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Hiring in Indonesia

Hiring employees compliantly in Indonesia means doing it yourself or using an Employer of Record like Global Expansion. You should be careful using independent contractor agreements in Indonesia so that you don’t run afoul of employment laws. To hire an employee compliantly and offer them mandatory benefits and compliant agreements, you can:

(a) Establish your own new legal entity, banking, accounting and payroll service in Indonesia; or

(b) use an Employer of Record like Global Expansion who can handle all of the details for you.

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Labor Laws in Indonesia

Employee Probation Period

  • An employer may impose a probationary period of maximum of 3 months.

Annual Leave in Indonesia

  • Based on article 79 (2) (c) of Indonesian Law number 13 of 2003 about Manpower (Labor Law), an employee in Indonesia is entitled to receive 12 days of annual leave per year.
  • This right of annual leave will arise after the given employee has worked for a company for 12 months consecutively.

Holidays in Indonesia

New Year’s Day
Chinese New Year
Prophet's Ascension
Nyepi
Good Friday
Labor Day
Vesak
Ascension Day
Lebaran (in Indonesia)
Pancasila Day
Eid al-Adha
Independence Day
Islamic New Year
Prophet's Birthday
Christmas Day

 

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Maternity Leave Indonesia

  • Indonesian law mandates that businesses give 3 months' paid maternity leave to female workers and 45 days (in case of miscarriage)

Paternity Leave Indonesia

  • Fathers in Indonesia are eligible to two days of paid leave

Sick Leave in Indonesia

  • For the first four months, the employee is entitled to 100% of their pay.
  • After the first four months, the employee's pay is reduced by 25% and an employer may terminate an employee who has been sick for 12 months.
  • Sick pay is covered by the employer, not the government.

Working Hours in Indonesia

  • The Indonesia workweek is 40 hours, with either 7 hours a day for 6 days a week or 8 hours a day for 5 days a week.

Overtime in Indonesia

  • If employers request extra hours, they must pay 1.5 times their regular wages for the first hour and 2 times their regular wages for any hour after that.
  • Wages should include and fixed allowances.
  • Maximum overtime allowed is 3 hours a day or 14 hours a week. Senior-level positions are excluded from overtime.

Termination of Employment in Indonesia

  • The termination of employment in Indonesia is regulated by the Labor Law and Law No. 2 of 2004 on the Settlement of Industrial Relations Disputes. In principle, a 30-day notice period must be given to terminate an employment contract.
  • Termination without cause: -
    • The employee is terminated for reasons that are not related to misconduct but due to external factors such as bankruptcy, reorganization of the company, and mergers.
  • Termination with cause: -
    • The employee is terminated due to a violation of the employment contract or grave misconduct.
    • The employee can also be dismissed if they have been unable to work for more than six months due to legal proceedings brought against them.
    • Furthermore, if the employee has been absent from work for more than five consecutive working days without providing adequate evidence can have his/her employment contract terminated.
  • Severance payments in Indonesia differ on whether an employee is considered a definite term employee or an indefinite term employee.
  • For indefinite term employees, severance payments consist of:
    • Severance pay;
    • Long service pay;
    • Compensation of rights.
  • For definite term employees:
    • Definite term employees are not entitled to severance payment, long service pay, or compensation of rights.

Notice Period in Indonesia

  • There is no required notice period for employers.
  • Employees may resign with 30 days’ notice.

Severance in Indonesia

  • The Labor Law provides different formula of severance pay for the different reasons for the dismissal/employment termination.
  • This includes events such as imprisonment, death, retirement, bankruptcy, etc.
  • Standard Severance Pay: one month of wages for service of less than one year, plus an additional month of wages for every year of service, up to nine months’ salary.
  • Long Service pay which amounts to two months’ salary after the first three years of service, followed by an additional one month’s salary for every three years of service thereafter, up to a maximum of ten months’ salary for 24 years of service.
  • Compensation Pay must be paid to cover the following:
    • annual leave that has not expired or been taken.
    • relocation expenses (expenses to return the employee and their family to the place from which they were recruited).
    • medical and housing allowance: 15% of the total severance pay and service appreciation pay, if any.
    • other benefits provided under the employment agreement, the company regulations or the CBA.
    • other compensation amounts as determined by the Industrial Relations Court (this can include special arrangements between the employer and employee).

Indonesia Salary and Wages

13th / 14th Month Pay

  • Yes (Mandatory)
  • There is a statutory requirement to pay the 13th month salary.
  • This is called THR and it is a religious holiday pay to reflect the religious diversity in the country.
  • For non-Muslims the THR is paid by December and for Muslims before Eid.
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Income Tax in Indonesia

  • A tax resident is taxed on worldwide income.
  • However, this may be mitigated by the application of double taxation agreements (DTAs).
  • Non-resident individuals are subject to withholding tax (WHT) at 20% in respect of their Indonesian-sourced income. Concessions are, however, available where a DTA is in force.
  • Taxable income of an employee includes wages, salary, commissions, bonuses, pensions, directors’ fees and other compensation for work performed.
  • Compensation in kind for work or services is not taxable income for the employee and is not a deductible expense for the employer.
  • An Indonesian national who works overseas for more than 183 days within a 12-month period is not subject to tax on his or her employment income that is earned overseas and that is subject to tax overseas.

Individual Tax Rates

Taxable income (IDR)

Tax rate (%)

Up to IDR 60 million 5
Above IDR 60 million to IDR 250 million 15
Above IDR 250 million to IDR 500 million 25
Above IDR 500 million to IDR 5 billion 30
Above IDR 5 billion 35
  • Severance payments are taxed separately at the following rates: -

Tax on Severance Payments

Taxable income (IDR)

Tax rate (%)

Tax (IDR)

Up to IDR 50 million 0 0
Above IDR 50 million to IDR 100 million 5 2.5 million
Above IDR 100 million to IDR 500 million 15 60 million
Above IDR 500 million 25 25% of the relevant amount

Tax on Lump-sum Payments

Taxable income (IDR)

Tax rate (%)

Tax (IDR)

Up to IDR 50 million 0 0
Above IDR 50 million  5 5% of the relevant amount
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Social Security in Indonesia

  • The institution called Badan Penyelengara Jaminan Sosial (BPJS) administers the Indonesia social security program.
  • BPJS has the following two categories:
    • Worker Social Security (BPJS Ketenagakerjaan)
    • Health Care (BPJS Kesehatan)
  • Both BPJS Ketenagakerjaan and BPJS Kesehatan are mandatory.
  • Expatriates are required to participate if they work in Indonesia for more than six months. Indonesia has not entered into a totalization agreement with any country.
  • The following percentage contributions of monthly salary are required for employers and employees under the Worker Social Security program.

Type of Program

Employer (%)

Employee (%)

Accident benefit (a)
(Jaminan Kecelakaan Kerja)
0.24 to 1.74 (b) 0
Life insurance benefits (a) (Jaminan Kematian) 0.3 0
Old-age benefit (a)
(Jaminan Hari Tua)
3.7 2
Pension benefit (c)
(Jaminan Pensiun)
2 1

 

  • The following percentage contributions of monthly salary are required for employers and employees under the Health Care program.

 

 

Percentage of contribution (%)

Employer

Group 1083

4

Employee Group 1083 1

Immigration Indonesia

  • Presidential Regulation Number 20 Year 2018, dated 29 March 2018, regarding Foreign Manpower Utilization was issued.
  • In conjunction with the issuance of this regulation, the Ministry of Manpower (MoM) issued an implementing regulation No. 10 Year 2018 on 11 July 2018, and the Ministry of Law and Human Rights issued regulation No. 16 Year 2018 on 29 June 2018.
  • The new regulation introduces significant changes with respect to the requirements of foreign manpower utilization.
  • In brief, the new regulation has amendments in the following areas:
  • The Foreign Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing, or RPTKA) is not mandatory for a company shareholder who is on the board of directors or board of commissioners.
  • The Work Permit (Izin Mempekerjakan Tenaga Kerja Asing, or IMTA) is no longer required.
    • However, the company is still required to notify the use of foreign workers to the MoM and subsequently pay the Foreign Manpower Utilization Compensation Fund Levy (DKPTKA).
    • The MoM then sends the notification to the Directorate General of Immigration (DGI) for further visa process.
  • All foreign workers are still required to obtain a Limited Stay Visa (Visa Tinggal Terbatas, or VITAS) and a Limited Stay Permit (Izin Tinggal Terbatas, or ITAS).
  • Both the VITAS and ITAS can be applied for directly at the appointed immigration authority located at the Indonesian Embassy or Consulate overseas, which is the representative of the Directorate General of Immigration.
  • The ITAS approval is granted by the immigration authority to the foreign worker on arrival at the Immigration Check Point (Indonesian airport).
    • The ITAS is valid as the stay permit for the foreign worker.
  • The Indonesian government prefers that expatriates be employed in Indonesia only in positions that cannot currently be filled by Indonesian nationals.
  • Companies that wish to hire expatriates must provide the necessary education and training programs for Indonesians who will replace the expatriates within a reasonable time period.
  • In addition, employers must appoint Indonesian employees as the counterpart of the foreign workers and implement education and training for Indonesian employee as part of a transfer-of-knowledge program.
  • The employer also is obliged to facilitate education and training of and the teaching of Indonesian language to the foreign workers.
  • Employers must require their expatriate employees to obtain work and stay permits.
  • Work permits are usually issued for a maximum period of 12 months and may be extended, subject to approval from the government.
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Type of Visa/Permit

Documentation

Validity

Eligibility

Limited Stay Visa (VITAS)
  • Completed Visa Application Form (PERDIM 20)
  • 1 Passport-sized recent colored photograph
  • Valid Passport
  • A letter from the firm of sponsors in Indonesia stating the purpose of the visit / nature of business and a letter / statement of reference
  • Flight ticket
  • Applicants who have ever committed crime and/or offense must provide Convictions History Report issued by the Ministry of Justice
2 years maximum A Limited Stay Visa (VITAS) is a visa for long term temporary stay that covers all aspects relevant, but not limited to: Investing, Working, Missionary (religious), Study/training, Research, Joint Family, Repatriation, and Retirement.

Limited Stay Permit (ITAS)
  • Completed Application form
  • Copy of Passport minimum 18 months’ validity (at least 6 blank pages left)
  • Work Reference Letters demonstrating employment over the past 5 years
  • Resume
  • Contract Letter from sponsor company
  • Health Insurance policy
  • 2 Copies of Passport photo
  • Degree Certificate (min. Bachelor Degree)
  • Address Information in Indonesia
6 to 12 months This can be granted to the following: -
  • Foreign investors
  • Foreign experts
  • Foreign researchers
  • For dependent foreign spouse/children
  • For religious clerics
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Value Added Tax (VAT) in Indonesia

  • The VAT has increased from 10% to 11% as of 1 April 2022.
  • VAT on the export of taxable tangible and intangible goods as well as export of services is fixed at 0 percent.
  • Certain limitations for the zero-rated VAT apply to exports of services.

VAT

Standard Rate

Group 1083

11%

Zero Rate Group 1083 0%
Exempt Rate Group 1083 0%

Mandatory Benefits in Indonesia

  • These are mandatory benefits as postulated by law
  • These include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, overtime pay, notice period, severance pay and 13th month pay
  • Statutory benefits also include social security benefits
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Mandatory Benefits overview

  • Probationary period

  • Annual Leave

  • Public Holidays

  • Sick Leave

  • Maternity Leave

  • Paternity Leave

  • Overtime Pay

  • Notice period

  • Severance Pay

  • 13th month pay

  • Social Security Benefits

Payments And Invoicing

  • The tax year in Indonesia is the calendar year.
  • Married persons can separately file their own income tax returns even if they did not enter into a prenuptial agreement. Employee taxes are withheld by the employer.
  • The employer must file a monthly return by the 20th day of the following month. The monthly tax return for December serves as the annual return because it also reports the cumulative income and related tax for the respective calendar year.
  • Individuals are required to file individual income tax returns by 31 March following the end of the tax year.
  • Individuals earning income only from employment are not required to file monthly tax returns
  • Self-employed individuals must make monthly advance tax payments.
  • The monthly payment amount is based on the previous year’s tax liability, reduced by tax withheld at source during the preceding year.
  • The payment is due on the 15th day of the month following the income month.
  • Nonresident foreign taxpayers are not required to file tax returns in Indonesia, unless they conduct business or activities in Indonesia through permanent establishments.

Payroll Accrual in Indonesia

Country Accruals Additional Information

Working accident protection 1.74%
Death Insurance 0.30%
Old age saving 3.70%
Healthcare 4.00%
Pension 2.00%
Maternity 3months
Christmas Bonus 8.33%
Vacations 7.40%
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Description

Screenshot_2 (1)

Payroll Accruals Additional Information

 

 

Employment Accruals

Annual Leave Based on article 79 (2) (c) of Indonesian Law number 13 of 2003 about Manpower (Labor Law), an employee in Indonesia is entitled to receive 12 days of annual leave per year. This equals 3.28% (12/365 days) of annual income
Maternity Leave Indonesian law mandates that businesses give three months' paid maternity leave to female workers This equals 25% (3/12 months) of annual income
Paternity Leave Fathers in Indonesia working in the public sector are eligible for paid paternity leave for one month, while those in the private sector are eligible to two days of paid leave This equals 8.33% (1/12 months) of annual income
Sick Leave For the first four months, the employee is entitled to 100% of their pay. This equals 33.33% (4/12 months) of annual income
Overtime If employers request extra hours, they must pay 1.5 times their regular wages for the first hour and 2 times their regular wages for any hour after that.
Maximum overtime allowed is 3 hours a day or 14 hours a week.
Normal hourly rate is around 75,625 IDR. Overtime is paid at an additional 37,812.5 IDR.
Severance Standard Severance Pay: one month of wages for service of less than one year, plus an additional month of wages for every year of service, up to nine months’ salary. This equals 8.33% (1/12 months) of annual income
13th Month Pay Employees are paid a mandatory 13th-month salary payment in Indonesia, often referred to as THR. This equals 8.33% (1/12 months) of annual income
Social Security The following percentage contributions of monthly salary are required for employers under the Worker Social Security program. Accident benefit
(Jaminan Kecelakaan Kerja) 0.24% to 1.74%; Life insurance benefits (Jaminan Kematian) 0.3%; Old-age benefit
(Jaminan Hari Tua) 3.7%; Pension benefit
(Jaminan Pensiun) 2%.
This equals 7.74% of annual income

Accrued Benefits in Indonesia

Christmas Bonus % 0%
Christmas Bonus Over Vacations % 0%
Severance per Year%

Employees are entitled to severance pay that equals 15 days of pay for each completed year of service (4.28% of annual salary)

4.28%
of annual salary
Vacations %

The annual leave duration is 15 working days (4.28% of annual salary)

4.28%
of annual salary
Notice %

Employees are entitled to 30 days of notice period for one year of service or more (8.24%)

8.24%
Christmas Bonus Over Notifications % 0%
Vacations Plus % 0%

Total percentage of Salary (yearly)

The total employment accruals as a percentage of salary per anum are equal to 16.89%

16.89%

Why use Global Expansion to hire in Indonesia

Establishing a branch office or subsidiary in Indonesia can be time-consuming, expensive and complex. With such a robust labor market in place, one must pay great attention to detail when structuring employment because Indonesia labor laws are complex.

The company also has a responsibility to comply with specific employment practices dictated by Indonesia law to maintain its good standing as an equal opportunity employer.

Global Expansion makes it easy for you to expand into Indonesia. We'll help you hire your candidate of choice, handle HR matters and payroll, and ensure that you comply with local laws without the burden of setting up a foreign branch office or subsidiary. In addition, you'll have complete control and direction over your employees.

We enable you to stay in control of everything. Our Indonesia Global Professional Employer Organization (PEO) and Employer of Record (EOR) solution provides you with peace of mind to focus on running your company and the security to enter new markets.

 

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