Employer of Record in Indonesia

An Employer of Record (EOR) in Indonesia legally employs your workers on your behalf. This means the EOR handles all the local HR tasks. Think payroll, taxes, benefits, and compliance with Indonesian labor laws. You get to manage your team's day-to-day work without setting up a local entity. An EOR like Rivermate (https://rivermate.com/employer-of-record) makes it simpler to hire talent in Indonesia.

How an Employer of Record (EOR) Works in Indonesia

Using an EOR in Indonesia follows a straightforward process. You find the talent, and the EOR takes care of the rest.

1. You Find Your Candidate. You recruit and select the person you want to hire in Indonesia.
2. The EOR Hires Them. The EOR legally hires the employee under their local Indonesian business entity.
3. A Service Agreement is Signed. You and the EOR sign a service agreement. This outlines the terms of your partnership.
4. An Employment Contract is Created. The EOR drafts a compliant employment contract that meets Indonesian labor law standards. This includes salary, benefits, and working conditions.
5. The EOR Manages HR. The EOR handles all payroll, tax withholding, and social security contributions. They also manage health insurance and other benefits.
6. You Manage Your Employee. You direct your employee's daily tasks, projects, and performance. The EOR is the legal employer, but you manage the work.

Why use an Employer of Record in Indonesia

Using an EOR in Indonesia helps you expand your team quickly and compliantly. It removes the major hurdle of establishing a legal entity in the country, which can be a long and expensive process. This allows you to test the market or hire key talent without a huge upfront investment.

• Enter the Market Faster. You can hire employees in days, not months.
• Ensure Legal Compliance. EORs are experts in Indonesian labor law. They make sure your employment practices are fully compliant. This includes complex regulations around contracts, termination, and severance pay.
• Simplify HR and Payroll. You don't have to worry about running a local payroll or calculating taxes and social security. The EOR handles it all.
• Offer Competitive Benefits. EORs can provide your employees with access to comprehensive benefits packages. This helps you attract and retain top talent.
• Reduce Risk. The EOR takes on the legal responsibilities of an employer. This minimizes your risk in a new and unfamiliar legal system.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Indonesia includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Indonesia.

Hiring in Indonesia means tapping into a large and youthful workforce. The country's labor market is one of the biggest in Southeast Asia, offering significant opportunities for growing businesses. However, you need to understand the local employment laws to stay compliant. The main law governing employment is the Manpower Law No. 13 of 2003, with recent changes from the Omnibus Law. These laws cover everything from contracts to termination.

Employment contracts & must-have clauses

In Indonesia, you can hire employees using two main types of contracts: fixed-term and indefinite-term.

• Fixed-Term Contracts (PKWT): Use these for temporary or project-based work. They have a maximum duration of five years, including extensions.
• Indefinite-Term Contracts (PKWTT): These are for permanent, ongoing roles.

Your employment contracts must be in the Indonesian language. It's a good idea to have a bilingual contract, but the Indonesian version will be the one that holds up in any dispute.

Every contract should include these essential clauses:

• Company and employee names and addresses
• Job title or type of work
• Work location
• Salary details and payment method
• Start date
• Signatures of both parties

Probation periods

You can only use a probation period for indefinite-term contracts (PKWTT). If you include a probation period in a fixed-term contract, the law considers it invalid.

The maximum length of a probation period is three months. During this time, you must pay the employee at least the minimum wage. You cannot extend the probation period beyond three months.

Working hours & overtime

The standard workweek in Indonesia is 40 hours. You can structure this in two ways:

• 8 hours a day for 5 days a week
• 7 hours a day for 6 days a week

Any work beyond these standard hours is overtime. The government sets strict limits on overtime hours. An employee can work a maximum of four extra hours per day and 18 hours per week.

You must pay employees for overtime work at a higher rate. The calculation depends on when the overtime occurs.

Public & regional holidays

Indonesia celebrates a mix of national and religious holidays. The government announces the official list of public holidays and "collective leave" days each year. While government offices and schools close on these days, it's not mandatory for private companies to observe collective leave days unless it's part of their company policy.

Some of the key public holidays for 2025 include:

• New Year's Day (January 1)
• Eid al-Fitr (March 31 - April 1)
• Good Friday (April 18)
• Labour Day (May 1)
• Vesak Day (May 12)
• Independence Day (August 17)
• Christmas Day (December 25)

Employees are also entitled to a religious holiday allowance, known as Tunjangan Hari Raya (THR). This is a yearly bonus equal to one month's salary, paid out before the employee's primary religious holiday.

Hiring contractors in Indonesia

You can hire independent contractors for project-based or specialized work. This offers flexibility, as contractors are not entitled to employee benefits like paid leave, social security, or severance pay. Their work is governed by a service agreement, not an employment contract.

However, you must be careful not to misclassify an employee as a contractor. The authorities look at the nature of the working relationship, not just the contract title. If a contractor's work arrangement looks like a traditional employment relationship, you could face serious penalties. These can include back payments for wages and benefits, fines, and legal issues.

An Employer of Record (EOR) can help you avoid these risks. An EOR acts as the legal employer for your workers in Indonesia. They handle contracts, payroll, and compliance with local labor laws. This allows you to manage your team's daily work without the risk of misclassification.

Navigating compensation and payroll in Indonesia requires a clear understanding of local regulations. The main governing law is the Indonesian Manpower Law (Law No. 13 of 2003), which sets out the rights and obligations for both employers and employees. You need to follow these rules to ensure your business is compliant and your team is compensated fairly.

Payroll cycles & wage structure

In Indonesia, you typically pay employees monthly. While the exact payday can vary, many companies pay on the last working day of the month. All salary payments must be made in Indonesian Rupiah to a local bank account.

An employee's wage has a few key parts:

• Basic Salary: This is the main component of an employee's pay. By law, it must make up at least 75% of their total fixed monthly income.
• Allowances: You can offer various allowances, such as for meals, transportation, or housing. Some are fixed, meaning they are paid regularly and don't change, while others might vary based on attendance or performance.
• 13th Month Salary (THR): You are required to pay a religious holiday allowance, known as THR, to employees once a year. This is equal to one month's salary for employees who have worked for at least a year and is paid before their primary religious holiday.

Overtime & minimums

The standard workweek in Indonesia is 40 hours. You can structure this as 8 hours a day for 5 days a week or 7 hours a day for 6 days a week.

If your employees work beyond these hours, you must pay them overtime. The rates are:

• First hour of overtime: 1.5 times the hourly wage.
• Subsequent hours: 2 times the hourly wage.

Minimum wage is set at the provincial level and is updated each year. For example, in Jakarta, the minimum wage is IDR 5,067,381. These rates apply to employees with less than one year of service.

Employer taxes and contributions

As an employer, you are responsible for several contributions to Indonesia's social security program, known as BPJS. These are calculated as a percentage of your employee's salary.

Employee taxes and deductions

You also need to withhold certain taxes and contributions from your employees' salaries each month.

Here are the annual income tax brackets:

• Up to IDR 60 million: 5%
• IDR 60 million to IDR 250 million: 15%
• IDR 250 million to IDR 500 million: 25%
• IDR 500 million to IDR 5 billion: 30%
• Above IDR 5 billion: 35%

In Indonesia, employee benefits and leave are more than just legal requirements. They are a core part of the work culture, reflecting values around family, community, and well-being. Understanding these entitlements is key to attracting and keeping great talent. For employees, these benefits provide crucial protection and support.

Statutory Leave

Indonesian law provides several types of mandatory leave to support work-life balance.

• Annual Leave After one year of continuous work, you are entitled to a minimum of 12 paid days off. You must take at least one period of 6 consecutive days off during the year. Any unused leave expires six months after it becomes available.
• Long Service Leave If you have been with the same company for six continuous years, you are entitled to one month of paid leave during your seventh and eighth years of service.
• Sick Leave You are entitled to paid leave if you are sick and provide a medical certificate. There is no set number of sick days. Instead, your pay is covered as follows:
  • First 4 months: 100% of your salary
  • Months 4 to 8: 75% of your salary
  • Months 8 to 12: 50% of your salary
  • After 12 months: 25% of your salary until termination
• Maternity and Paternity Leave Mothers get three months of fully paid maternity leave, typically taken as 1.5 months before and 1.5 months after childbirth. Fathers are entitled to two days of paid paternity leave.
• Family Leave You can receive paid leave for significant family events, such as a marriage or death in the family, which is usually two days per event.

Public Holidays & Regional Holidays

You get paid time off for national and religious holidays. The government also sets "joint leave" days to create longer weekends around public holidays.

Typical Supplemental Benefits

Companies in Indonesia must provide statutory benefits. Many also offer supplemental benefits to stay competitive.

How an EOR Can Help with Setting Up Benefits

Setting up and managing employee benefits in Indonesia can be complex. An Employer of Record (EOR) simplifies this process significantly.

An EOR acts as the legal employer for your staff in Indonesia. This means they handle all the administrative and legal requirements of employment for you.

Here is how an EOR can help:

• Ensures Compliance An EOR understands local labor laws and ensures you provide all mandatory benefits correctly, from BPJS contributions to THR payments. This helps you avoid legal penalties.
• Manages Administration They handle the heavy lifting of benefits administration. This includes enrolling employees in social security, managing leave entitlements, and processing payroll with the correct deductions.
• Offers Competitive Packages EORs can provide access to attractive supplemental benefits packages, like private health insurance, at a competitive rate. This helps you attract and retain top talent without needing to negotiate with local providers yourself.
• Saves Time and Resources By outsourcing these HR functions to an EOR, you avoid the need to set up a local legal entity and hire an in-house HR team. You can focus on your core business operations while the EOR manages the complexities of employment.

In Indonesia, letting an employee go involves clear steps and legal obligations. You can't simply fire someone at will. The law requires you to have a valid reason and to follow a specific process to ensure everything is fair and compliant. This process includes formal notification, negotiations with the employee, and potentially involving government labor offices if you can't reach an agreement.

Notice Periods

When terminating an employment contract, you must provide written notice. The notice period depends on the situation:

• For employees on indefinite contracts: You must give at least 14 working days' notice.
• For employees on probation: The notice period is at least 7 working days.
• If an employee resigns: They need to provide you with written notice at least 30 days before their last day.

Severance Pay

Unless an employee resigns, they are typically entitled to a severance package. This package is made up of three parts:

• Severance Pay: The amount depends on the employee's length of service.
• Long Service Pay: This is an additional payment based on how long the employee has worked for you.
• Compensation Pay: This covers things like unused annual leave and other entitlements.

The calculation for each component is based on the employee's most recent monthly salary and their years of service. For example, an employee with five years of service could be entitled to five months' salary in severance pay and two months' salary in long service pay.

Here is a general breakdown of severance pay based on tenure:

How Rivermate handles compliant exits

We manage the entire offboarding process for you. We make sure that every termination is handled in line with Indonesian labor laws. Our team ensures all necessary paperwork is completed correctly, calculates the final pay and severance accurately, and makes sure the process is smooth and respectful for the departing employee. We handle the complexities so you can focus on your business.

Navigating Indonesia's visa and work permit system can feel complicated. The rules are strict, and you need a locally licensed company to sponsor any foreign employee. This sponsor is responsible for you while you're in the country. The main goal is to ensure that foreign workers are only filling roles that cannot be filled by local talent. The process involves multiple steps and government bodies, including the Ministry of Manpower.

Employment visas & sponsorship realities

Getting the right to work in Indonesia involves a few key steps. Your employer must first get an Expatriate Placement Plan (RPTKA) approved by the government. This plan shows why a foreign worker is needed for a specific role. After the RPTKA is approved, the process for getting your visa and work permit begins.

Here’s a simplified look at the typical work permit journey:

An Employer of Record (EOR) can be your legal sponsor in Indonesia. This is helpful if your company doesn’t have a local entity set up. The EOR handles the sponsorship for the RPTKA and KITAS, making sure everything is compliant with local laws.

However, there are some practical limits to what an EOR can sponsor:

• Specific Roles: Some positions, especially in human resources, are often restricted to Indonesian nationals. An EOR cannot sponsor a visa for a role that is legally reserved for the local workforce.
• Director Positions: While an EOR can employ individuals, sponsoring someone for a Director or Commissioner role has specific requirements that may fall outside a standard EOR service. These high-level positions often require direct investment in the sponsoring company.
• Permanent Residence (KITAP): An EOR’s primary function is to employ workers on your behalf for temporary assignments. Sponsoring a Permanent Stay Permit (KITAP) is generally not something an EOR does. A KITAP is typically available to those who have held a KITAS for at least three consecutive years in the same company and position, are married to an Indonesian citizen, or are foreign investors.

Business travel compliance

If you are visiting Indonesia for short-term business activities, you need a business visa. It’s important to understand what you can and cannot do on this visa to avoid legal trouble.

Activities generally allowed on a business visa include:

• Attending meetings, conferences, or seminars.
• Negotiating and signing business contracts.
• Exploring investment opportunities.
• Conducting quality control or site visits.

You cannot earn income or perform daily work duties on a business visa. The line between a "business meeting" and "working" can be thin. For example, you can attend a meeting at a client's office, but you should not sit at a desk and work on your laptop for the day.

Violating these rules can lead to serious consequences, including fines and deportation. It is crucial to ensure your activities in Indonesia match the permissions granted by your visa. If your trip involves hands-on work or anything that could be seen as employment, you need a proper work permit.