Employer of Record in Indonesia

How an Employer of Record works in Indonesia

An Employer of Record (EOR) is a company that acts as an employer on behalf of another business.

They are mostly utilized by overseas business owners looking to hire employees in a new country where they don’t have a business entity.

An EOR provider, like Rivermate, can provide you with a business entity in Indonesia.

It will also handle all administrative processes associated with hiring Indonesian employees, including payroll, withholding taxes, employee benefits and contract terminations.

Rivermate’s EOR services are built on three pillars:

• Local HR experts who understand the market and employment laws.
• A network of partners that allows us to provide competitive benefits.
• The Rivermate platform that simplifies every aspect of the employment relationship.

Using an EOR provider will allow you to hire in Indonesia quickly and easily, while ensuring following all aspects of Indonesian employment law.

Indonesia labor market: At a glance

The hiring market
Greatest hiring activity:	Jakarta, Bali, Batam.
Hiring timelines:	It typically takes around seven days to onboard an employee once all necessary documents have been submitted.
In-demand sectors:	Tech, manufacturing, energy.
Sectors with skills shortages:	Indonesia has a huge labor force, although some industries are reporting shortages of skilled workers for senior roles.1

The salary market
Employer tax contributions:	Employer social security obligations in Indonesia are split into five categories: Healthcare insurance: 4% Old-age security: 3.7% Pension security: 2% Employment injury insurance: 0.24%–1.74% Death insurance: 0.3%.5 Some of these contributions are subject to contribution ceilings, explained in more detail below.
Monthly minimum wage:	Minimum wage regulations are set on a regional basis in Indonesia. The lowest monthly minimum wage is IDR 2,317,601 in West Java. The highest is IDR 5,729,876 in Jakarta.3
Average gross annual salary:	A Statistics Indonesia (BPS) report based on wages in February 2026 suggests that the average gross annual salary is IDR 39,452,100.4
Personal income tax rates:	Indonesia operates a progressive income tax system with brackets between 5% and 35%.2

What will it cost to hire in Indonesia?

Salary requirements

Minimum wage requirements in Indonesia are set on a regional basis, and there’s significant disparity between provinces.

The minimum wage in Jakarta (IDR 5,729,876) is 147% higher than in West Java (IDR 2,317,601).

These minimum standards are updated annually, based on a formula which considers inflation and economic growth.

The average monthly wage in Indonesia, according to a Statistics Indonesia (BPS) report based on February 2026 figures, is IDR 3,287,675.

In general, employees in larger cities like Jakarta or Batam tend to command larger salaries.

Employer contributions

Employer social security obligations in Indonesia are split into five categories. Employers are obliged to make monthly payments to BPJS Kesehatan for each employee, based on percentages of their monthly wages.

• Healthcare insurance: 4% (capped at IDR 12,000,000)5.
• Old-age security: 3.7%
• Pension security: 2% (capped at IDR 11,806,300).5
• Employment injury insurance: 0.24%–1.74%
• Death insurance: 0.3%.

Employment injury insurance rates are based on the risk level of your industry. There are five categories of risk. Most standard white-collar office jobs are categorised as “very low risk”, requiring a rate of 0.24%. Construction and mining jobs are examples of “very high risk” jobs, requiring employers to contribute 1.74%5

Statutory benefits

The main statutory benefit that might surprise international business owners is the religious holiday allowance, known as Tunjangan Hari Raya (THR). This is an annual bonus equal to one month's salary, paid out a week before the employee's primary religious holiday.

Any individual employed with a company for a month or more must be paid, although it will be pro-rated for those who haven’t served a full 12 months.

Another unique bonus is due to employees with fixed-term contracts. Indonesian employment law mandates that these workers are given compensation at the end of their contract, worth one month of wages for each year of service, and pro-rated below that. Once again, anyone with at least one month of service qualifies for this bonus.7

On top of these bonuses, Indonesian employees are owed 12 days of paid annual leave after a year of service. At certain companies, after six years of employment with the same company, employees can claim one month of long annual leave during their seventh and eighth year.

They’re entitled to paid sick leave and protection from dismissal for up to 12 months for as long as they’re declared unable to work.

Female employees receive a minimum of three months’ maternity leave, stretching to six months in some special qualifying circumstances. They’re also entitled to paid leave if they feel pain or discomfort on the first two days of their period.

And if that’s not enough, paid leave is also owed in the following circumstances.

• Up to three days when a worker gets married;
• Up to two days when a worker’s child gets married;
• Up to two days when a worker’s child gets circumcised;
• Up to two days when a worker’s child gets baptized;
• Up to two days of paternity leave for new fathers;
• Up to two days of compassionate leave when a worker’s close family member dies;
• Up to one day of compassionate leave if any family member who lives with a worker dies.

Employment Cost Calculator

Use our Employment Cost Calculator to estimate the cost of hiring employees in Indonesia.

What it’s really like hiring in Indonesia

Market condition	What an employer needs to know
Talent availability	Indonesia has a huge labor force, with many talented workers moving to large cities like Jakarta or Batam to search for higher-paying roles.
Top-paying sectors	Tech, Energy
Skills shortages	Several sectors have reported shortages of skilled workers for senior roles.1
Key employer challenge	Employees have generous sick pay rights and are generally very well compensated when they are dismissed by their employer.

As the fourth most populous country in the world, Indonesia has a huge workforce packed with hard-working employees.

Even so, a shortage of skilled workers has been reported in several industries among employers looking to fill senior roles.

It could be more difficult to fill senior roles in smaller Indonesian provinces, as it’s common for the most talented and ambitious to flock to large cities like Jakarta or Batam.

The rules regarding hiring foreign workers in Indonesia are ambiguous

Expats can be hired to work in Indonesia, although all foreign hires must be approved by the Ministry of Manpower.

The Ministry mostly bases its decisions on the importance of a foreign worker to the company. Based on our experience, foreigners will generally need to be appointed in managerial or C-Level roles with a salary of at least IDR 45,000,000 to be considered essential enough. The higher the salary offered, the better the chances of approval.

The Ministry will also consider a business’ existing quota of local workers to foreigners, although a minimum proportion isn’t defined.

Compliance risks that employers must know about in Indonesia

Indonesia has strict rules for fixed-term contracts

Indonesia has clear regulations about when a fixed-term contract can be offered to an employee.

Essentially, these rules prevent employers from offering fixed-term contracts for roles that are permanent in nature.

Fixed-term contracts are common in construction and energy fields, where workers are more likely to be hired for one-off projects.

Indonesian employment law states that the duration of these contracts cannot exceed five years. They also cannot include a probation period.

If either the employer or employee ends a fixed-term contract early, they could owe the other party wages covering the remaining contract period.

Temporary workers are also owed mandatory compensation at the end of their contracts, equal to one month’s wages for every year they have served the employer.

Indonesia has generous employee rights for sick leave

Indonesia grants employees paid sick leave for up to 12 months if they are declared unfit to work. In such cases, their wages are covered by the employer at the following rates:

• For the first four months, 100% of their regular wages
• For months 5-8, 75% of their regular wages
• For months 9-12, 50% of their regular wages
• After 12 months, 25% of their regular wages.

There is legislation allowing businesses to dismiss their employees due to poor health after 12 months of sickness, although not in all circumstances.

On top of that, Indonesia is one of the only nations that allows female workers paid menstrual leave if they are uncomfortable during their period.8

Dismissing Indonesian employees can quickly get expensive

Indonesian employees are also very well protected in terms of financial compensation when dismissed from their jobs.

If an employer wants to terminate an employee’s contract, they are legally obliged to give 14 working days’ notice with a justifiable reason for termination.

In circumstances where an employee has violated their employment agreement, the employer must give three warning letters before firing them is deemed justifiable.

Even in this case, they may still owe severance pay, employee appreciation pay and various other forms of compensation.

The standard rates of severance pay are as follows:

Time at company	Severance pay owed
Less than one year	1 month's wages
Between 1-2 years	2 months' wages
Between 2-3 years	3 months' wages
Between 3-4 years	4 months' wages
Between 4-5 years	5 months' wages
Between 5-6 years	6 months' wages
Between 6-7 years	7 months' wages
Between 7-8 years	8 months' wages
8 years or more	9 months' wages

These standard rates may decrease or increase depending on the reasons for termination and the process followed by the employer. In the case of an employee causing gross misconduct, they could be owed nothing at all.

If the decision to dismiss an employee is disputed, both parties may need to go through the industrial-relations dispute process. In this case, a termination can only be achieved once a permanent legal force has been obtained.

Employee appreciation pay is owed, on top of severance pay, to dismissed employees who have worked more than three years for their company.

Below is the standard rate, which can also increase or decrease depending on the circumstances surrounding the dismissal.

Time at company	Employment appreciation pay owed
Between 3-6 years	2 months' wages
Between 6-9 years	3 months' wages
Between 9-12 years	4 months' wages
Between 12-15 years	5 months' wages
Between 15-18 years	6 months' wages
Between 18-21 years	7 months' wages
Between 21-24 years	8 months' wages
24 years or more	10 months' wages

Departing employees may also be due compensation to cover unused annual leave, repatriation to their home city, and alternative housing.8

These large settlements can be a giant headache for business owners. Many international employers are happy to leave this complicated process to an EOR with detailed knowledge of Indonesian employment law.

Benefits of hiring employees through an EOR in Indonesia

Setting up your own business entity in Indonesia can be complicated and expensive.

Using an EOR allows you to enter the Indonesian labor market faster. It also makes more financial sense if you’re only hiring a handful of employees.

At Rivermate, we help employers by:

• providing a local business entity in Indonesia.
• handling all administrative aspects of running an Indonesian business, including payroll, taxes, benefits and terminations.
• ensuring they remain compliant with all aspects of Indonesian employment and labor laws.

By leaving these aspects of hiring in Indonesia to the experts, you’re left free to focus on what you do best: managing your employees and growing your business.

Ready to hire in Indonesia?

Hiring in Indonesia involves more than finding the best person for the job. From managing payroll, taxes and benefits to ensuring full compliance with local employment law, Rivermate handles all the administration so you can hire with confidence.

Talk to a Indonesia Hiring Expert

Sources:

1. https://hr.asia/asean/indonesia-faces-growing-shortage-of-skilled-jobs-as-labour-market-shifts-towards-low-wage-employment/
2. https://taxsummaries.pwc.com/indonesia/individual/taxes-on-personal-income
3. https://jateng.bps.go.id/id/statistics-table/2/MjgyNCMy/upah-minimum-provinsi--ump--per-bulan-menurut-provinsi-di-indonesia.html
4. https://www.bps.go.id/en/statistics-table/2/MTUyMSMy/rata-rata-upah-gaji.html%26quot
5. https://taxsummaries.pwc.com/indonesia/individual/other-taxes
6. https://procapita.co.id/our-insights/thr-indonesia-mandatory-religious-holiday-allowance/
7. https://cloudinovasi.id/guides/fixed-term-or-permanent-in-indonesia
8. https://en.wikisource.org/wiki/Translation%3AIndonesian_Labor_Law_No._13_from_2003
9. https://literasihukum.bphn.go.id/konsultasi-hukum/20712
10. https://publicholidays.co.id/