Guide to hiring employees in Indonesia

Everything you need to know when expanding your workforce in Indonesia

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Source: Shutterstock

Overview

Indonesia is a unique country where scientific and economic progress meets tradition and culture in a delightful mishmash. Despite being largely agrarian, Indonesia has been going through rapid industrialisation in recent years.

Businesses there are diversifying. The young talents of Indonesia are numerous, focusing on tech and non-tech industries. Much of the talent pool in the tech industries tends to focus on software and data engineering.

Those in the non-tech industries focus on media and communications, as well as business development. As of 2021, the literacy rate was 99.81%, with 9.67% of the population over the age of 15 completing their tertiary studies. It is worth bearing in mind that for a developing country, these numbers will only keep rising. 

Currently, the business climate in Indonesia remains firm. Domestic demands remain strong, and their inflation is under control. With essential supplies secured and the COVID-19 situation receding, the time is ripe right now for businesses to invest in Indonesia. The service, agriculture, and industrial sectors are among the best industries to foray into in Indonesia.

Other industries that are expected to grow rapidly in the coming years include petroleum and natural gas, textiles and apparel, mining, footwear, plywood, rubber, and chemical fertilisers. 

Capital Jakarta
Languages spoken Official languages spoken are Bahasa Indonesia and English however, Indonesia is home to more than  800 local dialects including Javanese, Sundanese, Madurese, Minangkabau, and Balinese 
Population size 280.1 million as of October 2022 
Payroll frequency Monthly
Currency Indonesian Rupiah (IDR) 
VAT 11% as of April 2022 

Payroll and taxes in Indonesia

The following is a summary of the mandatory contributions in 2022: 

Indonesian income contribution rates 2022-1Table 1: Types of mandatory contributions from employers/employees

Working hours in Indonesia

Regular working hours in Indonesia are 40 hours per week – either seven hours a day for six working days weekly, or eight hours a day for five working days a week. If these hours are exceeded, or if employees are required to work over weekends/public holidays, employers need to provide overtime pay. 

Overtime hours should not exceed three hours per day and 14 hours per week. 

Overtime wages can be calculated as follows. 

Indonesia overtime pay rateTable 2: Overtime hours and wage calculation


Minimum wage in Indonesia

According to Indonesia’s Ministry of Manpower and Transmigration, the minimum wage in Indonesia increased from IDR 4.42 million per month to IDR4.64 million per month as of 2021. This was enforced on January 1st, 2022 and is still in effect. 


Employee benefits in Indonesia

According to Indonesia’s Ministry of Manpower and Transmigration, the minimum wage in Indonesia increased from IDR 4.42 million per month to IDR4.64 million per month as of 2021. This was enforced on January 1st, 2022 and is still in effect. 

In terms of employment laws, Indonesia uses a civil law system. These laws can be quite stringent to protect the citizens. However,  foreign employers are not required to set up an entity to employ Indonesian citizens. They may be employed directly or through agencies.

Indonesia’s employment laws, although stringent, are straightforward. According to the Labor Law (Law No 13 of 2003), employers must ensure that their Indonesian employees: 

  • Receive at least minimum wage according to their respective sector and province; 
  • Receive social security – encompassing pension, healthcare, life & accident insurances, and old-age benefits; 
  • Receive one month’s salary as a religious holiday allowance; 
  • Receive statutory absence or payment in lieu if the employee does not exhaust their annual leaves; and 
  • Receive overtime work payment. 

According to the Manpower Law of Indonesia, employees are obligated to provide several benefits and allowances for their employee aside from fair wages and other statutory requirements, which include: 

  • Healthcare insurance 
  • Pension/retirement benefits 
  • Life and accident insurance 
  • Food and transportation allowance maternity and paternity leave 
  • Paid sick leave 
  • Annual paid leave 
  • Death benefits 

Supplementary benefits beyond statutory compliance can effectively attract and retain a highly motivated talent force, which in turn translates into an effective workforce. 

Supplementary benefits that attract the Indonesian talent pool include the following: 

  • Dental and optical care; 
  • Additional time off 
  • Free meals 
  • Flexi hours 
  • Mobile and internet allowance; and
  • Educational assistance for employees and/or their children 

Employees are also eligible for a yearly religious holiday bonus called Tunjangan Hari Raya (THR), paid out one business week before the religious festivities: 

  • Eid al-Fitr for Muslims 
  • Christmas for Christians 
  • Balinese Hindu New Year for Hindus
  • Wesak Day for Buddhists 
  • Lunar New Year for Confucians 

Employers who do not pay out this bonus on time are liable to be fined. 

For those who have facilities for remote workers, there is a chance to attract remote employees in and to Indonesia. There are talks of granting digital nomads granted five-year visas, which will not be subject to any taxation on foreign-sourced income. 

As of now, this is intended to attract tourists to Indonesia where they can work remotely. Those who want to legally work in Indonesia full-time, however, still need to apply for a work permit. 

As many full-time employees have become remote workers since the advent of COVID-19, this visa may be an attractive benefit for employees who seek work-life balance.  

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Types of leave available in Indonesia

The Indonesian law has provisions for several types of leaves, including annual, maternity, sick leave and more. 

Annual leave 

After 12 months of continuous service, workers are entitled to 12 days of paid time off. The number of days they may take off continuously depends on their work agreements or company regulations. 

Some of the paid leaves for permanent employees are as follows: 

  1. The employee gets married – three days’ paid leave
  2. The marriage of their children– two days’ paid leave
  3. The circumcision of their children– two days’ paid leave
  4. The baptism their children– two days’ paid leave
  5. The employee's partner gives birth or miscarries – two days’ paid leave
  6. The death of a husband/wife, parent/in-law or child  – two days’ paid leave
  7. The passing of a  family member – one day paid leave

Public holidays 

As stipulated by the Labor Law in Indonesia, employees can take all national public holidays off. If they are required to work on public holidays, they should be compensated with overtime pay.

Public holidays include:   

Liburan Nasional-1Table 3: National Public Holidays in Indonesia

Additional holidays are but may be considered as part of the employees' annual leave, subject to the discretion of organisations/employers. Liburan Bersama-1Table 4: Additional Public Holidays in Indonesia

Sick leave 

Absence from work due to illnesses are not to be deducted from the allotted days of an employee’s annual leave. For employees who have a written statement by a qualified doctor, the wages they are to receive are as follows: 

Percentage of wages paid Indonesia (2)Table 5: Length of sick leaves and percentage of wages paid

Menstruating people are entitled to paid leave on their first and second days of menstruation if their condition affects their job performance.   

Maternity/Paternity leave 

Birth-givers are entitled to full wages during their maternity leave, including 1.5 months before and 1.5 months after the birth – with certification from a qualified obstetrician or midwife. 

In the event of a miscarriage, the employee is entitled to 1.5 months of paid leave – with certification from a qualified obstetrician or midwife. 

The duration of leave before and after birth, as well as miscarriage, can be extended, subject to recommendation by a qualified doctor. 

Attracting talent in Indonesia

Retaining talent in the 21st century requires a balance of tangible and non-tangible benefits. Companies need to go a step beyond wages if they aim to attract and retain top talents in their industries. Modern job seekers seek fair compensation and work-life balance and want a sense of belonging, a healthy workplace culture, and an organisation whose values match their own. 

Be strategic with employee branding

As for the younger generation, leaving a positive impact on posterity is essential. Many millennial job candidates also want to work with colleagues of top calibre besides looking for jobs with excellent career advancement opportunities.  

It is upon the organisations to stand out – branding their company as something that the current generation will work with is essential. Potential employers need to think beyond financial compensation to attract and retain talent. Employer brand attractiveness is key to attracting and retaining modern Indonesian employees.  

Place ESG values at the forefront 

According to a recent study by Ilmia & Artisola (2022), millennials are known as the “green generation,” and most Indonesian millennials would exclude companies that do not reflect their values regarding environmental responsibility. With Indonesia’s dominating demographic being the millennials, it is wise for companies to implement green strategies to attract young, talented potential employees in Indonesia.

For the younger generation worldwide, social and environmental values are essential, and organisations with a positive impact on both are preferred. Addressing these demands and needs is key to attracting and retaining top talent and solving the talent shortage. 

Find a balance between governance and flexibility

Different people thrive under different circumstances, and this also applies to working models.

Allowing employees to choose their preferred work mode can only increase productivity. Providing access to productivity and collaboration tools and mechanisms will further boost morale. Most young Indonesian job seekers prefer a hybrid mode of work.

Furthermore, the top three things that matter the most to them at work are a good relationship with colleagues, a good relationship with superiors, and an excellent work-life balance. 

Provide opportunities for continuous learning

There is a need for continuous engagement between the organisation and the employee to ensure that the worker’s experience is optimal, with a maximum capacity for career growth opportunities.

In these terms, one-on-one mentorship, coaching and grooming for career advancement, and continuous learning systems introduced in the workplace may significantly impact attracting and retaining potential employees.

shutterstock_334547003

Termination of employment in Indonesia

In Indonesia, an employee must be given a 30-day notice to terminate the employment contract. Termination can be initiated by the employer via dismissal or by the employee via resignation. There are two types of termination: 

Termination in IndonesiaTable 6: Termination with cause vs. termination without cause

There are four types of termination settlements in Indonesia: 

Severance pay – payment due to termination of employee 

Long service pay – compensation/reward for long years of service 

Compensation of rights pay – compensation for unused annual leave, maternity leave, medical, accommodation, traveling expenses, etc. 

Separation pay – voluntary compensation as a reward for services rendered by employees 

*Not all employees are entitled to termination compensations - only permanent staff are eligible. Contract staff have a contract completion allowance at the end of the contract. If 12 months have been completed upon the end of the contract, they will be eligible for one month's salary. If the agreement is less than 12 months, the payment will be prorated. 

There are two types of employment agreement contracts in Indonesia: definite term contracts (contract has a set end date – employer and employee can choose to end or renew the contract at the end) and indefinite term contracts (contract has no set end date). 

For definite term employment contracts, employees are not entitled to any termination compensations. Only indefinite term contract employees can avail the termination compensations. 

An employee CANNOT be terminated under the following circumstances: 

  • Unable to work for up to 12 months due to illness 
  • Unable to work due to law restrictions 
  • Marriage 
  • Childbirth, nursing, miscarriage 
  • Involved in labourer rights/union activities outside of working hours 
  • Whistleblowing on employers 
  • Performing compulsory religious activities 
  • Disability/injury due to work accidents 
  • Marital status 
  • Religion 
  • Race 
  • Physical appearance 
  • Gender/sexuality 
  • Political views 
  • Medical condition 

The minimum statutory termination benefits for permanent staff in Indonesia are calculated as follows: 

1-Oct-28-2022-01-47-09-3927-PMTable 7: Severance pay according to years of service completed

2-Oct-28-2022-01-47-09-3312-PMTable 8: Service pay according to years of service completed

What are my options for hiring in Indonesia?

For businesses seeking to attract talent in Indonesia, there are a variety of solutions provided by Airswift to ease your hiring process within compliance with local laws. With our long-standing expertise and knowledge, we minimise the risks of hiring, and onboarding the cream of the crop Indonesia has to offer. Let us bear the administrative tasks while you concentrate your efforts on your growing business. 

Some of the options businesses can explore include: 

Talent acquisition

talent-acquisition

When growing a business, there is always risks involved. That is why it is important to have talents with appropriate knowledge and expertise. In Airswift, you get a local talent acquisition professional to source high-quality employees in a competitive market. 

We also offer contract hiring for short-term projects and flexible staffing solutions – you will never have to compromise quality for urgent contract hiring. Our database of highly qualified contractors ensures that you will have the best for your organisation.  

If you seek a more permanent staffing solution, our professional recruitment services can connect you with the best talents from Indonesia who meet your requirements. 

 

Employer of record

ICON-MISC-SignHandPen-GRADIENT

If you are looking for ways to hire people remotely but do not want to set up a physical office, an employer of record (EOR) might be just what you need. 

A third-party employer of record (EOR) allows you to avoid the hassle of setting up a local office and focusing on running your business instead. They handle tasks like paying employees' wages and providing them with statuary benefits. 

Learn how Airswift can help you hire employees in Indonesia

Enquire about our services

*Although the information provided has been produced from sources believed to be reliable, no warranty, express or implied, is made regarding the accuracy, adequacy, completeness, legality or reliability of any information. For the latest information and specific queries regarding particular cases, please contact our team.

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