PKWT vs PKWTT: Which Employment Contract Should You Use in Indonesia? (2026)
In Indonesia, every employment relationship uses one of two contract types: PKWT (a fixed-term contract) or PKWTT (a permanent, indefinite contract) — and picking the wrong one can automatically convert your fixed-term hire into a permanent employee with full severance rights. For any foreign company hiring in Indonesia, understanding the difference is fundamental to staying compliant. This guide breaks down both contracts, when to use each, and the rules that trip up employers most often in 2026.
At a glance: PKWT = fixed-term, for temporary or project work, capped at 5 years total, no probation allowed, and it triggers a mandatory compensation payment (uang kompensasi) at the end. PKWTT = permanent, allows a probation of up to 3 months, and ends only through resignation, retirement, or a formal termination (PHK) with severance.
What is a PKWT?
PKWT — Perjanjian Kerja Waktu Tertentu — is a fixed-term employment contract, designed for work that is temporary by nature: seasonal work, project-based work, or tasks expected to finish within a defined period.
Key rules under the Job Creation Law framework (UU Cipta Kerja) and PP 35/2021:
Maximum duration: 5 years total, including any extensions or renewals.
No probation period is permitted. Any probation clause in a PKWT is void by law, and that time counts as normal service.
Must be in writing, in Indonesian (a bilingual version is allowed).
At the end of the contract, the employer must pay uang kompensasi (compensation money), proportional to length of service.
What is a PKWTT?
PKWTT — Perjanjian Kerja Waktu Tidak Tertentu — is a permanent, indefinite-term contract. It is the default for ongoing, core-business roles.
Probation of up to 3 months is allowed — and only a PKWTT may include probation.
Can be made verbally, but a written appointment letter is strongly advised.
Ends only via resignation, retirement, death, or formal termination (PHK), which triggers severance obligations.
PKWT vs PKWTT: the key differences
Term: PKWT is fixed (max 5 years total); PKWTT is indefinite.
Probation: Not allowed in a PKWT; up to 3 months in a PKWTT.
Form: PKWT must be written; a PKWTT can be written or verbal.
Best for: PKWT suits temporary, project or seasonal work; PKWTT suits core, ongoing roles.
End-of-relationship payment: PKWT ends with uang kompensasi (proportional); a PKWTT ends with severance on PHK.
Conversion risk: A PKWT can auto-convert to permanent; a PKWTT cannot.
The auto-conversion trap
This is where foreign employers most often get caught. A PKWT can automatically convert into a PKWTT (permanent) — with all the severance exposure that brings — if:
The work is permanent or ongoing in nature rather than genuinely temporary;
The contract exceeds the maximum allowed duration;
The contract was not made in writing and in Indonesian; or
Other legal formalities were not met.
Once converted, the employee is treated as permanent from the start of their service, and ending the relationship then requires the full termination process. Using a PKWT to avoid permanent-employee obligations for what is really a permanent role is a common and costly mistake.
Which should you use?
Use PKWT when the work is genuinely finite: a 12-month project, a seasonal ramp, a fixed campaign.
Use PKWTT for any role that is part of your ongoing operations — even if you feel uncertain about the hire, that is exactly what the 3-month probation is for.
When in doubt, default to PKWTT with probation. The cost of a wrongly-classified PKWT (retroactive permanent status plus severance) usually dwarfs the flexibility it seemed to offer.
How an EOR handles contract selection
A key reason foreign companies use an Employer of Record in Indonesia is exactly this decision. The EOR, as the legal employer, issues the correct contract type in compliant Indonesian-language form, applies the right probation and duration rules, and manages the end-of-term compensation or severance — removing the auto-conversion risk from your side entirely. It also handles related obligations such as THR.
Frequently asked questions
Can a PKWT have a probation period?
No. Probation is only valid in a PKWTT, up to 3 months. Any probation clause in a PKWT is void.
What is the maximum length of a PKWT?
Five years in total, including renewals.
Do fixed-term (PKWT) employees get severance?
Not severance as such — they receive uang kompensasi (compensation money) proportional to service at the end of the contract.
What happens if a PKWT breaks the rules?
It converts to a PKWTT (permanent), retroactively, with the associated obligations.
Disclaimer: This guide is for general information and reflects Indonesian labour rules (UU Cipta Kerja, PP 35/2021) as understood at the time of publication. Rules change and application is fact-specific. Confirm with qualified Indonesian legal counsel before acting. MixWork provides EOR and HR administration services and does not provide legal advice.
