Employment laws in Indonesia

Typically, failure to comply with employment laws in Indonesia can cause issues while engaging local talent in Indonesia. It may also lead to financial penalties and legal issues.

Working with an Employer of Record (EOR) in Indonesia, like Payoneer Workforce Management, can help your business stay aligned with Indonesia’s labor laws. 

Key labor laws in Indonesia

Indonesia’s main labor law is the Manpower Act, and it primarily covers employment aspects like working hours, minimum wages, termination conditions, leave entitlements, and more.

Contract employment laws in Indonesia

Indonesia’s Manpower Act is the primary source of information on employment contract types, employee classification, workers’ rights and benefits, and the country’s leave policy.

Contract types

Under Indonesia’s labor laws, there are several types of employment contracts. These include:

• Permanent (PKWTT): Following a successful 3 to 6-month probationary period, this contract is for full-time employees with mandatory benefits.
• Fixed-term (PKWT): This contract is for up to 3 years (with no probation). The contract is automatically terminated once the fixed term is complete.

If you have any doubts about which type of contract to offer a worker or how to classify a new hire (full-time employee versus contractor, for example), you may seek advice from an HR specialist. 

For a more streamlined approach, an EOR like Payoneer Workforce Management can help you create compliant employment contracts for Indonesian employees.

Essential contract elements

• Name and address of the employer
• Name, sex, age, and address of the worker/employee
• Job title/occupation or type of job
• Place of work (where the job is to be performed)
• Remuneration and how the wages shall be paid
• The rights and obligations of both the employer and the worker/employee
• Start date of the employment agreement and how long it will be effective
• Where the agreement has been made and when
• Signatures of the parties involved.

Employment laws in Indonesia allow both oral and written employment contracts. However, to best protect your business and workers, a written contract is recommended. 

Statutory employment rights in Indonesia

The Manpower Act outlines statutory requirements around working hours, rest times, and minimum wage in Indonesia. 

Working hours

A worker’s core hours can be agreed in one of two ways.

Option 1:

• Employees can work a maximum of 7 hours per day
• For 6 days per week
• Meaning the total working hours can amount to no more than 40 hours a week
• Plus a 1-day rest period each week.

Option 2: 

• Employees can work a maximum of 8 hours per day
• For 5 days per week
• Meaning the total working hours can amount to no more than 40 hours per week
• Plus a 2-day rest period each week

If overtime is required, workers cannot be asked to perform more than 4 extra hours each day or 18 hours each week.

Employers are also required to offer paid leave to all employees under Indonesia employment law. Annual leave (vacation time) includes a minimum of 12 days for all employees who have served 1 year at their organization. 

Indonesia also observes 16 national public holidays. If an employee is asked to work on a public holiday, they may qualify for overtime pay.

Learn more about the leave policy in Indonesia.

Minimum wage and overtime

The minimum wage in Indonesia is set by provincial governments and reviewed annually as per Indonesia’s labor laws. The minimum salary in the Jakarta region is IDR 5,396,760 per month.

Overtime pay must be calculated at:

• 150% of the employee’s regular wage for the 1st hour
• 200% for any additional hours

If employees are asked to work on a national holiday, overtime is paid at:

• 200% for the first 8 hours
• 300% for the 9th hour
• 400% for 10-12th hours

Mandatory benefits 

Employment laws in Indonesia require employers to offer the following mandatory benefits.

Social security and pension

Both employers and employees make contributions to Indonesia’s BPJS Ketenagakerjaan fund. Contribution current contribution rates are:

	Employer contribution	Employee contribution
Jaminan Pensiun (pension fund)	2%	1%
Jaminan Kecelakaan Kerja (work accident contribution)	0.24% to 1.74%, depending on the job’s level of risk	0%
Jaminan Kematian (death compensation)	0.3%	0%
Jaminan Hari Tua (old age security)	3.7%	2%

Health insurance

BPJS Kesehatan is Indonesia’s national health insurance.

Employers contribute 4% of an employee’s salary (up to IDR 480,000 per month). 

Sick leave

Workers in Indonesia are entitled to up to 4 months of paid sick leave at 100% of their salary. This is contingent on them having an authorized doctor’s note or medical certificate.

After 4 months, sick pay reduces as follows:

• 4 to 8 months: 75% of salary
• 8 to 12 months: 50% of salary
• 12 months until termination: 25% of salary

Sick leave is paid entirely by the employer.

Parental leave

Employers are required to provide

• A minimum of 3 months paid maternity leave
• An additional 1.5 months (in case of miscarriage)

Maternity pay should be at 100% salary.

New fathers are entitled to 2 days of paternity leave at full pay. 

Religious holiday bonus

Indonesian employment law states that employers must provide Tunjangan Hari Raya (THR). THR is a financial bonus paid to employees to cover the costs of religious celebrations.

Termination employment laws in Indonesia

In Indonesia, labor laws are strict on termination practices.

Grounds for dismissal

• Typically, employers may not terminate a worker’s contract based on illness, labor union membership, protected characteristics (including religion, political leaning, ethnicity, color, race, sex, physical ability, or marital status). 
• A contract can be terminated in the event of misconduct, Performance issues, absence without leave, or other similar reasons.

Notice period

An employer must provide at least 14 days’ notice to an employee. Employees can challenge a termination within 7 days.

Employees must provide 30 days’ notice if they want to resign.

Severance pay

In the event of termination with cause, severance pay will be calculated based on tenure:

Employee’s tenure	Severance payment
Less than 1 year	1 month’s pay
1 to 2 years	2 months’ pay
2 to 3years	3 months’ pay
3 to 4 years	4 months’ pay
4 to 5 years	5 months’ pay
5 to 6 years	6 months’ pay
6 to 7 years	7 months’ pay
7 to 8 years	8 months’ pay
8+ years	9 months’ pay

Long service payment

In Indonesia, long service pay is a bonus provided to outgoing employees. 

Employee’s tenure	Long service pay
3 to 6 years	2 months’ pay
6 to 9 years	3 months’ pay
9 to 12 years	4 months’ pay
12 to 15 years	5 months’ pay
15 to 18 years	6 months’ pay
18 to 21 years	7 months’ pay
21 to 24 years	8 months’ pay
24+ years	10 months’ pay

Navigate employment laws in Indonesiawith trusted support

Complying with employment laws in Indonesia is essential if you want to avoid legal issues and potential fines. But you don’t have to go through the process of finding, reading, and learning Indonesia’s labor laws on your own. 

Payoneer Workforce Management makes navigating these requirements easy. Our employer of record services help global firms, like U.S. companies, hire and manage workers in 160+ countries, without setting up a local entity.

Book a demo today!

FAQs

1) What is the employment regulation in Indonesia?

The Manpower Act is Indonesia’s key legislation for employment law. It outlines the legal relationship between an organization and its workers, including workers’ rights and protections, such as anti-discrimination.

2) What is the standard employment contract in Indonesia?

The common types of employment contracts in Indonesia: 

• Permanent
• fixed-time 

Every contract should state the name and address of the worker and employer, the job title or role, remuneration, and how it will be paid, plus any employee benefits.

3) How to terminate an employee in Indonesia?

Employers must give workers at least 14 days’ written notice to terminate a contract in Indonesia. The worker can then appeal within the first 7 days if they want to challenge the termination.