Indonesia

Indonesia PEO & Employer of Record

WeHG provides an International PEO and global Employer of Record service in Indonesia to companies willing to enter the Indonesian market or hire local/expat employees in this country.

Traditional approach requires establishing a subsidiary in Indonesia.  Nevertheless our solution allows you to start the operations in Indonesia within days hence save time and money.  WeHG would hire candidates on your behalf while you maintain full operational control of their work. So by law they would be our employees, on our local payroll, 100% compliant but will work on your behalf.

Indonesia fast facts

Population, million: 273,523,615
Land area: 1.905 million km²
Capital: Jakarta
Local currency: The rupiah (Rp)

GDP per capita:$ 4200.00
GDP in currency:$ 970 billion

The following laws and regulations apply to foreign nationals who work in Indonesia:

  • Law No. 13 of 2003 on Manpower (Labour Law).
  • Ministry of Manpower and Transmigration Regulation No. 16 of 2015 as amended by Ministry of Manpower and Transmigration Regulation No. 35 of 2015, which provides guidance on using foreign workers.
  • Ministry of Manpower and Transmigration Decision No. 40 of 2012 which states that certain positions cannot be held by foreign workers.
  • Presidential Regulation No. 72 of 2014 on the Recruitment of Foreign Workers and the Implementation of Education and Training for Accompanying Workers.

Indonesian labour laws and regulations do not expressly differentiate between regulations imposed on foreign nationals and regulations imposed on Indonesian nationals. The principal legislation governing employment relations in Indonesia is the Labour Law. This law outlines the principal rules for:

  • Establishing an employment relationship.
  • Employment terms and conditions.
  • Employment termination.

Generally, foreign nationals can work in Indonesia, provided that the work to be performed cannot be performed by Indonesian nationals, and the work is not of the type that foreign nationals are prohibited from performing under the prevailing laws and regulations. Normally, this requirement is applied leniently and is further subject to additional regulations in a number of industries. Where a company cannot hire an Indonesian national with the appropriate skills, the company is allowed to employ foreign employees provided that at least one Indonesian national is simultaneously employed and trained by the company.

The Ministry of Manpower and Transmigration of the Republic of Indonesia has determined, as set out in the Labour Law, that the employment of foreign nationals falls under the category of employment for a definite period (Perjanjian Kerja Waktu Tertentu) (PKWT) because of the following:

  • Not all positions in Indonesia can be held by foreign nationals.
  • Foreign nationals are required to obtain a work permit and other related permits and these permits are only valid for a one-year period (even though an extension can be applied for at its expiration).

Therefore, not all the provisions of the PKWT apply to foreign employees. For example, the provision of the Labour Law which stipulates that the period of PKWT can be extended or renewed does not apply to foreign national employees because these employees can only hold certain positions for a specific period of time.

Hiring, Negotiating and Doing Business in Indonesia

Necessity of written employment contract

Employment agreements can be made for a definite or indefinite period of time (Law No. 13 of 2003 on Manpower (Labour Law)). Specifically, a fixed-term employment agreement must be made in writing, in the Indonesian language using the Latin alphabet (some Indonesian dialects do not use the Latin alphabet) (Article 57, Labour Law). If an employment agreement is in both Indonesian and a foreign language, the Indonesian version prevails in the event that there are differences in interpretation.

Employment agreements of an indefinite term can be made either orally or in writing (Article 51, Labour Law).

Any written employment agreement (fixed-term or indefinite) must state the following as a minimum:

  • Name, address and line of business of the employer.
  • Name, sex, age and address of the employee.
  • Position of the employee or type of work.
  • Place where the work is to be carried out.
  • Amount of wages and how they will be paid.
  • Terms and conditions of employment stating the rights and obligations of both the employer and the employee.
  • The effective date of the employment agreement and the period of the employment agreement.
  • Place and date of the execution of the employment agreement.

In addition, it must be signed by the parties to the agreement.

Employment agreements of an indefinite term can be made orally or in writing (Article 51(1), Labour Law). However, in practice, employment agreements should be made in writing. An employment agreement can be made orally only if circumstances do not permit it to be made in writing.

Different forms of engagement: employment, contracting, work with private entrepreneur

If a company has a registered labour union, the labour union can enter into a collective labour agreement (CLA) with the management of the company. A labour union can be established by at least ten employees in any business industry. The CLA is valid for two years but can be extended. Only a duly registered trade union with a registration number 

has the right to negotiate a collective labour agreement with the employer’s management.

Indonesia Employment Contract

Types of employment agreements

Definite term employees (Pekerja Waktu Tertentu). A definite term employee is employed under a definite term employment agreement. This type of worker is also known as a “contract worker”.

Based on the Labour Law, the types of work that can be performed by a definite term employee under a definite term employment agreement are as follows:
work to be performed and completed at once, or temporary work;
work that is estimated to be accomplished within three years;
seasonal work;
work that is related to a new product, new activity or additional product which is still in the experimental stage.

Indefinite term employee (Pekerja Waktu Tidak Tertentu). These are employees who do not fall into the category of definite term employees. This type of worker is also known as a permanent worker.

Indonesia working hours

An employee can work a maximum of 40 hours per week, allocated in one of the following ways:
Seven hours per day, six days per week.
Eight hours per day, five days per week.

Overtime

If employers request extra hours, they must pay 1.5 times their regular wages for the first hour and 2 times their regular wages for any hour after that. Wages should include and fixed allowances. Maximum overtime allowed is 3 hours a day or 14 hours a week. Senior-level positions are excluded from overtime. There must be a written order from the employer and written consent for the employee for any overtime worked.

Vacation leave in Indonesia

Workers who work a five-day week have Saturday and Sunday off. Workers who work six days a week are entitled to Sunday off. All employees are entitled to 12 working days of paid vacation per year after one year’s uninterrupted service.

Indonesia Maternity Leave

Pregnant employees are entitled to take three months’ paid maternity leave, of which 1.5 months are taken in the pre-natal period and 1.5 months are taken in the post-natal period (Law No. 13 of 2003 on Manpower (Labour Law)). In this period, employees receive their full salary. A pregnant employee is entitled to receive her full salary during her pregnancy.

An employee who has had a miscarriage is entitled to a 1.5-month rest period, provided this is recommended in a medical statement issued by an obstetrician or midwife.
Employers must provide proper opportunities to female employees, whose babies still need breastfeeding, to breastfeed their babies if this must be performed during working hours (Labour Law).

Paternity rights
Male workers are entitled to two days’ paid paternity leave if their wife gives birth or miscarries.

Indonesian Severance Laws

The law does not set out notice periods for ordinary dismissals and unfair dismissals. However, in practice a 30-day notice must be given to terminate an employment contract.

The Law No. 13 of 2003 on Manpower (Labour Law) regulates individual employment termination and provides for:

  • Dismissal without cause (not due to the employee’s fault). Where dismissal of employees cannot be avoided, such as in the case of a merger, a reorganisation of the company, or bankruptcy of the employer, it is prudent for the employer to explain the circumstances to the related Ministry of Manpower in advance if the employment termination is mass employment termination.
  • Dismissal with cause (due to the employee’s fault). Dismissal with cause can arise in the following circumstances:
    • the employee’s violation of the employment contract or company regulation;
    • the employee’s gross wrongdoing or committing of a major fault. However, dismissal can only be effected if a final and binding verdict confirming the employee’s wrongdoing has been obtained from a criminal court judge (Decision of the Manpower Minister No. 13 of 2005).

In addition, an employer can dismiss an employee if:

  • The employee has been unable to work for over six months due to legal proceedings brought against them (Article 160(3), Labour Law). If the court finds the employee not at fault, the employer must re-employ the employee.
  • The employee has been absent from work for five or more consecutive working days without providing reasons or evidence (Article 168, Labour Law).

Indonesia Tax

A company is subject to the tax obligations set by the Indonesian government if the company’s domicile is in Indonesia. Similarly, a foreign company that has a (permanent) establishment in Indonesia – and carries out business activities through this local entity – falls under the Indonesian tax regime. If the foreign company does not have a permanent establishment in Indonesia but does generate income through business activities in Indonesia, then it needs to settle its tax liabilities through withholding of the tax by the Indonesian party paying the income.

Corporate income tax – 22 percent 

Individual Income Tax

  • Residents are subject to a withholding progressive tax (their net taxable income is set at graduated rates, with current rates ranging from 5 percent up to a maximum of 30 percent, depending on an individual’s income);
  • Non-residents are subject to a final withholding flat tax of 20 percent on gross income.

Health Insurance Benefits in Indonesia

Indonesia has compulsory universal healthcare which is funded through payroll taxes and the general budget. Employers are required to enroll their employees in this system. Any employee hired through globalization partners will automatically have the employee enrolled in the universal healthcare. This is mandatory for all employees, including expats.

Additional Benefits in Indonesia

Employees are paid a mandatory 13th-month salary payment in Indonesia, often referred to as THR. This is considered a religious day allowance and is paid one week before the respective religious holiday.   Since most of the country is Muslim, most employers provide this bonus one week before the Muslim holiday, Idul Fitri (the end of Ramadhan), regardless of the employee’s religion. Other employers will provide the bonus in December for any non- Muslim employees. If the employee has worked for less than 12 months, he or she is entitled to a prorated amount.

In all cases, bonus policies should be notified to employees in advance, to avoid possible labor law discrimination disputes.

Indonesia Holidays

  • New Year’s Day
  • Chinese New Year
  • “Nyepi” Bali Hindu New Year
  • Good Friday
  • Labor Day
  • Ascension Day of Jesus Christ
  • Ascension Day of the Prophet Muhammad
  • Buddhist Holy Day of Waisak
  • Ascension Day
  • Eid al-Fitr
  • Independence Day
  • Idul Adha
  • Islamic New Year
  • Birthday of the Prophet Muhammad
  • Christmas Day

Why Choose WeHireGlobally

WeHG takes care of all the onboarding hurdles, payroll, compensation and benefits, tax filing, and termination of employment. Our Employer of Record solution allows you to manage your overseas teams efficiently while minimizing cost and risk.

FAQ Indonesia

  • Working hours in Indonesia

    An employee can work a maximum of 40 hours per week, allocated in one of the following ways:

    • Seven hours per day, six days per week.
    • Eight hours per day, five days per week.
  • What are the main holidays in Indonesia?

    • New Year’s Day
    • Chinese New Year
    • “Nyepi” Bali Hindu New Year
    • Good Friday
    • Labor Day
    • Ascension Day of Jesus Christ
    • Ascension Day of the Prophet Muhammad
    • Buddhist Holy Day of Waisak
    • Ascension Day
    • Eid al-Fitr
    • Independence Day
    • Idul Adha
    • Islamic New Year
    • Birthday of the Prophet Muhammad
    • Christmas Day
  • What are payroll taxes in Indonesia?

    Corporate income tax – 22 percent

    Individual Income Tax

    • Residents are subject to a withholding progressive tax (their net taxable income is set at graduated rates, with current rates ranging from 5 percent up to a maximum of 30 percent, depending on an individual’s income);
    • Non-residents are subject to a final withholding flat tax of 20 percent on gross income.
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