Expand your business into Indonesia - without an entity
New Horizons provides global employment solutions for businesses wanting to hire employees and distribute payroll in Indonesia. Through our Indonesia PEO and EOR, we manage your company’s payroll, benefits, and expenses in Indonesia. Additionally, we oversee HR duties, as well as employment and tax compliance.
New Horizons will act as your employees’ Employer of Record, which means you can begin doing business in Indonesia without a local entity. This not only allows your business to go to market faster, but also has the potential to save your business thousands in expansion costs.
As the only Indonesia Employer of Record & PEO with an in-house recruitment team, New Horizons will source, hire, and onboard your Indonesian workforce. We hire employees in accordance with Indonesia’s labor regulations and coordinate all expense claims and benefits payments. Although we act as your employees’ Employer of Record, you still maintain full autonomy and control over all employees.
Our Indonesia PEO simplifies your expansion
New Horizons enables your business to expand its operations into Indonesia – without setting up a legal subsidiary.
New Horizons ensures day-to-day guidance to help your business navigate Indonesia’s labor laws and regulations. We also provide mandatory monthly payroll requirements, and absorb all local employment liabilities. Partnering with our Indonesia PEO is the quickest and most cost-effective way to enter the Indonesian market.
Employment and Labor Laws in Indonesia
Employment contracts in Indonesia
Fixed-term employment agreements in Indonesia must be written in Bahasa, the official language of Indonesia. Whilst these contracts are limited to two years in length, they can be extended for another year if mutually agreed upon. Employment agreements of an unspecified duration are also permitted.
Best practice in Indonesia is to draft a concise, strongly-worded written contract that details an employee’s compensation, benefits, job responsibilities, and rules around termination. Letters of offer and employment contracts should always state the salary and compensation in Indonesia Rupiah (Rp) rather than a foreign currency.
By partnering with our Indonesia PEO, New Horizons’ team of local experts can provide assistance for drafting strong employment contracts that are compliant with local regulations.
Working hours in Indonesia
The standard work week in Indonesia is 40 hours. A work week is typically broken down into eight hours per day for five days, or seven hours per day for six days.
If an employer requests an employee to work additional hours outside of this timeframe, employees are to be paid overtime. The rate of overtime is generally 1.5x an employee’s base rate for the first overtime hour and 2x an employee’s base rate for subsequent hours. The maximum amount of overtime in Indonesia is three hours per day, or 14 hours per week.
In Indonesia, a written agreement regarding the request of overtime hours is necessary. This must be consented to by the employee.
In most cases, senior-level positions in Indonesia are not paid overtime.
Holidays in Indonesia
New Year’s Day
Chinese Lunar New Year’s Day
Ascension of the Prophet Muhammad
Bali’s Day of Silence and Hindu New Year
International Labor Day
Waisak Day (Buddha’s Anniversary)
Ascension Day of Jesus Christ
Idul Fitri Holiday
Indonesian Independence Day
20 Aug-21 Aug
Muharram / Islamic New Year
Ganesh Chaturthi, September Equinox
The Prophet Muhammad’s Birthday
Cuti Bersama (Christmas Eve)
28 Dec-30 Dec
New Year’s Eve, Cuti Bersama
The following rates of income tax apply to residents of Indonesia:
- Up to IDR 50 million: 5%
- From IDR 50 million up to IDR 250 million: 15%
- From IDR 250 million up to IDR 500 million: 25%
- Over IDR 500 million: 30%
Indonesia has a compulsory universal healthcare system. Employers and employees share the costs of funding health care insurance, which is approximately 5% of earnings. Expats are also required to make these contributions.
Indonesian labor laws require employees to receive 12 day’s paid leave per year. Indonesia also has what’s known as ‘Cuti Bersama’. This is shared leave that all employees take on the same day to encourage domestic tourism. The day (or days) for Cuti Bersama changes each year and is determined by the government. This form of leave is usually deducted from an employee’s vacation leave.
Indonesian law does not require employers to provide a set number of sick days. An employee’s sick pay may be reduced based on the time away from work.
For the first four months an employee is sick, they are entitled to 100% of their pay. For periods of sickness beyond four months, an employee’s pay is reduced by 25%. If an employee has been sick for longer than 12 months, an employer is legally entitled to terminate their employment.
Maternity and paternity leave
Expectant mothers are entitled to take three month’s paid maternity leave. Half of this leave is typically used before the child’s birth, with the remaining half used after the birth. Maternity leave is paid at the full amount of the mother’s wages.
Fathers in Indonesia are entitled to two day’s paternity leave.
Employees in Indonesia are entitled to paid family leave in the following situations:
- Circumcision of the employee’s child
- Baptism of the employee’s child
- Marriage of the employee’s child
- Death of the employee’s child
Full salary is granted to the employee during time off, although the employer is not required to pay the typical allowances that the employee is due to receive.
Termination and severance
For ongoing contracts, a probationary period of up to three months can be included. For fixed-term contracts, probationary periods are not legally permitted.
Employers are not required to provide notice before terminating employees. However, employees are required to provide 30 day’s notice before resigning. Severance is to be paid at the time of termination, but the amount varies based on the reason for the dismissal.
Severance amounts and criteria are outlined below:
- Standard severance pay is equal to one month’s wages for service of less than one year, plus an additional month’s wages for every year of service – capped at nine month’s salary
- Long service pay is equal to two month’s salary after the first three years of employment, followed by one month’s salary for every three years of employment – capped at ten month’s salary
For any of the following reasons, employers do not have to pay severance:
- Voluntary resignation by the employee
- Severe chronic illness that has lasted more than one year
- Disability due to a work related accident
- Five or more days of missed work
- Grave misconduct
Compensation pay covers the following criteria:
- Unexpired or untaken annual leave
- Relocation expenses to return the employee and their family to their original country of residence
- Medical and housing allowance, equal to 15% of the total severance pay
- Any other benefits required under the employment agreement
- Any other compensation amounts determined by the Industrial Relations Court
Separation pay is a voluntary award and is regulated by the individual employment contract.
Indonesia compensation and benefits
Indonesia compensation laws
In Indonesia, minimum wages are determined by the location in which your businesses operates and the financial needs of the local area. After a staff member has worked with a business for longer than a year, minimum wage restrictions cease to apply. At this point, employers and employees will generally negotiate a suitable wage and/or benefits package.
Compensation laws in Indonesia can also be influenced by collective bargaining agreements (CBAs). Again, this will vary between different locations and provinces.
A CBA will cover an organization and is valid for a period of two years. Business owners can commence negotiations within three months of a CBA expiration and all negotiations should include wage forecasting and bonuses. Alternatively, employers and employees can settle on an appropriate compensation package through direct negotiations.
Minimum Wage Country Comparison Chart
(Per month in USD)
Guaranteed benefits in Indonesia
In Indonesia, every company’s benefit management plan needs to include statutory benefits, as mandated by law. This includes time off for the nation’s 14 public holidays. Many employees may also request additional time off to observe religious traditions.
Employees in Indonesia are entitled to 12 day’s annual leave, as well as shared leave – known as ‘Cuti Bersama’. This form of leave is taken by all employees on the same day and is deigned to encourage domestic tourism.
Payroll taxes and budget allowances go towards health care, which is another statutory benefit in Indonesia. Employers are required to enroll all employees in the system, including expats.
When you partner with New Horizons, we provide your business with peace of mind by ensuring that your workforce is registered in the Indonesian health care system.
Indonesia benefit management
For employers that choose to oversee compensation and benefits distribution themselves – as opposed to outsourcing – is is important they do so in the most effective manner. Employers need to be mindful that many employees will expect supplemental benefits to be included in their salary. Whilst such benefits are not mandatory, offering them to staff members will assist employers to attract and retain the best talent.
As the majority of Indonesia’s population is Muslim, employers should also be mindful of how they distribute benefits. As an example, all employees in Indonesia are eligible for a 13-month bonus – known as THR. This is a religious day allowance that is paid one week prior to a holiday — Idul Fitri for practicing Muslims and on a set date each December for non-Muslim employees.
Benefits and compensation restrictions
Possibly the biggest restriction for managing benefits and compensation in Indonesia is the establishment a local entity. This is needed before a business can successfully recruit employees and add them to their company payroll.
Depending on the type of an entity that a business chooses, the incorporation process in Indonesia can take weeks or even months. When you partner with New Horizons, you no longer have to worry about the burden of establishing a foreign subsidiary. Through our Indonesia PEO and Employer of Record services, you can begin your Indonesian operations quickly, compliantly, and cost-effectively.