IndonesiaAn employer’s guide to employment laws, regulations, and Employer of Record (EOR) in Indonesia.
Looking to hire in Indonesia? An EOR can help.
If you’re setting up your business in Indonesia from abroad, consider partnering with an Employer of Record (EOR) service.
An EOR acts as the official employer for your staff in Indonesia, overseeing tasks such as onboarding, payroll administration, benefits management, and tax compliance, all while adhering to Indonesian labor regulations.
In other words, you can get your workforce in Indonesia up and running without having to set up a business entity first while still maintaining control over your business operations.
How to hire in Indonesia
Step 1: Choose between establishing an entity and utilizing an EOR
When it comes to hiring in Indonesia, you have two options: Establishing a local entity or opting for an EOR. While setting up a local entity grants you more control over your operations, in the long run, it is both time-consuming and expensive, especially for smaller businesses.
This process involves registering your business with Indonesian authorities, appointing local directors, and navigating a range of intricate tax and regulatory requirements. The setup can take several weeks or even months, potentially delaying your hiring initiatives in Indonesia. Additionally, establishing an entity means you are fully responsible for adhering to all local employment laws and regulations.
On the other hand, using an EOR allows you to avoid the complexities of Indonesian employment laws. This approach enables you to onboard employees swiftly and streamline essential HR functions with ease.
Typically, if you have a significant number of employees and plan to establish a strong presence in the region, setting up a local entity might be the optimal choice. However, if you are looking for a quicker and more straightforward hiring solution in Indonesia, an EOR provides a more efficient alternative.
Step 2: Finding the right EOR
Selecting the appropriate EOR for your business involves careful evaluation of several key factors. Choosing an unsuitable provider can lead to compliance issues, unexpected costs, and a negative experience for your new hires. Here’s what you should consider.
- Legal compliance: Verify that the EOR is well-versed in Indonesia’s labor laws, employee rights, tax requirements, and local benefits. Review their history and inquire about their experience with sector-specific scenarios.
- Customer service: Determine if they offer consistent support and whether they provide dedicated account managers for each client. For example, Multiplier offers round-the-clock personalized assistance (without automated responses) and allocate specific managers to handle each account.
- Transparent pricing: Be cautious of EOR services that advertise low initial fees but have hidden charges or convoluted pricing models. Ensure that all potential costs are clearly outlined before making a commitment.
Total cost of ownership: Opting for the lowest price may not always be the most cost-effective choice, as cheaper solutions could end up being more expensive if they prove inadequate support. When choosing an EOR, invest in a reputable service that meets your needs within your budget, without sacrificing critical features.
Step 3: Employing and onboarding in Indonesia
Send over the contract
Once you’ve selected the right candidate and EOR, the next step is to issue a locally compliant employment contract. An EOR can efficiently draft contracts that adhere to Indonesian labor laws, allowing you to outline employment terms such as job duties, work hours, salary, and termination policies. After preparing the contract, they will collect all necessary signatures.
Enhance compensation with competitive benefits
If you’re aiming to offer an attractive benefits package, you don’t need to navigate local vendors on your own. A capable EOR can provide various locally administered benefits options to enhance your compensation offerings. They can also arrange for the necessary IT equipment your employees need to begin their roles.
Get all your documentation in order
When hiring, you’ll need to collect the new hire’s tax and banking details. However, if you’re working with an EOR, this information will be gathered automatically to set up payroll. The EOR will handle all required documentation, ensuring a smooth and efficient process without the burden of extensive paperwork.
While onboarding employees in Indonesia may seem complex, partnering with an EOR can simplify the process and reduce stress.
Step 4: Run payroll for employees based in Indonesia
Handling payroll for employees in Indonesia requires meticulous attention to local tax rates and mandatory contributions. Indonesia employs a progressive income tax system with rates ranging from 5% to 30%, depending on the employee’s income level. Non-residents are required to pay a final withholding flat tax of 20 percent on gross income.
Employers are also obligated to make mandatory contributions to the Social Security Administering Body (BPJS) for both employment and health insurance.
The BPJS Ketenagakerjaan covers employment-related benefits, including retirement, death, and work accident insurance. Employers are required to contribute a specified percentage of an employee’s salary to this fund to ensure financial security in case of retirement or work-related incidents.
Handling these requirements can be challenging and time-consuming, especially for international companies managing a workforce in Indonesia. An EOR can streamline this process by managing precise and timely salary payments while handling all local taxes, contributions, and deductions.
With a global payroll solution, you can efficiently oversee payroll for all your international employees from a unified platform, eliminating the need to engage with multiple local providers.
Employment laws and regulations in Indonesia
Indonesia’s employment landscape is governed by a detailed set of regulations. Here’s a brief overview of the key employment laws and regulations you should be aware of.
- Manpower law. This legislation regulates various aspects of employment, such as working hours, rest periods, overtime compensation, and termination procedures, establishing the minimum standards for employment contracts.
- Written employment contracts. Employers are mandated to provide written contracts that outline the terms of employment, such as job responsibilities, salary, work hours, and conditions for termination. These contracts must adhere to the Manpower Law and other applicable regulations.
- Employee rights and protections: Indonesian law grants several rights and protections to employees, including a safe and healthy working environment, adherence to minimum wage laws, transparency in pay practices, protection against discrimination and harassment, and the right to join labor unions.
- Social security law (BPJS): This legislation mandates contributions to the BPJS for employment and health insurance. Employers must contribute to the BPJS Ketenagakerjaan for retirement and other employment-related benefits, and to the BPJS Kesehatan for health coverage, providing financial support and medical care to employees.
Employ top talent in Indonesia through an EOR
Onboard, pay, and manage all your international employees
Employee benefits and compensation
In Indonesia, the current minimum wage varies by region, with the Jakarta minimum wage set at IDR 5,067,381 per month for 2024.
Indonesian labor laws also mandate several standard employee benefits.
- Annual leave: Employees are entitled to a minimum of 12 days of paid annual leave per year. This entitlement increases with the length of service and can be extended based on company policy.
- Sick leave: Employees are generally entitled to up to 14 days of paid sick leave per year. Additional leave can be provided based on company policy or collective agreements.
- Parental leave: Indonesia provides paid maternity leave of 3 months (90 days) for new mothers. Fathers are entitled to 2 days of paid paternity leave. Some companies offer extended parental leave beyond these statutory minimums.
Employers often offer additional benefits beyond the statutory requirements to attract and retain top talent. These can include enhanced health coverage, performance bonuses, and other perks.
Consider exploring benefits administration solutions to ensure that you offer your employees in Indonesia locally compliant and competitive benefits.
Termination and offboarding procedures
In Indonesia, terminating employment involves adherence to regulations regarding notice periods and severance pay. The standard notice period is typically 30 days, but this can vary depending on the employment contract.
Indonesian law mandates severance pay based on the length of service. Generally, severance pay is calculated as follows: one month’s salary for each year of service, with the total amount determined by the employee’s contract or statutory requirements. Additional termination benefits may also be required, such as service compensation and pay for unused leave.
In cases of redundancy, such as during organizational restructuring or economic challenges, employers must follow specific procedures. While employers can choose to provide notice pay instead of having employees work through the notice period, these terms must be clearly outlined in the employment contract.
Navigating these termination and offboarding procedures can be intricate, especially for international employers unfamiliar with Indonesian labor laws.
An EOR can greatly simplify these processes. By managing the termination and offboarding procedures, an EOR ensures that all activities comply with local regulations, facilitating a smooth transition for both the employer and the departing employee.
Visa and work permit assistance
Hiring foreign workers in Indonesia involves obtaining the appropriate visas and work permits. The type of visa required depends on factors such as the job role, the duration of employment, and the employee’s nationality.
Here are the primary visa categories for foreign professionals in Indonesia:
- KITAS (Temporary Stay Permit): This visa is necessary for foreign workers who intend to work in Indonesia for a period longer than 6 months. The KITAS is generally issued for one year and can be renewed.
- ITAS (Limited Stay Permit): Issued for foreign employees working for Indonesian companies or branches of foreign companies, the ITAS is typically valid for a longer duration than the KITAS and is also renewable.
- Work Permit (IMTA): Before applying for the KITAS, employers must secure a work permit, known as the IMTA. This permit authorizes foreign nationals to work in Indonesia and is a prerequisite for obtaining the KITAS.
- Expatriate Placement Visa: This visa allows senior executives and specialized professionals to work in roles requiring specific expertise that is not readily available within the local workforce.
- Investor Visa: This visa is designed for foreign investors who wish to manage or invest in Indonesian businesses. It supports business activities and is often valid for an extended period.
Navigating the visa and work permit process can be intricate, especially for those unfamiliar with Indonesian regulations. Expert assistance is highly recommended to ensure compliance and streamline the application process.
By handling the complexities of Indonesian immigration regulations, an EOR ensures a smooth transition for foreign employees. For more information on how we manage global immigration challenges, please visit our Global Immigration page.
Get started with Multiplier’s EOR services
Multiplier’s Employer of Record (EOR) services offer a comprehensive solution for expanding your team in Indonesia. With Multiplier, you can hire employees without the need to set up a local entity, streamlining all HR functions while providing an excellent employee experience.
Our EOR services ensure a smooth hiring, onboarding, and management process. We take care of all employment-related tasks, including drafting contracts that comply with Indonesian regulations, managing payroll and taxes, and offering a range of customizable benefits that meet local standards. This approach removes compliance issues and reduces administrative burdens.
Schedule a demo to see how Multiplier can simplify your HR operations and ensure compliance in Indonesia.
