How To Hire And Pay Employees In Indonesia
Emerald Technology's guide to hiring employees in Indonesia
Indonesian Rupiah is the official currency of Indonesia. Its currency symbol is Rp, IDR.
Jakarta is the capital, the megacity is home to more than 11 million residents, it is also build on 13 rivers.
Indonesian is the primary language, it is spoken by over 94% of the population.
Salaries are paid monthly. Employers are required to pay a 13th month salary.
Indonesia has 15 public holidays.
GROW YOUR TEAM IN INDONESIA
NO ENTITY, NO PROBLEM
To start growing your team in Indonesia, you must establish a local entity- including an account with a local bank, a local office and an address registered as a subsidiary. This allows you to manage payroll, tax, benefits and compliance for your employees, but can take several months.
Emerald can hire and payroll your workers, quickly and compliantly with their ready to go entity. Make growing your team simple with Emerald as a global partner.
PROS AND CONS OF HIRING IN INDONESIA
Indonesia is a country with a population of over 260 million people and is the fourth most populous country in the world. Indonesia is also one of the fastest growing economies in Asia, with an average growth rate of 5% per year.
The business climate in Indonesia is stable and favorable for foreign investors. The country has a well-developed infrastructure, including an efficient financial system and efficient telecommunications. This makes it easy to conduct business activities. Thirdly, the country has a stable economy, which is conducive to investment.
However, conducting business in Indonesia poses some challenges; language barrier and that there is lack of skilled workers.
WHY INDONESIA IS GOOD FOR REMOTE WORKERS
Indonesia is one of the most popular places in the world to work remotely. The country has a strong economy with low unemployment, good internet access, and a friendly culture. Plus, it offers great benefits for remote workers, including: Low cost of living, and good health insurance.
WORKING TIME AND OVERTIME IN INDONESIA
The Indonesian work week is 40 hours, split across either 6 days (7 hours per day) or 5 days (8 hours per day), a week or 8 hours a day for 5 days a week. If employers require overtime, they must pay 1.5x the employee’s regular wages for the first hour and 2x their regular wages for every hour after that.
Wages should include and fixed allowances. The maximum overtime permissible is 3 hours a day or 14 hours a week. Senior-level positions are excluded from overtime regulations.
ANNUAL LEAVE AND PUBLIC HOLIDAYS
Employees in Indonesia are entitled to receive 12 days of annual leave per year, once they have completed 12 months’ continuous service.
Indonesia has 15 public holidays over 16 days.
January 1st: New Year's Day
February 1st: Chinese New Year
February 28th: Isra 'Mi'raj of Prophet Muhammad
March 3rd: Nyepi Day
April 15th: Good Friday
May 1st: Labour Day
May 2nd: Eid Al-Fitr
May 3rd: Eid Al-Fitr
May 16th: Waisak Day
May 26th: Ascension Day of Christ
June 1st: Pancasila Day
July 9th: Eid Al-Adha
July 30th: Islamic New Year
August 17th: Independence Day
October 8th: Birthday of Prophet Muhammad
December 25th: Christmas Day
PROBATION PERIOD IN INDONESIA
Probation periods may be implemented, up to a maximum of three months.
RESIGNATION AND DISMISSAL IN INDONESIA
There is no required notice period for employers in Indonesia. Employees may resign with 30 days’ notice. Severance pay varies depending on the reason for employment termination and includes events such as imprisonment, death, retirement, and bankruptcy.
- Standard Severance Pay: one month of wages for service of less than one year, plus an additional month of wages for every year of service, up to nine months’ salary.
- Long Service Pay: two months’ salary after the first three years of service, followed by an additional one month’s salary for every three years of service thereafter, up to a maximum of ten months’ salary for 24 years of service.
Additional Compensation Pay must be paid to cover the following:
- annual leave that has not expired or been
- relocation expenses (expenses to return the employee and their family to the place from which they were recruited).
- medical and housing allowance: 15% of the total severance pay and service appreciation pay, if any.
- other benefits provided under the employment agreement, the company regulations or the CBA.
- other compensation amounts as determined by the Industrial Relations Court (this can include special arrangements between the employer and employee).
In theory, restrictive covenants are enforceable by virtue of the principle of freedom of contract, adopted in the Indonesian Civil Code. However, in practice, they are very difficult – and sometimes impossible – to enforce. This applies to non-compete clauses as well as provisions for customer and employee non-solicitation.
CONTRACT OF EMPLOYMENT IN INDONESIA
Fixed-term employment agreements must be made in writing and registered with the local Manpower office within:
- 3 days of the signing, if the agreement is registered through online registration; or
- 7 days of the signing, if the agreement is registered through manual
Indefinite-term employment agreements may be made either orally or in writing.
MATERNITY LEAVE IN INDONESIA
Under Indonesian law, businesses must give three months' paid maternity leave to pregnant employees, at least half of which must be taken after the birth. Fathers in Indonesia working in the public sector are eligible for one month’s paid paternity leave, while those in the private sector are granted two days of paid leave.
SICKNESS LEAVE IN INDONESIA
Employees are entitled to 100% of their salary for their first four months of sickness. After this, their pay is reduced by 25% and an employer may terminate an employee who has been sick for 12 months. Sick pay is covered by the employer, not the government.
|Accident benefit||0.24 - 1.74%||0%|
|Life insurance benefit||0.3%||0%|
1. There is no salary cap to calculate the contribution
2. The rate depends on the type of industry of the company
3. The salary is capped at IDR 8,512,400 per month, effective from March 2019. The maximum monthly contribution amount is IDR 170,248 for the employer and IDR 85,124 for the employee. The salary cap is adjusted each year by a factor of one plus the previous year's gross domestic growth. The expatriate is not required to participate in the pension benefit.
HEALTHCARE AND INSURANCE
Employers are required to contribute 4% of employees‘ monthly salaries to the Health Care programme, with employees themselves contributing an additional 1%. For these contributions, salary is capped at IDR 8M per month.
FOREIGN NATIONALS IN INDONESIA
Employers are required to notify the MoM of their utilisation of foreign workers and subsequently pay the Foreign Manpower Utilization Compensation Fund Levy (DKPTKA). The MoM then sends the notification to the Directorate General of Immigration (DGI) for further visa process. All foreign workers are still required to obtain a Limited Stay Visa (Visa Tinggal Terbatas, or VITAS) and a Limited Stay Permit (Izin Tinggal Terbatas, or ITAS).
Indonesian work visas
The Indonesian government prefers that expatriates be employed in Indonesia only in positions that cannot currently be filled by Indonesian nationals. Companies that wish to hire expatriates must provide the necessary education and training programs for Indonesians who will replace the expatriates within a reasonable time period. In addition, employers must appoint Indonesian employees as the counterpart of the foreign workers and implement education and training for Indonesian employee as part of a transfer-of-knowledge program. The employer also is obliged to facilitate education and training of and the teaching of Indonesian language to the foreign workers. Work permits are usually issued for a maximum period of 12 months and may be extended, subject to approval from the government.
MINIMUM WAGE IN INDONESIA
Indonesia's minimum wage is established by provincial and district authorities, which vary by province, district, and sector. The Indonesian monthly minimum wage varies from IDR 1.1M in Central Java to 3.1M in Jakarta.
|Taxable Income IDR||
|Up to IDR 50M||5%|
|IDR 250 - 500M||25%|
SALARY PAYMENTS IN INDONESIA
The payroll cycle in Indonesia is monthly and is usually paid on the last working day or any other date as agreed in the employment contract. There is a statutory requirement to pay the 13th month salary, which is called THR - a religious holiday pay to reflect the religious diversity in the country. For non- Muslims, the THR is paid by December, and for Muslims, before Eid.
SOCIAL SECURITY CONTRIBUTIONS IN INDONESIA
Employees contribute 2% of their monthly salary to old-age benefit (Jaminan Hari Tua), in addition to a 3.7% employer contribution, and 1% of their monthly salary to pension benefit (Jaminan Pensiun), in addition to a 2% employer contribution.
WORKER MISCLASSIFICATION IN INDONESIA
Similar to other countries, Indonesia has strict rules on classifying individual contractors and full-time employees differently. Misclassifying your workers can put your business at risk of fines.