Analyzing Omnibus Law Impact on the Startup Ecosystem

Amid the gloomy situation caused by the coronavirus disease 2019 (COVID-19) outbreak, there is another important issue that will affect the lives of many people. It is the Omnibus Law which is to cover many laws at once.

Since last year, the Omnibus Law has been a polemic and has captured more attention at the beginning of this year. This is because the law will change many laws related to public affairs, such as the SME Bill, the Taxation Bill, and the Job Creation Bill. The last bill was the main trigger for many circles' disapproval over the making of the Omnibus Law.

The government needs the Omnibus Law to simplify regulations that are considered bulky, therefore it is difficult to make decisions. The government's motivation is also based on the desire to win competitions with other countries. Everything is in the same corridor: attracting more investment to achieve economic targets.

Impacts on startup

The Omnibus Law clearly has an impact on the domestic startup ecosystem. Some articles on display will clearly trigger changes in the industry. One of the examples is the changes in Article 42 concerning Manpower.

In the current regulation, Article 42 requires foreign workers to obtain written permission to work in Indonesia with the exception of diplomatic and consular staff. In the latest draft, the exemptions were extended to foreign workers in startup activities.

Changes in Article 56 become the highlight since it provides more flexibility for employers because the contract work relationship can last a lifetime. This means that there is no legal obligation for employers to make employment status permanent.

These articles bring their own dilemma for startup workers and founders. Izy.ai CEO & Founder Gerry Mangentang explained that the startup business model always demands working faster and pursuing targets in a relatively short period of time. As a result of these demands, startups prefer to look for local developers or engineers who have matured experience but in fact, their availability is still far from sufficient.

"When startup close funding, it is usually intended for 12-18 months runway. Therefore, we were required to speed up since the very beginning that most people prefer to hire developers who have already experienced or simply outsource," said Gerry.

Nevertheless, Gerry admits that he still prioritizes local talent. That's why he often refuses outsourcing offers from foreign talents that always packed in his emails. Indirectly, he considered that foreign workers would not be needed as long as there were pools of domestic talents.

"Unfortunately, it is difficult to find good [local] developers nowadays. It's because they usually have worked in big startups, and the rates are quite high," he added.

Prosa.ai's CEO & Founder, Teguh Eko Budiarto agrees with the spirit of bringing in foreign talents by Article 42. However, Teguh criticizes the absence of requirements in the regulation which shows that the need for foreign workers is important.

"The problem is, there is no requirement to ensure the availability of domestic workers, therefore, the competition for workers at a certain level is getting bigger," he said.

As for Article 56, Teguh admitted that he did not really see the effect that this article would bring. This is because he thought the startup business model is always full of uncertainty. "It's different if the startup has passed the scale-up phase and has gotten a sustainable profit," Teguh said.

Employee's risks

Chairperson of the Media and Creative Industry Workers Union for Democracy (Syndication) Ellena Ekarahendy highlighted the problem brought by the Omnibus Law is the threat of reducing protection for workers without discrimination. This means that the Omnibus Law is considered a common enemy for all groups of workers and urges the authorities to provide concrete protection.

"After all, there are many Indonesian developers who become foreign workers virtually with the current economic convenience? The important thing is to ask for protection for workers, regardless of their nationality," said Ellena.

Ellena criticized the government and parliament's attitude which was being too distinctive for the interests of business owners over some of the articles. An example is the flexibility of the contract system contained in Article 56.

There are also supporting details for the company to terminate the employment relationship (PHK) in Article 154A, which in the future it is feared that startups can simply lay off when there is an acquisition, efficiency, merger, and divestment. For the record, the previous rule only allowed companies to do layoffs only when there was a merger.

"In addition, it needs to be highlighted in Article 90B Cilaka [Job Creation] which states that the wages of MSMEs may not follow the minimum wage as long as they are not below the poverty line," concluded Ellena. In addition, the poverty line for South Jakarta last year was around IDR 730,000.

Apart from the pros and cons of the Omnibus Law, the process is still ongoing. The government is determined to finish it as soon as possible. Meanwhile, the wave of protests, especially from groups of workers and students to reject this omnibus rule, is yet to end.

–Original article is in Indonesian, translated by Kristin Siagian