Indonesia’s job market comprises skilled domestic and international employees alike. U.S.-based companies can hire this talent through a number of routes, provided they comply with local employment law, including payroll, working hours, and employees’ labor rights. 

An Employer of Record (EOR) in Indonesia, like Payoneer Workforce Management, provides support for hiring and managing local talent without a local entity. 

An EOR acts as the legal employer of teams in Indonesia and offers assistance with onboarding, managing, and paying employees on your behalf.

Speak to the Payoneer Workforce Management team today, or keep reading to learn more about employer of record services in Indonesia.

How to hire employees in Indonesia

There are three key ways to hire employees in Indonesia:

1. Setting up a local entity: You can create a local legal entity to hire Indonesian employees directly, but be prepared to spend significant time and money. 
2. Hiring independent contractors: In Indonesia, you can hire contractors on a fixed-term employment contract (PKWT), but misclassification risks may arise if the role resembles an employee-employer relationship.
3. Partnering with an employer of record: An EOR in Indonesia helps you engage talent without setting up a local entity.

Partnering with an employer of record in Indonesia

If you’re new to the idea of EOR solutions in Indonesia, here’s a breakdown of the services they offer:

• Hiring and onboarding: Payoneer Workforce Management helps businesses access talent in Indonesia and 160+ other countries. We may support employee lifecycle management as per local laws. 
• Payroll, tax, and other contributions: Delegate the laborious task of running payroll to your EOR and focus on core business operations. As the legal employer, Payoneer Workforce Management may deduct taxes and other contributions in line with Indonesian law.
• Benefits and expenses management: Different countries have different expectations around employee benefits and expense policies. Payoneer Workforce Management offers guidance on creating localized benefits, as per the laws in the Indonesian market, giving you one less administrative task to think about.

Compared to establishing a local legal entity or hiring only contractors, working with an Indonesia EOR offers a compliant way to build, grow, and manage an international team.

How to onboard employees in Indonesia

In Indonesia, the onboarding process involves enrolling the new hire in benefits and payroll, including BPJS Ketenagakerjaan (Indonesia’s security contributions) and BPJS Kesehatan (the national health insurance).

You may also choose to:

• Send out pre-employment documents and training
• Provide work equipment such as a laptop and/or phone
• Organize welcome meetings with the employee’s team
• Share your company policy regarding Indonesia’s cultural and religious diversity

Pay employees in Indonesia

Here are the essentials of an employer’s payroll responsibilities in Indonesia:

• Indonesia’s fiscal year runs from January 1st to December 31st.
• Payroll is run monthly.
• The legal minimum wage varies by location; in the Jakarta region, it is IDR 5,396,760 per month.
• Employees are entitled to Tunjangan Hari Raya (THR), a religious holiday allowance paid in advance of major religious holidays and celebrations.

Income tax deductions

Employees are required to pay Individual Income Tax (IIT) or Personal Income Tax (PIT) in Indonesia: the more money they earn, the more tax (as a %) they pay as a progressive rate.

Employers must deduct these from the employee’s monthly pay. Income tax must be paid by the 10th of the following month.

Other deductions (BPJS Ketenagakerjaan)

Payments into Indonesia’s BPJS Ketenagakerjaan fund include:

	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	4% (up to IDR 480,000 per month)	1% (up to IDR 120,000 per month)

An employer of record in Indonesia will be knowledgeable about income tax and other legal contributions, and may support with accurate processing of these payments as part of your payroll cycle.

Employment laws in Indonesia

The Manpower Act governs Indonesia’s hiring and employment practices. The Omnibus Law on Job Creation (Law No. 11 of 2020) and Government Regulation 6 of 2023 are also key legislation, having recently introduced significant changes to various labor regulations.

Here’s what employers need to know:

• Working hours: Employees can work up to 40 hours per week, over 6 working days (max 7 hours per day), or 40 hours per week, over 5 working days (max 8 hours per day).
• Overtime: This is capped at 4 hours per day or 18 hours per week. Overtime pay is 150% of the employee’s regular wage for the 1st hour and 200% after that. Office-based or white-collar workers are commonly exempt from overtime pay.
• Rest time: All employees are entitled to a 30-minute break after 4 hours of work and a weekly rest of at least 1 day.

Minimum wage in Indonesia

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

Minimum wage applies to employees in the region and varies across provinces. Employers should always verify the latest figures from official sources before processing payroll.

Indonesia’s minimum wage is updated annually to reflect economic conditions and the cost of living. 

An Employer of Record (EOR) solution in Indonesia may be able to help businesses stay compliant with these regulations without the need to set up a local entity.

Employment contracts in Indonesia

There are four types of employment contracts in Indonesia:

1. Permanent employment contract (PKWTT): After a 3-month probationary period, the worker becomes a full-time employee with job security, benefits, and a legally-mandated minimum wage.
2. Fixed-term employment contract (PKWT): A PKWT cannot exceed 3 years, and no probationary period applies. Once the contract ends, so does the worker’s role in the organization.
3. Outsourcing employment contract: If an organization outsources work to a third-party service provider, a contract may be established between the organization and the individual worker.
4. Part-time employment contract: The terms and remuneration are agreed in writing between the employer and the employee. 

According to Indonesia’s Labor Code Article 51, permanent and fixed-term employment contracts can be oral or written. However, we recommend getting both parties to sign a written agreement, regardless of local law. This reduces risk and uncertainty. 

Part-time contracts must be provided in writing, or they are automatically considered permanent work under the 2020 Omnibus Law.

The Labor Code also stipulates that an employment contract must include:

• Name, address, and line of business
• Name, gender, age, and address of the worker
• Occupation or type of job and job requirements
• Wages and how wages will be paid
• Contract start date
• Place and date of the work agreement being signed
• Signatures of both parties.

An Indonesian EOR, like Payoneer Workforce Management, can offer assistance with drafting compliant employment contracts.

Leave policy in Indonesia

Employees in Indonesia are entitled to the following leave:

• Public holidays: There are 16 national holidays, plus religious celebrations.
• Annual leave: Employees receive 12 days of paid vacation leave after 1 year of service.
• Sick leave: With a doctor’s note, employees in Indonesia can take up to 4 months of sick leave at full pay. After 4 months, their wage decreases progressively to a minimum of 25% until their contract ends.
• Parental leave: Maternity leave can be up to 3 months. New fathers can take 2 days at full pay to attend the birth of their child.

Work permit in Indonesia

All employees require work authorization in Indonesia, either through citizenship or, for foreign nationals, through a work permit and visa. An employer applies for this permit on behalf of the employee.

To secure a work permit, the employer first needs the Ministry of Manpower’s approval to hire a foreign worker. The employer can then apply for a work permit, which grants the foreign employee work authorization in Indonesia.

Importantly, foreign workers are hired on fixed-term contracts aligned with project duration and permit validity.

Background check in Indonesia

Running a background check on new hires is proper due diligence. Background checks can be complicated in Indonesia. However, accessing public records online or from government agencies isn’t always easy. You may have to visit various offices in person, and you may find gaps in their record-keeping.

In Indonesia, an employee background check usually looks at:

• Employment history and work references
• Education and training credentials
• Criminal record
• Medical screening (for certain roles)
• Credit history check
• Social media check

A background check must be performed in compliance with Indonesia’s employment and data protection laws. Again, this is something an EOR in Indonesia may offer support with.

Employment termination in Indonesia

Employers can terminate employees for valid reasons such as misconduct or performance issues, in compliance with Indonesian labor law.

Notice period

Employers must give 14 working days’ notice to end an employee’s contract. If an employee wants to object, they can do so within 7 working days of receiving notice.

Severance pay

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 pay

This is different from severance pay and is given to reward employees for long tenures.

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

Company registration in Indonesia

If you plan on hiring multiple employees in Indonesia or want to build a significant presence there, you may choose to register a company in Indonesia. Here’s how:

1. Think of a legal company name with at least 3 words.
2. Create your articles of association.
3. Submit the Deed of Establishment, known as the Akta Perusahan.
4. Acquire your tax ID, known as a Nomor Pokok Wajib Pajak.
5. Obtain a business registration number. 

This process can take several months. That’s why many U.S. companies may consider engaging talent through an EOR in Indonesia.

PEO in Indonesia

If you’re looking to outsource your HR tasks, you’ve likely come across both Employer of Record (EORs) and Professional Employer Organizations (PEOs). Let’s compare the two.

	EOR	PEO
Employment responsibility	The EOR is the legal employer on your behalf.	You and the PEO are co-employers.
Legal entity required?	No. An EOR acts as the legal employer.	Yes. You must set up a local legal entity.
Administrative burden	Minimal. The EOR offers support with compliance, payroll, and HR.	Shared. You are still responsible for some HR functions.
Best for	EORs are commonly used for global expansion, testing new markets, and short-term hiring.	PEOs are best for established operations with a legal presence in-country.

In short, EORs provide a compliant alternative to setting up a local entity for companies expanding internationally.

Payoneer Workforce Management’s employer of record services in Indonesia

There is a lot to think about when hiring in Indonesia, and failing to comply with local law can lead to heavy penalties and consequences. 

Working with an EOR in Indonesia makes the whole process more manageable. Payoneer Workforce Management offers support to onboard, pay, and offboard employees while staying compliant with Indonesian laws. 

Book a demo today to find out more about our EOR solutions in Indonesia.

FAQs 

1) What is an employer of record in Indonesia?

An Indonesia Employer of Record is a third-party organization that can hire and manage teams on your behalf without setting up a local entity in Indonesia, while allowing you to engage a local team. An employer of record in Indonesia, like Payoneer Workforce Management, offers support with quick onboarding, assistance with payroll, taxes, and compliance.

2) What is a normal salary in Indonesia?

Minimum wage varies by province. The minimum salary in the Jakarta region is IDR 5,396,760 per month.

3) How much does an EOR cost in Indonesia?

The EOR cost varies based on the provider. For instance, Payoneer Workforce Management’s EOR services in Indonesia start at $199 per month. This is usually cost-effective than setting up a local entity.