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Growing companies use various strategies to reach their goals and establish a presence in other countries. You may hire full-time employees internationally to meet your goals, but you can also count on independent contractors for high-value projects. Learn about the details of this designation to leverage it for your success.

Hiring contractors in Indonesia

Compared to employees, independent contractors maintain a different type of relationship with employers. It’s essential to understand how this relationship varies so you can meet all legal requirements for the appropriate designations. Potential penalties for misclassification may affect your company’s growth.

Independent contractors vs. full-time employees

Independent contractors enter agreements with employers through civil law, while full-time employees are subject to labor law. One of the most notable differences between these designations is the level of control an employer has over the worker.

When working with independent contractors, employers only have a say in the result of the work, not how the work is conducted, where it is conducted, or when it is conducted. Contractors can also work with multiple companies. Employees, in contrast, maintain a subordinate relationship with their employers and must conduct their work as the employer requires.

In exchange for their work, contractors receive service fees, while employees receive salaries and benefits as described in the labor code.

Penalties for misclassification

Misclassification of a full-time employee as an independent contractor can lead to costly penalties, such as:

  1. Fines from the government.
  2. Back taxes and social security payments.
  3. Requirement to provide all employment-related benefits and entitlements to the employee.
  4. Legal action from the misclassified employee.

How to hire independent contractors in Indonesia

When you begin the contractor hiring process, follow these 3 key steps.

1. Carefully conduct interviews.

Independent contractors provide services for your company, but they don’t integrate into your enterprise. For this reason, interviews are essentially business transactions. Focus your questions on skills and experience to determine whether a contractor is capable of completing your project. It’s best practice to avoid questions about character traits or workplace behaviors that may suggest employee status.

2. Create a service agreement.

A service agreement will define the terms of your relationship with an independent contractor. These terms will ensure both parties understand the expectations of the services provided. Your service agreement should include:

  1. Pay rate and arrangements.
  2. Description of the project.
  3. Definition of a completed project.
  4. Termination policies.

3. Introduce necessities.

Contractors can complete the described project in any way they see fit, so training is not appropriate for these types of hires. Instead, introduce only the necessities for the project. These necessities may include workflows the contractor will contribute to or employees in your company they’ll interact with.

How to pay independent contractors in Indonesia

In an independent contractor relationship, the parties can agree on payment terms through the service agreement. Some contractors may request payments in installments or an hourly rate for the time they log. These arrangements will all depend on the nature of the work.

Companies are not required to deduct tax or social security contributions from these payments because contractors act as independent businesses.

Terminating independent contractors

Any termination requirements should be outlined in the service agreement. These terms may include required notice periods, payment in lieu of notice, and reasonable causes for determination.

Turn to G-P when hiring independent contractors in Indonesia.

As a part of our #1 suite of global employment products, G-P Meridian Contractor™ allows companies to hire and pay global contractors faster, with self-service workflows and a wide set of flexible payment options. Whether you’re hiring employees or contractors, our platform streamlines the process with a single solution for your global workforce.

Contact us to learn more.


THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). G-P does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect G-P’s product delivery in any given jurisdiction. G-P makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.

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