How to use an Employer of Record in Indonesia

Indonesia’s economic track record and cultural diversity make it a viable location to look for remote workers — especially if you’re looking to scale your team and expand operations in the Asia Pacific region.

But building a remote team is tough. First, you have to find a great candidate. Then you have to set up a local entity through which you can hire employees, offer benefits, process payroll taxes, and set up global payroll, all while making sure you comply with local labor laws. It can be daunting to deal with the barrage of regulatory and compliance procedures when you’re looking to hire in Indonesia. 

But there’s an easy solution in the form of an employer of record (EOR) service. An EOR takes on the legal and regulatory legwork needed to hire in Indonesia so that you can focus on finding and employing the best talent. 

This article explains the costs and benefits of using an EOR and how to navigate Indonesian labor laws with an EOR. We'll also take you through what you need to consider before you choose the ideal EOR partner for your needs.

Six steps to hiring employees in Indonesia using an employer of record

There are dozens of providers available in the market, and all of them offer slightly different services. Follow these six steps to find the right EOR partner that can help you build your new team in Indonesia.

Step 1: Weigh up the pros and cons of each potential partner

First, make a shortlist of the essential features needed to streamline your global hiring experience, such as:

• Payroll services for disbursing salaries and paying invoices

• A comprehensive benefits solution for rolling out healthcare, pensions, etc.

• Ongoing legal support with Indonesian labor laws

• Intellectual property protection and enhanced data security, and

• A simple onboarding experience for getting new hires up to speed

• Reasonable pricing

Using this checklist, you can quickly vet EOR providers to see which ones best suit your needs and your budget.

Step 2: Take the time to select the most appropriate EOR service provider 

Ensure that your prospective EOR provider owns its local entity in Indonesia instead of using a network of partner-owned entities to offer its services. Third-party entities are not ideal as they can change their pricing arbitrarily or expose your confidential financial and operational data. 

Step 3: Check the reviews, testimonials, and coverage of your shortlist of providers

Reviews on websites like Trustpilot and G2 will help you judge prospective EOR providers by the quality of service they’re providing to existing customers vs. the marketing claims they make on their landing pages. You can also check out their social media pages, online press coverage, and client testimonials to learn more about the company and how they operate.

Step 4: Ensure that the EOR solution for Indonesia will provide a best-in-class employee experience

The EOR hires employees on your behalf and so, they operate as the face of your brand. Ensure that your EOR is committed to providing a positive and engaging experience for your employees. An ideal employer of record should ensure employees get paid on time, without hitches, and with detailed explanations for deductions made from their paychecks. They should also be available to answer customer questions and support employees at every point.

Step 5: Work with your partner to make sure you always provide a fair and equitable compensation package 

Figuring out salaries for remote roles can be tricky since there are many variables to consider, including living costs, market rates, and local labor laws. An EOR should be able to offer a competitive compensation and benefits package, factoring in the applicant’s role, skills, and experience, to attract and retain top talent.

Step 6: Make sure your partner will guard your intellectual property and maintain data security for your business

The prospective EOR should have certifications to guarantee that your sensitive data is protected. Likewise, an EOR should have the legal know-how to draft employment contracts that clearly cede the rights to any intellectual property produced by your remote employees to your company. This minimizes litigation risks in a country whose laws you’re not familiar with.

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What are the benefits of using an employer of record in Indonesia?

An employer of record simplifies international hiring and makes it easy for you to manage employees abroad. Without an EOR, you’d have to set up a local subsidiary, file dozens of records with local labor and tax offices, create a benefits and compensation strategy, and invest in an expensive suite of HR resources — just to hire just one international employee.

An employer of record changes all that. An EOR handles all the necessary complex legal and HR requirements, so you can get started hiring in days, instead of spending thousands of dollars and flying to and from Indonesia just to register a local presence.

An employer of record manages the admin workload of hiring and paying workers. An EOR can help you:

• Pay employees and contractors on time

• Manage benefits to suit your budget

• Advise you on any changes to the Indonesian labor landscape

• Provide intellectual property protection and data security

• Onboard new employees, and

• Pay employment levies, payroll taxes, etc.

An employer of record serves as an outsourced HR department that provides all the infrastructure you need to hire employees, so you can focus on sourcing talent and getting them up to speed quickly.

How much does it cost to use an EOR in Indonesia?

When you get into the subject of pricing, you’ll discover most EOR providers either charge a hefty flat price or a percentage of the salaries you pay through them.

Legacy EOR providers can charge enterprise rates of up to $2,000 per employee per month. On the other hand, smaller EOR providers may charge less but often don’t provide more extensive services, and might compromise on essential features like compliance or security.

In contrast, Remote offers an unbeatable suite of services that can help you build an international team from scratch: payroll, benefits, compliance, a high-quality employee experience, and access to a team of experts on hiring in Indonesia, for an affordable flat-fee.

Check out how Remote compares to the competition and how much you’ll pay if you choose Remote instead — significantly less.

Hiring in Indonesia

Indonesia’s Labor Law of 2003 spells out provisions for workers’ rights, entitlements, benefits, and protections. Figuring out how it works in practice will help you avoid labor complications that may lead to financial penalties, jail time, or a ban on doing business in Indonesia.

Employment contracts and agreements in Indonesia

Employment agreements can either be verbal or written, and a letter of appointment (for full-time employment) must include employment details such as:

• The employee’s name and address

• The date work commences

• The type of work to be carried out, and

• The employee’s proposed wages

Labor compliance in Indonesia

Articles 5 and 6 of Indonesia’s Labor Law demand that employers must proactively protect employees from any form of discrimination due to their sex, ethnicity, race, religion, political affiliation, skin color, and religion.

In addition, Indonesian law provides for several other provisions designed to protect employees from abuse or inhumane treatment, such as:

• Protection from physical, sexual, and mental harassment

• Whistleblower protection, aimed at preventing employers from dismissing their employees for reporting suspected crimes committed in their workplace

• Working hours are limited to seven hours daily, six days a week, or eight hours daily, five days a week

• Employees are required to pay a premium if employees are required to work overtime

• Employees are entitled to at least half an hour's break after four continuous hours of work

Payroll and payroll taxes in Indonesia

Employers are required to remit payroll taxes ranging from 10.24% – 11.74%, covering:

• 0.24% – 1.74% – Work accident insurance

• 3.7% – Old Age

• 0.3% – Death benefit contribution

• 2% – Pension contribution

• 4% – Health insurance

Employee income and payroll taxes are capped at 35% and 5%, respectively, and are to be withheld every month by an employer. Our guide to hiring in Indonesia sheds more light on income and payroll tax brackets in Indonesia here.

Employment benefits and compensation in Indonesia

Indonesian labor law demands that employers provide certain statutory benefits to their employees, depending on their tenure, gender, etc. Remote can help you create a benefits  strategy that’ll help engage and retain your international team in Indonesia and beyond.

Maternity and paternity leave

Expectant mothers are entitled to three months of paid maternity leave, starting six weeks before delivery. Fathers are entitled to two paid days of paternity leave after their partner’s delivery.

Vacations and public holidays

The Indonesian calendar has 15 days of public holidays every year, while full-time employees who’ve been employed for at least 12 months are entitled to 12 days of paid vacation every year.

Employees who are expected to work on a public holiday will be entitled to overtime pay as specified below:

• 1st – 7th hour: 200% hourly wages

• 8th hour: 300% hourly wages

• 9th and 10th hour: 400% hourly wages

Healthcare and sick leave

Indonesian labor law provides an entire year of paid sick leave with full wages for the first four months of an illness, 75% for the second four months, 50% for the third four months, and 25% of an employee’s normal wages for three more months.

Other benefits Remote can help you roll out

Remote is built on the belief that visionary companies should be able to hire anyone across the world and offer their employees world-class treatment. That’s why we’re going above and beyond to help our customers roll out custom benefits such as:

• Medical insurance

• Dental and vision insurance

• 401k retirement accounts, and

• Life insurance

See how Remote can offer you global benefits for your distributed workforce.  

Severance pay and employee terminations in Indonesia

Indonesian law requires that employers exhaust every possibility before an employee is terminated, and even then, it must be for a just cause such as dishonesty, fraud, redundancy, insolvency, etc.

Indonesian labor law demands that employees are paid a standard severance pay (one month’s pay for each year worked, capped at nine months’ pay), a service appreciation pay, and a monetized token for any outstanding benefits or leave not taken.

Employees who’re terminated unfairly are entitled to double the standard severance pay, plus the service appreciation pay, and any outstanding benefits.

Indonesia —

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Employee benefits in Indonesia: all you need to know

Use this guide to employee benefits in Indonesia to help your team understand how to set up and manage a compliant benefits program for new starters.

What are the risks of employee misclassification in Indonesia?

Indonesian law makes the distinction between employees and contractors. An employee works under the supervision of an employer, who decides their working hours and location for a guaranteed salary. A contractor is self-employed, can set their own schedule and work location, and can work for many clients.

An employee is typically protected by employment laws and receives a range of benefits, unlike contractors. If an employer intentionally misclassifies their workers to avoid offering benefits (or even if the misclassification was an honest mistake) — the employer can face serious consequences such as fines, penalties, or legal issues. The employer may be held liable to pay back taxes, employee benefits, and unpaid wages.

The best way to minimize misclassification risks is to partner with an employer of record who can maintain compliance with local employment laws. Remote has a team of in-house specialists who have in-depth knowledge of Indonesian labor laws. We can help you classify your workers correctly and protect your business from legal risks.

Get started with an employer of record for Indonesia

Whether you’re hiring for sales, marketing, or engineering talent, you’re sure to find highly skilled working professionals in Indonesia. International hiring can be tricky, but it doesn’t have to be.

Remote offers reliable EOR services that’ll help you navigate Indonesia’s labor laws, get set up to hire employees faster, and focus on attracting the best talent. Remote makes it easy and simple to hire employees in Indonesia.

With Remote, you can: 

• Onboard employees quickly

• Offer customized benefits that suit your employees’ needs

• Get access to a team of legal experts that’ll help you stay compliant with Indonesia's labor laws, and

• Pay your employees and contractors via our global payroll services

• Secure your intellectual property and internal data

• Scale your global team faster with talent from across the globe

Learn more about how you can use Remote’s employer of record to quickly, safely, and easily hire employees in Indonesia, and beyond. If you’re ready to hire in Indonesia, get started with Remote and take your business to the next level today!

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Your guide to switching EOR providers

Use this guide to learn how easy it is to switch from a different EOR provider and start employing your global team with Remote. We walk you through the key steps so you understand what’s involved.

Get the guide