How to hire employees in Indonesia

Indonesia's economic growth and strategic Southeast Asian location make it a prime spot for sourcing cost-effective, skilled talent, particularly in high-demand sectors like technology, manufacturing, and services. This environment, bolstered by Indonesia's political stability and progressive business policies,  signals attractive conditions for business expansion. .

With a framework set for tapping into Indonesia's rich talent pool, understanding the intricacies of the local job market and employment regulations becomes crucial for leveraging these opportunities effectively.

What you need to know before hiring employees in Indonesia

Job market in Indonesia

Indonesia’s  unemployment rate is at 3.55% unemployment rate in 2022., The country has made major strides in digital literacy, which has nurtured talent sectors like e-commerce, fintech, and AI. This growth is complemented by efforts to bridge the gender wage gap, showcasing Indonesia as a destination for diverse and skilled talent.

These developments in the job market have made it imperative for employers to learn about the major hiring trends in Indonesia.

 Indonesia hiring trends

 Driven by digital transformation, Indonesia aims  to create 20-45 million new jobs, particularly in sectors like e-commerce, fintech, automation, and AI, as well as in transportation, warehousing, FMCGs, and healthcare services. This digital boom, alongside the government's reskilling programs, is enhancing the pool of skilled professionals. 

With the youth unemployment rate at its lowest in 2022 at 13.02%, Indonesia presents a burgeoning market of eager young professionals. This trend towards a digitally proficient workforce underscores the critical hiring trends in Indonesia, necessitating a strategic approach for businesses looking to leverage this dynamic talent pool. 

As companies consider entering or expanding within the Indonesian market, understanding these trends is pivotal, setting the stage for the next strategic consideration: establishing a legal entity in Indonesia to tap into its promising job market effectively.

How to hire employees from Indonesia

1. Set up an entity in the country

Establishing an entity in Indonesia involves a clear process, from selecting the right business type to obtaining necessary legal documents and registrations. This includes securing a company name, obtaining a Deed of Establishment, registering for a Tax Identification Number (NPWP), and acquiring a Business Identification Number (NIB) through the OSS system. The process ensures compliance with Indonesian laws, setting a solid foundation for business operations. 

2. Hire independent contractors

Hiring independent contractors in Indonesia provides flexibility and cost savings, ideal for projects requiring specialized skills. This method simplifies entering the Indonesian market, reducing legal and financial obligations. As a next step, collaborating with an Employer of Record (EOR) offers a seamless way to manage compliance, streamlining business expansion in Indonesia.

3. Partner with an EOR in the country

 An Employer of Record (EOR) in Indonesia streamlines the hiring process for companies that don’t have an entity in Indonesia. EORs manage complex administrative tasks, such as onboarding, payroll and benefits and ensure full compliance with local labor laws. This approach allows businesses to rapidly onboard skilled professionals and focus on core activities without dealing with the hassles of establishing a local legal entity.

The benefits of partnering with an EOR like Gloroots include seamless hiring in the Indonesian market, and easier access to a broad talent pool. This strategy simplifies expansion, making it a practical choice for companies aiming to grow in Indonesia efficiently.

Compliance risk while hiring in Indonesia 

Navigating the country's labor laws, primarily regulated by the Manpower Law and the Constitution, is crucial to sidestep compliance risks.

When hiring in Indonesia, a deep comprehension of the intricate legal landscape ensures adherence to regulations, and a legally sound hiring process.

Key Aspects of Indonesia Labor Law

Employment Contract:

In Indonesia, employment contracts detail the nature of the job, including the employee's name and address, start date, description, and salary, ensuring clarity on the terms of employment. 

Employers can onboard permanent employees in Indonesia with oral and written employment agreements - although the latter is preferred. These employment contracts are supplemented with an appointment letter summarising key employment details such as the employer's name, the date of joining, and the terms contingent upon employment. In contrast, employees who are hired on fixed-term contracts must receive an employment agreement in writing. .

Working Hours:

• Employees with 6 workdays: 7 hours/day, 40 hours/week.
• Employees with 5 workdays: 8 hours/day, 40 hours/week.

Exceptions exist, regulated by ministerial decisions. On regular workdays, a mandatory 30-minute rest period is required after 4 consecutive hours of work.

Overtime: 

• Overtime pay applies for work beyond the standard week, regulated by contracts/agreements.
• Maximum overtime is 4 hours/day, 18 hours/week.
• Weekday overtime is paid 150% for the first hour and 200% for subsequent hours.
• Overtime on rest days/public holidays involves varying rates: 200% for the first 7 hours, 300% for the 8th hour, and 400% for the 9th-10th hours.
• For five-day workweeks, overtime on rest days/public holidays is calculated at 200% for the first 8 hours, 300% for the 9th hour, and 400% for the 10th-11th hours.

Minimum Wage:

Minimum wage requirements differ according to local government regulations, ranging from 1,798,979 IDR in Central Java to 4,416,186 IDR in DKI Jakarta. Non-compliance with Indonesian regulations carries substantial legal and financial consequences. Employers must prioritize adherence to labor laws, particularly in areas such as contract obligations, wage guidelines, working hours, and overtime compensation.

Payroll laws in Indonesia

In Indonesia, the typical payroll cycle is monthly, and salaries are commonly disbursed on the agreed-upon last working day as outlined in the employment contract.

Employment benefits in Indonesia 

Leave Policies in Indonesia

1. Paid Time Off:

In Indonesia, employment laws  specify that employees be granted at least 12 days of paid annual leave per year after completing one full year of service. Employees with a continuous six-year tenure with the same employer are eligible for one month of leave in their seventh year of service and an additional month in the eighth year of service.

2. Public Holidays:

Indonesia has 21 public holidays. Every year, the government can choose to move holidays from weekends to weekdays or cancel them.

3. Sick Days:

Employees receive paid sick leave when they're unwell or injured, with a requirement to provide a medical confirmation. Extended sick leave, exceeding one year, necessitates a written recommendation from a doctor.

Compensation during prolonged sick leave is structured as follows:

5. Maternity Leave:

In Indonesia, female employees are entitled to 12 weeks of paid maternity leave, beginning up to 28 days before the expected delivery. Employers have the flexibility to extend this leave for an additional four weeks, and there may be financial incentives or considerations for the extended period. Employers are also obligated to accommodate necessary time-offs for pregnant employees, fostering a supportive work environment.

6. Paternity Leave:

In Indonesia, new fathers are granted two days of leave for the birth of their child or a miscarriage. Additionally, there may be provisions for extended paid parental leave, and employers might benefit from government-supported initiatives or incentives to offset associated costs.

Public Health Insurance

The Indonesian Health Card (JKN-KIS), part of the national health insurance, stands as one of the world's largest insurance schemes, with the goal of extending coverage to the entire Indonesian population. As of 2022, around 249 million people are enrolled in the JKN-KIS. The system primarily offers basic coverage, given the modest monthly contribution rates of only a few euros.

Filing tax in Indonesia

Income Tax:

Employee income tax rates in Indonesia are categorized based on income levels. For earnings up to 60 million IDR, the rate is 5.00%, increasing to 15.00% for income between 60 million and 250 million IDR. In the range of 500 million to 5 billion IDR, the rate is 25.00%, and for incomes exceeding 5 billion IDR, the rate is 30.00%.  For more details on tax in Indonesia, refer to the comprehensive guide.

Other Tax and Social Security Contributions:

In Indonesia, employer payroll contributions cover aspects like work accidents, old age, death, pension, and health insurance. The total employment cost falls between 10.24% and 11.74%. Employees contribute to old age, pension, and health insurance, with a total employee cost of 4.00%. For more details on tax and social security contributions in Indonesia, refer to the comprehensive guide.

Business culture in Indonesia

Indonesia's business culture is deeply influenced by its collective and hierarchical society, emphasizing respect, consensus, and relationship-building. Meetings often start with small talk to establish rapport, and senior members typically make decisions, reflecting the society's respect for age and rank. Communication tends to be indirect, with a preference for maintaining harmony and avoiding confrontation.

Navigating this nuanced cultural landscape is essential for effective business operations and partnerships in Indonesia. Understanding and adapting to these practices facilitates smoother interactions and paves the way for exploring opportunities in Indonesia's thriving sectors, such as manufacturing, agriculture, and digital services, which are pivotal for businesses looking to expand their presence in the region.

Top sectors to hire from in Indonesia

Wholesale and Retail trade

In February 2022, approximately 25.8 million individuals aged 15 and above were employed in Indonesia's wholesale and retail trade sector. This sector stood as the second-largest employer in the country during that period, following the agricultural sector.

Manufacturing Sector 

In February 2022, approximately 18.67 million individuals aged 15 and above were employed in Indonesia's manufacturing sector. This sector ranked as the third-largest employer in the country, trailing behind the agricultural and wholesale/retail trade sectors during the same period.

Top cities to hire from Indonesia

Jakarta: ‍Capital and largest city, major economic and business hub, diverse talent pool.

Surabaya: Second-largest city, prominent for industrial and trade activities, key recruitment center.

Bandung: ‍Thriving in education and technology sectors, valuable source of skilled professionals.

Other cities: ‍Medan, Bekasi, Tangerang, Depok, Semarang, Palembang, Makassar - contribute unique strengths to Indonesia's workforce.

Hire in Indonesia compliantly with Gloroots

Gloroots, as an Employer of Record (EOR) in Indonesia, expedites candidate onboarding, ensuring rapid operational commencement while maintaining compliance with local and global standards. Tailored for companies of all sizes, it streamlines payroll management, benefits administration, and tax handling, eliminating the requirement for a local entity. This enables companies to concentrate on efficiently building a remote team in Indonesia. For more details on how Gloroots can assist with your Indonesian hiring requirements, please contact us.

Frequently Asked Questions 

1. What constitutes the primary foundations of employment law?

Key pillars of employment law in Indonesia include:

• Manpower Law (Law No. 13 of 2003), amended by Government Regulation No. 2 of 2022 on Job Creation.
• Industrial Relations Dispute Settlement Law (Law No. 2 of 2004).
• Employee/Labour Union Law (Law No. 21 of 2000).

2. Who falls under the protective umbrella of employment law, and how are various worker categories delineated?

Fundamentally, employment laws shield individuals engaged in work for Indonesian employers. The Manpower Law classifies employees into permanent and fixed-term categories based on their employment agreement duration. Expatriates, under a fixed-term arrangement, operate in alignment with their work permits.

3. Does Indonesia have laws protecting employees from discrimination, and if so, what are the grounds for discrimination prohibition?

Indeed, employees in Indonesia are safeguarded against discrimination. Law No. 21 of 1999, endorsing ILO Convention No. 111 of 1958, defines discrimination based on factors such as race, color, sex, religion, political opinion, national extraction, or social origin. The Manpower Law in Indonesia also provides protection against discrimination.

4. What constitutes unlawful discrimination, and in what situations is it prohibited?

Unlawful discrimination encompasses unfair treatment in job opportunities, salaries based on gender, and bias against employees with HIV/AIDS.