Indonesia is experiencing growth in both its population and GDP. For American companies hiring in Indonesia, the outlook is strong: the question is less if or why to hire employees in Indonesia, but how. 

This guide reviews common ways to hire employees in Indonesia for companies based outside of Indonesia, the legal considerations, and how an Employer of Record (EOR) like Payoneer Workforce Management can help simplify the hiring process.

How to hire employees in Indonesia

American companies hiring in Indonesia have a few different options for building and growing their teams:

1) Set up a legal entity in Indonesia

A business needs a local legal entity to directly hire employees in Indonesia. This involves incorporating your business in-country, a process that takes both time and resources. It’s certainly not the leanest solution for companies looking for fast and flexible hiring.

2) Hire contractors in Indonesia

It’s sometimes possible to hire contractors in Indonesia without a legal entity. However, contractors and employees are two separate worker classifications, and an organization’s legal relationship differs with each. 

Contractors are a good choice for time-bound or limited-scope projects. If you want to bring in a full-time team member for the foreseeable future, you’ll need to hire an employee. 

However, worker misclassification can lead to heavy penalties and significant legal issues, so proceed with caution.

3) Use an Employer of Record (EOR)

An Employer of Record (EOR) is a third-party company that acts as the legal employer for your team in Indonesia. 

The EOR will have established a legal entity through which you can hire in Indonesia. You remain in control of managing, developing, and organizing your workers. The EOR takes on the legal responsibility of contracting and paying them on your behalf.

Hiring in Indonesia through an EOR is a good option for companies that want to streamline the lengthy, expensive process of setting up a legal entity. An EOR will also help you act compliantly and with cultural sensitivity to Indonesia’s working standards.

Learn more about using an Employer of Record in Indonesia.

Where to find employees in Indonesia

It’s not always easy to source employees overseas: language barriers, time zones, and other differences can get in the way. Here are the main places or partners through which to find and hire employees in Indonesia:

Popular job boards in Indonesia

Job boards are used by domestic and international (e.g., expat) job-seekers alike. U.S. companies and other predominantly English-speaking organizations should opt for job boards with content in English and not just Bahasa (Indonesian), to make the process easier.

The most popular job boards in Indonesia include:

• Grabjobs (Bahasa and English)
• Jobindo (Bahasa and English)
• Karir (Bahasa)
• The Jakarta Post (English)
• Monster (English)
• Jobs in Jakarta (English)

Work with local recruitment agencies

With their feet on local ground, a recruitment agency may be able to move more quickly in sourcing and vetting candidates on your behalf. They should also be able to speak both Bahasa and English to act as a good intermediary and set up potential meetings.

Bear in mind that, in Indonesia, a recruitment agency’s fees can range between 15% to 25% of an employee’s first-year salary. Don’t forget to include that cost when planning your budget to hire employees in Indonesia.

Recruit through an EOR’s support

Candidate sourcing may be an additional service offering of an EOR. 

With an Employer of Record in Indonesia, you’d still drive the recruitment process, and you certainly make the calls on who to hire and when. 

But the EOR may support with talent network and assist with employment contracts, onboarding, benefits, payroll, and compliance with Indonesia’s employment laws.

Onboarding employees in Indonesia

A good onboarding experience sets your new hires up for success. In Indonesia, the onboarding process can include:

• Registering workers for BPJS Kesehatan (Indonesia’s national health insurance) and BPJS Ketenagakerjaan (the pension and social security fund).
• Sending out pre-employment documents and necessary training (in Bahasa and/or English).
• Issuing work equipment, such as a laptop and/or cell phone.
• Scheduling welcome meetings with the team.
• Sharing your company’s policy on Indonesia’s varied vacation types and religious celebrations (see more below).

An EOR in Indonesia can assist with onboarding talent in Indonesia. Payoneer Workforce Management helps streamline the onboarding process, providing dedicated support with admin work around welcoming local members.

Key employment laws and requirements in Indonesia

Employment practices are underpinned by three key pieces of legislation in Indonesia: 

• Manpower Act of Indonesia (Act No. 13 of 2003)
• Omnibus Law on Job Creation (Law No. 11 of 2020)
• Government Regulation 6 of 2023

Employment contracts

Contracting is an essential part of building a team, bridging the gap between sourcing and hiring, and then onboarding new staff. In Indonesia, employment contracts must comply with the Manpower Act of Indonesia (Act No. 13 of 2003).

According to the Manpower Act, a work agreement is “an agreement between worker/laborer and employer which regulates the terms of employment, rights and obligations of the parties concerned.” There are four types of employment contracts in Indonesia, but the most common are:

1. Permanent employment contract (PKWTT): This is a full-time, open-ended job contract where, following a successful 3 to 6-month probation period, the worker becomes a full-time employee with job security, benefits, and a legal minimum wage.
2. Fixed-term employment contract (PKWT): A fixed-term contract must be provided in written Bahasa to be valid. The contract cannot exceed 3 years, and no probationary period applies. The worker’s role in the company ends as soon as the fixed-term contract does.

Whether agreeing on a permanent or fixed-term contract, we’d always recommend a written contract that both parties sign.

A written contract can help avoid confusion or uncertainty in the working relationship. Plus, given that one of the key aspects of an agreement is to get both parties to sign (see the list below), it’s clear how a written contract has legal benefits too.

According to the Manpower Act, a work agreement should include at least:

• Name, address, and area of business of the company
• Name, gender, age, and address of the worker/laborer
• Occupation or type of job of the worker/laborer
• Working place
• Wage and how it should be paid
• Terms of employment, including the rights and obligations for workers/laborers and the employer
• Starting and the period of time during which the work agreement is effective
• Place and date that the work agreement is made
• Signatures of the employer and worker/laborer

Employee benefits

Employers are legally required to comply with the statutory employee benefits of the country they’re hiring. For American companies hiring in Indonesia, that means offering employee benefits in line with Indonesian law (rather than U.S. law). 

Workers hired in Indonesia will expect:

• Pension and social security: Employers of Indonesian workers must make contributions towards the employee’s pension and social security via Indonesia’s BPJS Ketenagakerjaan fund. Pension contributions are 2% for the employer and 1% for the employee.
• Health insurance: Employers must contribute up to IDR 480,000 ($29) per employee per month to cover employees’ health expenses.
• Vacation leave and paid time off: Employees are entitled to 12 days of paid leave after completing 1 year of service.
• Public and religious holidays: As a multi-faith country, Indonesia observes 16 national public holidays and various religious celebrations. Employers are obliged to offer Tunjanga Hari Raya (THR), a financial bonus paid to employees in March or April,  to cover the costs of religious events.
• Sick leave: Employees may take up to 4 months of paid sick leave, provided they have a doctor’s note. Paid leave is available beyond 4 months at 75% of their salary (4 to 8 months of leave), 50% of their salary (8 to 12 months of leave), and 25% of their salary after 12 months and until their contract is terminated.
• Maternity leave: Female employees can take up to 3 months of paid maternity leave. This can be extended by a further 3 months in special circumstances and/or with a doctor’s authorization.

Working hours

Here are the regulations for working hours, overtime, and rest time for employees in Indonesia:

• Working hours: An employment agreement can be for a maximum of 40 hours per week, over 6 working days (less than 7 hours per day), or 40 hours per week, over 5 working days (less than 8 hours per day).
• Overtime: Employees may be asked to work overtime, but overtime is capped at 4 hours per day or 18 hours per week. Non-office-based workers must receive overtime pay of 150% of their regular wage for the first hour and 200% after that.
• 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.

Tax obligations

Employees are legally obliged to pay Individual Income Tax (IIT) or Personal Income Tax (PIT) in Indonesia. IIT and PIT work on a progressive scale: the higher the salary, the higher the percentage paid as income tax.

It is the employer’s responsibility to deduct income tax from the employee’s salary. This should occur as part of the standard monthly payroll, with income tax payments paid to Indonesia’s State Treasury by the 10th of the following month.

In addition to pension, social security, and health insurance contributions, an employer must contribute to:

Jaminan Kecelakaan Kerja (work accident contribution)	Employers contribute 0.24% to 1.74%, depending on the job’s level of risk
Jaminan Kematian (death compensation)	Employers contribute 0.3%
Jaminan Hari Tua (old age security)	Employers contribute 3.7%Employees contribute 2%

Termination and severance

The Manpower Act lists several legitimate and several prohibited reasons for terminating an employment contract. Most legitimate terminations require a 14-day notice period.

Prohibited reasons include:

• An employee being sick for a continuous and extended time (up to 12 months)
• An employee getting married or giving birth
• An employee’s involvement in a trade union or trade union activity outside of work hours
• An employee’s religious devotion or obligations to the state/country

Employees are also protected from terminations relating to a blood or marital relationship with another employee and reasons associated with their belief, race, gender, sex, physical condition, or marital status.

Legitimate reasons for termination include:

• Gross misconduct such as:
  • Intoxication on the job
  • Immoral practices or gambling in the workplace
  • Attacking, threatening, or intimidating the employer or other employees
  • Careless or intentional actions that put other people’s safety at risk
  • The disclosure of confidential information
• Criminal behaviour such as:
  • Theft or smuggling of company money or goods
  • Providing false or falsified information resulting in financial loss to the company
  • Committing criminal actions that are subject to 5 or more years of imprisonment

Employees with long tenures are entitled to long service pay once their contract is terminated.

Employee’s years of service	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

In the event of redundancy, severance pay is owed to employees based on their tenure:

Employee’s years of service	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

Payoneer Workforce Management helps hire employees in Indonesia

Payoneer Workforce Management helps companies employ independent contractors and full-time employees in 160+ countries, including Indonesia, without the complexities of setting up a local legal entity. 

Our unified platform empowers you to:

• Onboard talent quickly and compliantly without a local entity
• Run global payroll in a few clicks
• Manage taxes, benefits, timesheets, and more.

From hiring in days to multi-currency payroll, Payoneer Workforce Management helps businesses hire, pay, and manage a global team. Speak to our experts to get started today.

FAQs

1) What is Manpower law in Indonesia?

The Manpower Act is Indonesia’s main legislation for labor and employment laws. It outlines the legal requirements around working hours, contracts, payroll, and employee rights and protection.

2) What are the options for American companies hiring in Indonesia?

U.S. companies can take one of several routes when hiring in Indonesia. The fastest and easiest way is to work with an Employer of Record (EOR) who can hire, onboard, and pay global employees on the company’s behalf. U.S. companies can also establish a legal entity in Indonesia through which they can directly hire teams, but this can get expensive.

3) Are foreigners allowed to work in Indonesia?

Yes. Foreigners, non-citizens, and expats can work in Indonesia provided they have the correct work visa and permit.