provisions can be included in your company regulation as it is the company expectation on how the employees should behave.

According to a chair of labor and employment group of Garvey Schubert Barer law firm in US, Nancy Cooper, one of the most important things to remember is that your company regulation needs to reflect the way you do business. If you write a policy, be prepared to enforce the policy, whether it is a policy setting limits or a policy supporting goals, it needs to be a true reflection of your business. Here is the guideline on what topic to be included in your company regulation:


Leave policy

Based on Indonesian laws, there are types of leave where the company should grant that leave to the employees and should not reduce the wages of the employees, which is called as paid leave. Law 13/2003 regulates that paid leave includes sick leave, personal leave (such as getting married, death of family member, his wife gives birth or suffers a miscarriage), also maternity and breastfeeding leave. If you grant sick leave for your employees, you can stipulate how the procedure to take sick leave. You can also regulate how many days of annual leave that the employees have and the procedure to use annual leave in order to maintain productivity and the operational activity of your business.


Wages and promotions

Let your employees know what is the payment method of the wages in your company. When they will receive their monthly wages? How about the overtime pay is being paid or compensated by the company? Do the employees get a meal allowance? You can also discuss about pay grade structure for each position and how your company treats salary raise. Aside from the wages, you can also include the hierarchy in your company and the requirements to get promotions. This is important so the employees know what the rules are and to minimize the potential conflict in these sensitive issues. However, you should also comply with the laws and regulations regarding wages policy as it is specifically regulated under Government Regulation No. 78/2015 concerning Wages.



In this section, you can provide an overview of the benefits that the employees may have during the employment relationship. The benefits include health insurance, dental and vision care, or other benefits that your company offers. In the case of startup-tech industry, they usually offer additional benefits to attract employee candidate. The benefits could be sports allowance, shopping vouchers, or other types of benefits other than the standard one. You should also include the requirement of the employees who are entitled to such benefits, for instance, the dental and vision care will be grant to a permanent employee who has worked for minimum 1 (one) year consecutively. In addition, Indonesian laws protect the employees by way of imposing obligations to the company as employer to include their employee to national health and employment insurance program (BPJS Kesehatan dan Ketenagakerjaan).


Employee behavior

Your employees are the reflection and faces of your company when they encounter with client or the third party. Thus, it is necessary to regulate the code of conduct on how the employees should act within your company, and how they represent your company to the third party. Under this section, you can attendance policy, meal break, bans on certain things, dress code, how the employees use email and internet, and a policy to avoid harassment in the office or discrimination toward the employees.


Company regulation vs collective labor agreement

Based on Article 108 paragraph (2) of Law 13/2003, there is an exception for the company where the company is not required to arrange a company regulation if they have a collective labor agreement. Collective labor agreement is defined as an agreement resulted from negotiations between a trade/ labor union or several trade/ labor unions registered at a government agency responsible for manpower affairs and an entrepreneur or several entrepreneurs or an association of entrepreneurs. The agreement shall specify work requirements and rights and obligations of both sides.

If you have trade union in your company, you can arrange a collective labor agreement to regulates the rights and obligation and other specified terms as mentioned above. The collective labor agreement serves as the guideline in the workplace and to create a harmonized work culture since the collective labor agreement is made of negotiation between the company and trade union. Thus, the collective labor agreement has accommodated the interest of both parties.



After the company regulation has been made, do not forget to distribute it to your employees. Regulation is created to be enforced and you have to be consistent on the enforcement of the company regulation. Company regulation will also be changed and updated over time, depending on the circumstances and how does it affect your company. If the company regulation is too strict and results in a decrement of employees productivity, you should consider to re-draft on certain policies of your company regulation.

If possible, the experts with law background should be involved in preparing the company regulation and ask the experts to provide feedback or review the company regulations. Does it align with the applicable laws and regulations in Indonesia? How to prepare the application for authorization of the company regulation to the government official? Having a legal expert like Libera is necessary to help you along the way to secure and develop your business. Libera can help you to address your legal concern through 1 on 1 free consultation session that you can book here and we can assist you in designing a company regulation that suits your company culture.

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