Everything You Need to Know About Employing in Indonesia

Indonesia has one of the largest populations in the world – ranking 4th after China, India, and the U.S – with approximately more than 275 million residents spread across the archipelago. The country also boasts of a relatively young workforce, with the median age of an employee at 28 years old.

Besides its large population which presents employers with a wide choice of talent options, Indonesia’s monthly minimum wage and cost of living make it an ideal choice for hiring remote talent. The average monthly minimum wage depends on the employee’s location, and ranges from IDR 1,765,000 (USD 127) to IDR 4,416,186 (USD 317). The cost of living in Indonesia is also low, almost 50% lower than the average cost of living in the U.S, and 56% lower than the cost of living in Singapore.

Most companies that hire remote talent from Indonesia look for programmers, designers, and data-entry roles. In fact, you’ll find a lot of locals running tech support for corporations based in the U.S. and Europe. While most Indonesian university graduates have a fairly high English proficiency, you might want to consider hiring in the Philippines (which has a higher English speaking rate) for talent where English proficiency levels required are extremely high.

When looking for the best places in Indonesia to hire remote talent, you typically want to hire talent from the following regions:

• Medan
• Palembang
• Jakarta
• Bandung
• Yogyakarta
• Surabaya
• Makassar

These regions have a higher economic activity compared to the rest of the Indonesian islands, and have larger business hubs and more available talent. Getting graduates from the top universities in the country is also a plus:

• University of Indonesia
• Gadjah Madah University
• Bandung Institute of Technology
• Airlangga University
• Universitas Brawijaya

Another way to hire talent is to post listings on popular job sites and portals or hire through a trusted recruitment agency. You can find a list of trusted job portals and recruitment agencies here.

While the average monthly minimum wage in Indonesia ranges from IDR 1,765,000 (USD 127) to IDR 4,416,186 (USD 317), depending on the employee’s location, the average salary will depend on the nature of the job.

Here’s an approximation of the average yearly salary for seven different positions:

But let’s put some more context into the average salary figures. The World Bank classifies Indonesians in various income groups based on their monthly income:

It’s interesting to note that even the upper class in Indonesia can be classified as exportable talent for your remote teams given their monthly income range. You can expect the upper class to have a higher educational attainment and possibly higher English proficiency as well.

For more information about income tax, you can visit this website here.

Statistics Indonesia (BPS) found that 33.34 million Indonesians are part-time workers or freelancers as of August 2020. This figure increased by 26% (roughly 4.32 million people) from last year’s percentage. This growth in the number of Indonesian freelancers is largely due to the decline in full-time jobs as a result of the COVID-19 pandemic.

While freelancing is quickly becoming a growing career trend in Indonesia, one risk of hiring freelancers or independent contractors is their compliance with local tax laws. Without a local registered company withholding income tax for them, freelancers may fail or forget to pay their income tax. (See the other risks of hiring an independent contractor here.)

You can help your Indonesian employee comply with local taxation laws by using Professional Employer Organizations (PEOs) like Multiplier who will take care of payroll and taxes for you.

Indonesian employees usually work an average of 40 hours a week. This can be distributed upon the employer’s discretion in one of two ways:

• 8 hours a day, 5 days a week
• 7 hours a day, 6 days a week

Employees are also allowed a 30 minute rest period for 4 hours of consecutive work.

For companies in a different time zone, you may have to consider time differences if you plan on having your Indonesian employees work overtime. The local government prohibits companies from employing females under the age of 18 as well as pregnant women who risk damaging their health or risk the safety of their unborn child, between the hours of 11pm and 7am.

Overtime can only be performed for a maximum period of three hours per day and 14 hours per week. In general, employers are required to pay overtime wages with the exception of those in senior-level positions, or those whose positions merit those of a “thinker, planner, implementer, or controller”. While exempt from overtime pay, it is generally agreed upon that those in these positions are given higher pay.

The calculation for overtime pay is as follows:

For calculation of pay for work on weekends, rest days, or holidays, see the table under FAQ #8.

There must be a written order from the employer and written consent for the employee for any overtime work. The employer is also obligated to provide food and beverage to the employee if the employee performs 3 or more hours of overtime.

13th month pay: Often referred to as Tunjangan Hari Raya (THR) payment, this religious holiday bonus, is mandatory for all full-time employees. It should be paid at least one week before the religious holiday. Usually, this would be Idul Fitri (the end of Ramadan) or if you work with mostly non-Muslim employees, this can be paid out in December. If the employee has been working in the company for less than 12 months, THR payment is prorated.

Annual Leaves: Every Indonesian employee is entitled to 12 days of annual leave. However, the leaves can only be applied after 12 months of service, unless the employer agrees otherwise. Annual leaves cannot be taken consecutively, with a maximum of 6 consecutive days allowed. Annual leaves can only be carried over for six months from the time it is accrued, and there is no statutory provision for the payout of unused leaves.

Sick Leaves: Indonesian employees are entitled to paid sick leave in case of illness or injury so long as it is evidenced by a medical certificate or statement. There is no set number of sick leaves in Indonesia, and it is not deducted from the employee’s annual leaves. Employees are also entitled to long-term paid sick leave with the following payment details:

It is also worthy to note that sick pay is covered wholly by the employer, and cannot in any part be recovered by the government.

Family Leaves: 

Maternity Leave: All female employees are entitled to take 3 months’ fully paid maternity leave. 1.5 months are taken prior to the birth and the remaining 1.5 months are taken post-birth.

Paternity Leave: Male employees on the other hand are entitled to 2 days’ paid paternity leave.

Other personal family leaves are fully paid by the employer and are as follows:

‍Insurance and social security: Other benefits, which are already included in the tax deductions, include monthly contributions to the Social Security Management Board, known locally as Badan Penyelenggara Jaminan Sosial (BPJS).

Local Indonesian law distinguishes between two different types of social security programs for employees, under BPJS: the manpower or labor social security program and the health security program. It is mandatory for all employers to register all their employees in both these programs.

Employer Payroll Tax:

Employee Payroll Tax: 

With the exception of occupational accident security and death security, both the employees and employers share contributions to old age security, pension security, and health security. For example, for old age security, employees will contribute 2% of their monthly salary to this fund, while companies will cover 3.7% of the contribution from the employee’s salary.

The total employee contribution to workers’ social security is 4% of the employee’s monthly salary, with a salary limit of IDR 8.5 million. This should be deducted from the employees’ salary.

While not mandated by law, it is quite common to provide non-taxable allowances for your remote employees, and it’s expected by the employees. These can include stipends for business and equipment expenses, internet and telecom allowances, and even transportation allowance – if your remote employee works from a co-working space. If you work with a PEO like Multiplier, they can arrange for other benefits and allowances for your Indonesian employees for you.

Indonesia has quite a large number of holidays, which include a mix of public holidays, religious holidays, national holidays, and international holidays. The total number of holidays change per year as most religious holidays do not have a set date. For an updated list of Indonesian holidays, click here.

Indonesia also has this concept called “Cuti Bersama” which literally means “taking leave together”. The idea is to extend holidays that fall close to the end of the week. This was introduced by the local government in an effort to help stimulate domestic tourism and motivate government employees. For example, if a holiday falls on a Thursday, by the declaration of the government with the idea of Cuti Bersama in mind, the next day (Friday) could be declared a holiday as well. The government will usually state Cuti Bersama holidays beforehand.

If you require your Indonesian employee to work on a weekend, rest day, or holiday, their pay increases as follows:

If your business is registered in another country, the easiest way to hire an Indonesian remote talent would be through a Professional Employer Organization. PEOs like Multiplier make it easy for you to hire remote talent, comply with local labor laws, and pay your employees in time. Instead of having to jump through the legal and financial hoops of setting up a business entity in another country, Multiplier will act as your representative and abide by all the necessary laws for you.

If you want more details on how to hire a remote team legally, you can check out our article here.

No, probation periods are not necessary when hiring Indonesians. 3 month probation periods are allowable for employees on indefinite contracts if it is agreed upon in writing by both parties. However, this cannot be imposed on employees on a fixed-term contract.

The easiest way to pay your Indonesian remote talent would be through PEOs like Multiplier. You won’t have to worry about payroll or compliance with local taxes and labor laws as they will be taking care of everything for you. If you’re working with freelancers or independent contractors, you can also use platforms such as PayPal, Xoom, Transferwise, Payoneer, Xendpay, or bank transfer.

Indonesia does not have a strict payment cycle, and employers can choose to pay their employees either weekly, bi-weekly, or monthly. Take note that the payment cycle should be agreed upon by both the employer and the employee beforehand.

Although paying remote employees in foreign currencies is practiced widely, this is not possible in Indonesia. We recommend paying employees in Indonesia in their local currency. This also simplifies calculating taxes and making contributions to benefits such as healthcare and pension for employers.

Paying remote employees at a flat rate in Indonesian Rupiahs is also beneficial as it helps avoid fluctuations in conversion rates. PEOs like Multiplier, will pay Indonesian employees with a fixed rate, and guarantee your employee is paid in their local currency. PEOs also ensure employee taxes are deducted as well.

Local law in Indonesia does not have any specific articles when it comes to the termination of employees. However, if a company wants to terminate its employees, it has to obtain approval from the Industrial Relations Court (IRC) by filing a lawsuit. Another way to do this is to sign a Mutual Termination Agreement, which must then be registered with the IRC.

An employer also cannot dismiss an employee based on the following reasons:

• The employee gets married
• The employee is absent due to illness for less than 12 months consecutively
• The employee performs a role in a trade union

The reasons for which employees can be discharged from work are as follows:

• The employee violates the employment agreement
• The employee is imprisoned
• The employee is ill for more than 12 months
• The employee is absent from work for more than 5 days without a valid reason, provided that he or she has been notified twice
• The employee has reached retirement age
• Change of the company’s status, its merger with another business, or acquisition of its ownership
• The employer becomes insolvent
• The employer has suffered continuous losses for two years consecutively as proven by financial reports
• The employer is closing business permanently

It is not mandated by law that employers should give notice for employee dismissal or termination. However it is good practice that a 30-day notice be given to the employee upon reaching the termination decision.

Depending on the reasons for employment termination, employers need to pay standard severance, long service pay, compensation pay, and/or separation pay following the guidelines below:

‍Learn more about how you can easily hire remote talent from Indonesia with the help of Multiplier. You can visit our website or contact us today.