Employment laws in Indonesia: How to hire and stay compliant

Looking to expand your team in Asia? Competitive labor costs, a growing economy, and a diverse workforce — all these factors make Indonesia a solid place to hire your next employee. 

However, hiring in Indonesia does have its challenges, especially when it comes to compliance with local employment laws. The country's labor regulations can be complex, and they must be fully understood before you begin the recruitment process. It's also important to ensure you're fully compliant with all relevant tax and immigration requirements while hiring a remote employee from abroad. If not, there could be serious financial and legal repercussions for your business.

Alternatively, companies can choose to work partner with an employer of record like Remote, which makes it quick and efficient to hire from Indonesia. Remote’s team of legal and employment experts have a strong understanding of local laws and regulations. This means that companies can receive legal advice on every aspect of employment and don't have to worry about the legal risks of non-compliance. 

In this guide, we explore the fundamentals of employment law in Indonesia to help you get an understanding of how to hire and manage remote workers in Indonesia and how you can use Remote’s EOR product to hire abroad compliantly.

Understanding key labor laws in Indonesia

Indonesia is made up of 37 provinces (and a total of 38 administrative divisions). While there are nationwide authorities and regional regulations, labor laws are guided by a few key sources.

The Law No. 13 of 2003 Concerning Manpower sets out employment and labor regulations in Indonesia, and Law No. 21 of 2000 Concerning Trade Union/Labor Union covers employee union matters. In general, employees are entitled to several rights under these laws, regardless of region. Some of these include:

• minimum wage (which can vary depending on sector/location)

• social security including pension plans

• health insurance plans

• life insurance packages plus coverage for accidents or retirement benefits

• overtime pay  

You don’t have to keep track of changes or updates to local employment laws on your own. This is part of Remote’s comprehensive suite of services for businesses searching for remote employees in any corner of the globe, including Indonesia.

Our team has a detailed understanding and awareness of applicable labor rules, regulations, and laws concerning hiring from Indonesia. To ensure our clients stay compliant with all relevant legislation, we provide in-depth information and legal support as part of our services. Check out our country guide for more information on hiring in Indonesia.

What do you need to know before hiring an Indonesian employee?

You need to own a legal entity in Indonesia if you want to hire employees legally. You must register your company with the Ministry of Law and Human Rights and obtain a Tax Identification Number (TIN). 

Alternatively, you can choose to partner with an employer of record who can take on the hassle of hiring, paying, and managing employees on your behalf. Remote handles onboarding procedures, payroll, global benefits, HR task management, and compliance — making the process of international hiring quick and easy.

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Statutory employment rights in Indonesia

What is the minimum wage in Indonesia?

In Indonesia, the minimum wage is determined on a per-province basis. These wages are reexamined and changed on an annual basis. In Jakarta — the capital and the country's largest city — the monthly minimum wage as of January 2024 is currently IDR 5,067,381.

What are the standard working hours in Indonesia?

Indonesian Government Regulation allows businesses to follow a different work schedule than the conventional 40 hours per week if they possess certain characteristics. This includes jobs that can be completed within 35 hours weekly and have flexible working hours.

What is the overtime rate in Indonesia?

Indonesian law dictates that details of overtime pay eligibility shall be stated explicitly in collective labor agreements, company regulations, or employment contracts. In the absence of such stipulations, all workers are automatically entitled to receive this type of remuneration.

Furthermore, it allows the daily overtime limit to be raised to four hours per day but not beyond 18 over a single week — excluding public holidays.

How do probation periods work in Indonesia?

In Indonesia, probationary periods are for employees who are employed on indefinite-term contracts and cannot go beyond three months. It has to be specifically agreed on and mentioned in the contract to make it enforceable.

What discrimination protections does Indonesia provide for workers?

Employment law in Indonesia safeguards employees from discrimination. Generally, it is unlawful to carry out any form of discrimination, including denying an individual a job opportunity based on their identity, providing unequal pay due to gender, and discriminating against those with HIV/AIDS.

Labor laws in Indonesia specifically mention that discrimination covers any distinction, preference, or exclusion made based on race, color, religion, or political opinion.

Managing employee offboarding in Indonesia

Does at-will employment exist in Indonesia?

In Indonesia, there are no at-will terminations. Employment agreements cannot be unilaterally severed by either party because dismissals can be objected to in legal proceedings. To legally end a contract, just cause and specific protocols established by the Indonesian labor law must both be adhered to.

How do companies terminate employees in Indonesia?

According to the Manpower Law, there are only specific circumstances in which a worker can be terminated. Ending an employment arrangement must involve both parties — the employer and employee — having an agreement. If they cannot come to a mutual agreement, a court decision would settle it.

How do you terminate an employee in Indonesia?

Employers are mandated to follow the Manpower Law's prescribed process for dismissing a worker. Employers need to give the employee written notification no shorter than 14 workdays (or seven days if on a trial period) before their departure.

Usually, though, a thirty-day advanced warning is provided when terminating people under fixed-term contracts. Upon getting this notice of termination, employees can accept or reject it, but in cases of exceptional emergencies, there will not be any notice given.

Are terminated employees in Indonesia entitled to severance pay?

Generally speaking, only individuals who work indefinitely for a business can qualify for a severance package. The method used to calculate this payout varies based on why the person was let go.

Differences between employees and contractors in Indonesia

What regulations separate employees and contractors in Indonesia 

There are distinct differences between employees and independent contractors in Indonesia. An employee is bound by an employment agreement that follows the Manpower Law regulations. This contract is a lawful assurance between the employer and the employee which includes both parties’ rights and obligations when doing a job. 

An independent contractor is a self-employed individual who adheres to a contract for providing specific services. The contractor is not paid a fixed monthly salary but is paid at the end of the project or after achieving a performance target.

An independent contractor is not entitled to benefits and is exempt from protections under the Manpower Law regulations. Nonetheless, they must comply with the Indonesian Civil Code when it comes to contracting their services. 

What are the relevant rules on contract workers in Indonesia?

The Indonesian Civil Code governs contracts and agreements between employers and independent contractors.

Can employers hire employees on fixed-term contracts in Indonesia?

Yes, but there are certain conditions under which employers can hire employees under fixed-term contracts. 

What are the misclassification laws and penalties in Indonesia?

Employers need to avoid misclassification risks while hiring abroad as it can lead to hefty fines, penalties, and legal issues.

In Indonesia, the employer has to provide statutory benefits and back pay to the misclassified worker. From a tax perspective, penalties will be levied for failure to submit relevant tax returns. Tax crime penalties can be levied for up to 400% of unpaid taxes, plus possible imprisonment of up to six years.

There will also be penalties concerning social security and pension, which can range from written warnings to fines.

Read Remote’s guide to employee and contractor misclassification for more information on this topic and how Remote can help you mitigate legal risks and stay compliant with local laws.

Contractor Management —

12 min

The consequences of misclassifying employees as contractors

When you employ international workers, you typically pay your team in one of two ways: as contractors or as full-time employees. Misclassify someone as a contractor who should be an employee, and your company could face stiff fines and penalties.

The fast, simple, compliant way to hire in Indonesia

Hiring remotely from abroad can be a great way to expand your team and access new talent. As you can see, there are significant legal risks involved in hiring employees in Indonesia. But, this shouldn’t stop you from growing internationally, as long as you have a reliable employer of record (EOR) on board.

Remote is an ideal solution for simplifying the process of hiring and paying employees in Indonesia or any other country. With Remote, you can quickly onboard remote workers without having to worry about local labor laws or navigating Indonesia's ever-changing regulatory landscape.

Remote is ranked as a market leader in multi-country payroll on G2, and we make international expansion easy. Our team of experts will help you navigate local labor laws, set up compliant payroll systems, and manage employee onboarding quickly and efficiently. With Remote's EOR services, you can focus on growing your business without worrying about the complexities of hiring overseas employees.

Our team is here to help make international expansion easy and stress-free. Learn more about hiring in Indonesia or find out how much it can cost to hire a full-time employee in Indonesia using our free Employee Cost Calculator tool.

References:

https://www.ilo.org/dyn/travail/docs/760/Indonesian+Labour+Law+-+Act+13+of+2003.pdf

https://adcolaw.com/blog/government-regulation-no-35-of-2021-whats-the-impact-2/ 

https://www.social-protection.org/gimi/gess/ShowWiki.action?wiki.wikiId=1296 

https://uk.practicallaw.thomsonreuters.com/w-026-0017 

Indonesia —

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How to use an Employer of Record in Indonesia

Learn how to use an EOR in Indonesia and find out how an employer of record platform like Remote can make it easy to hire globally with full compliance.