Employer of Record (EOR) in Indonesia

In Indonesia, employer of record (EOR) products and services play a crucial role in complying with the country’s complex employment regulations. They ensure that employment processes, from hiring to termination, meet local legal requirements. AI-powered EOR services cover everything from legal employment contracts to managing Indonesia payroll taxes, ensuring seamless operations for businesses.

By tapping into the expertise of an employer of record Indonesia, companies can confidently navigate diverse regulatory requirements, minimizing legal risks. EOR support reduces the risk of non-compliance, enabling businesses to concentrate on their core activities and freeing them from the complexities of local legal and tax requirements.

Hiring in Indonesia with an EOR

Navigating Indonesia’s complex labor laws, such as drafting compliant contracts and calculating termination pay, requires deep local expertise, which the Employer Record EOR provides. An EOR acts as the legal employer, ensuring every aspect of your employment relationship complies with current regulations, such as the Omnibus Law (Law No. 6 of 2023).

Employment contracts in Indonesia

Fixed-term employment agreements (PKWT) must be written in Bahasa Indonesia and use Latin letters. Indefinite-term agreements (PKWTT) may be oral, but written contracts should use Bahasa Indonesia or a bilingual format with the Bahasa Indonesia version prevailing. While a bilingual version may be provided, the Bahasa Indonesia version will always prevail in case of any dispute or discrepancy.

Contracts can be for a fixed term (PKWT) or an indefinite term (PKWTT), with adherence to Indonesian labor laws. Fixed-term contracts based on a specified time period can last up to 5 years, including extensions. For contracts tied to a specific job or project, the duration is generally linked to completion of that work. It is mandatory to draft a strong, compliant employment contract that details compensation, benefits, and termination requirements. Monetary amounts payable under an employment contract should generally be stated and paid in Indonesian Rupiah (IDR). A non-binding foreign currency reference may be included for illustration, but IDR should remain the operative payment currency.

Working conditions in Indonesia

Indonesia working hours and overtime

The standard workweek is 40 hours. It is typically structured as 8 hours per day for 5 days a week, or 7 hours per day for 6 days a week. Work beyond these limits is generally treated as overtime, unless a regulated exception or sector-specific arrangement applies. Overtime work generally requires the employee’s agreement and must not exceed 4 hours per day and 18 hours per week. It must also be paid at the statutory overtime rate, with possible exceptions for excluded roles or special sectors. Overtime pay is calculated at 1.5 times the hourly wage for the first hour and 2 times the hourly wage for subsequent hours on ordinary working days. Different rules may apply for weekly rest days, public holidays, and certain senior, managerial, or non-standard roles.

Indonesia public holidays

Employees are entitled to paid time off for public holidays. The Indonesian government announces the official list of national holidays and “collective leave” (cuti bersama) days annually through a joint ministerial decree. Major recurring holidays include:

• New Year's Day

• Lunar New Year

• Nyepi (Balinese Day of Silence)

• Good Friday

• Labor Day

• Ascension Day of Jesus Christ

• Waisak Day (Buddha's Birthday)

• Eid al-Fitr

• Independence Day

• Eid al-Adha

• Islamic New Year

• Birthday of the Prophet Muhammad

• Christmas Day

Annual leave in Indonesia

Employees are entitled to a minimum of 12 working days of paid annual leave after 12 months of continuous service with the same employer. The government-mandated collective leave days (cuti bersama) are typically deducted from an employee's annual leave entitlement.

Sick leave in Indonesia

Indonesia does not have a fixed number of statutory sick days. Employees who are sick are entitled to paid leave as long as they provide a medical certificate. For prolonged illness, employees receive full pay for the first 4 months. Pay is then reduced to 75% for the following 4 months, 50% for the next 4 months, and 25% thereafter until termination rights may arise under applicable rules.

Maternity and paternity leave in Indonesia

Birthing parents are entitled to 3 months of fully paid maternity leave, typically taken as 1.5 months before and 1.5 months after birth, ensuring compliance with local employment laws. Male employees are entitled to 2 days of paid paternity leave when their wife gives birth. Employers may provide more generous leave through policy, contract, or collective labor agreement.

Compensation and benefits in Indonesia

Indonesia health insurance and social security

Employers generally must enroll employees in Indonesia’s universal social security system (BPJS), subject to the applicable worker category and program rules. BPJS consists of BPJS Kesehatan (Health Insurance) and BPJS Ketenagakerjaan (Employment Social Security). These programs provide coverage for healthcare, workplace accidents, old age, pensions, and death benefits.

Indonesia religious holiday allowance (THR)

A mandatory religious holiday allowance (Tunjangan Hari Raya or THR) must be paid to all employees. For employees with 12 months or more of continuous service, THR is equivalent to one month’s wage. For employees with at least one month but less than 12 months of continuous service, it is paid pro rata based on length of service. The THR must be paid no later than 7 days before the employee’s designated religious holiday. This may be Eid al-Fitr, Christmas, Nyepi, Vesak, or Chinese New Year, depending on the employee’s religion.

Termination and severance in Indonesia

Terminating employment in Indonesia is complex and heavily regulated by the Omnibus Law. A probationary period of up to 3 months is permissible for indefinite-term contracts but is not allowed for fixed-term contracts. Employees on probation must still receive at least the applicable minimum wage.

The total termination payment is determined by the reason for dismissal and consists of three potential components:

• Severance pay (uang pesangon): Calculated based on length of service, up to a maximum of 9 months' salary. Total termination compensation may be higher when long-service award pay, compensation of rights, or termination-basis adjustments apply.

• Long-service pay (uang penghargaan masa kerja): An additional payment for eligible employees with at least 3 years of service. The maximum is 10 months' salary or wages after 24 years of service or more.

• Compensation rights pay (uang penggantian hak): Covers unused annual leave, repatriation costs, and other contractually agreed benefits.

The final payout is determined by applying a specific multiplier to these components based on the legal grounds for termination (e.g., resignation, redundancy, serious misconduct, retirement). Navigating these calculations requires expert knowledge to ensure compliance, which an Employer Record Indonesia can provide with ease.

Taxes in Indonesia

Indonesia social security contributions

Employers and employees contribute to the BPJS social security programs. Key contributions include:

• Health insurance: 5% of monthly salary, split 4% employer and 1% employee. Private-sector contributions are typically capped at the BPJS Kesehatan salary ceiling.

• Old age savings: 5.7% of monthly wages for BPJS Ketenagakerjaan JHT. Employers pay 3.7%, and employees pay 2%.

• Pension: 3% of monthly wage (2% by employer, 1% by employee), subject to the BPJS Pension Security wage ceiling.

• Work accident: 0.24% to 1.74% of monthly salary or wages, paid by the employer. The JKK rate depends on occupational risk classification.

• Death benefit: 0.30% of monthly salary or wages, paid by the employer.

• Job loss security (JKP): This program is funded by the government through a reallocation of existing social security funds; there is no additional direct contribution from employers.

Indonesia personal income tax

Residents are subject to progressive income tax rates:

• Up to IDR 60 million: 5%

• Over IDR 60 million to IDR 250 million: 15%

• Over IDR 250 million to IDR 500 million: 25%

• Over IDR 500 million to IDR 5 billion: 30%

• Above IDR 5 billion: 35% on the portion of annual taxable income exceeding this threshold

Why G-P?

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