The entrepreneur-worker divide in Indonesia:  A legal perspective

This definition establishes wages as the primary indicator of worker status, reinforcing the principle that workers operate under employment agreements and are entitled to compensation from entrepreneurs. However, this raises an important question: if entrepreneurs can also receive salaries, what differentiates them from workers?

Defining the entrepreneur

The Manpower Law defines an entrepreneur under Article 1, Paragraph (5) as:

An individual, partnership, or legal entity that operates a business it owns.

An individual, partnership, or legal entity that independently operates a business it does not own.

An individual, partnership, or legal entity domiciled in Indonesia that represents a company as defined in (a) or (b), even if the company is based outside Indonesia.

This definition highlights a fundamental distinction: entrepreneurs are individuals or entities with the authority to manage and operate a company. They exercise control over business operations, decision-making, and company strategy – responsibilities that extend beyond the scope of typical employment.

The legal separation of roles

Law No. 40 of 2007 on limited liability companies (Company Law) further clarifies this distinction. Article 1, paragraph (2) states that a company is governed by three bodies: “The governing bodies of a company consist of the General Meeting of Shareholders, the Board of Directors, and the Board of Commissioners”.

These governing bodies are responsible for strategic decision making, establishing corporate policies, and representing the company in legal matters – including employment-related decisions such as wage structures.

An important legal distinction arises in the appointment process. Entrepreneurs, typically serving as directors or commissioners, are appointed through the General Meeting of Shareholders (GMS) and governed by the Company Law. In contrast, workers are employed under labour contracts regulated by the Manpower Law.

When entrepreneurs become workers

A unique scenario occurs when individuals hold executive roles without GMS appointment. If a director or commissioner is hired under an employment contract, rather than through the GMS, they are classified as workers, falling under the jurisdiction of the Manpower Law. This means their legal rights and obligations align with those of employees, not entrepreneurs.

Conclusion

The entrepreneur-worker divide in Indonesia is not merely a function of salary but a matter of authority, governance, and legal classification. While workers operate under labour contracts with defined rights and protections, entrepreneurs assume the broader responsibility of managing and representing the company. Understanding these distinctions is crucial for ensuring compliance with Indonesia’s legal framework and structuring businesses effectively.

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Dea Shakila is a part of the corporate legal team at Protemus Capital, where she contributes her expertise in legal matters to support the company's operations and compliance efforts.