Do I Need a Local Entity to Hire in Indonesia?

In Indonesia, a "local entity" refers to a recognized business presence that can act as an employer, such as a subsidiary or a branch office. This setup allows you to comply with local labor laws, manage payroll, and fulfill tax obligations.

Without a local entity, you cannot effectively register as an employer, manage mandatory social security contributions, or run compliant payroll. An Employer of Record (EOR) can help you navigate these complexities without the need for a local entity.

What is Required to Employ Someone in Indonesia?

• Local employing entity required to directly employ? Yes (you need a local entity to manage employment obligations)
• Payroll registration required? Yes (must register with the Direktorat Jenderal Pajak)
• Withholding/tax remittance required? Yes (employers must withhold income tax and remit to the tax office)
• Social contributions required? Yes (mandatory contributions to BPJS Kesehatan and BPJS Ketenagakerjaan)
• Local employment agreement required? Yes (written contracts are mandatory under Indonesian law)
• Mandatory benefits to budget? Yes (includes health insurance, pension, and severance pay)
• Works council/collective agreements considerations? Often (many sectors have collective agreements that influence employment terms)

Best Options If You're Hiring in Indonesia

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but be cautious about misclassification risks.

While hiring contractors doesn’t require a local entity, Indonesia has strict labor laws that protect workers. If the contractor's work resembles that of an employee, you could face legal challenges. Here are some key points to consider:

• Ensure the contractor operates independently and is not integrated into your business.
• Be wary if the contractor works exclusively for you or if you control their work hours and methods.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 1–3 months, depending on the type of entity and required registrations.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated IDR 5,000,000–15,000,000 per month ($350–$1,050)
• Payroll provider: Estimated IDR 1,500,000–4,500,000 per employee per month ($105–$315)
• Employer registrations and recurring compliance: Varies by complexity
• Corporate tax filings and annual reporting: Estimated IDR 10,000,000–30,000,000 per year ($700–$2,100)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 per month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Indonesia

Hiring in Indonesia can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Indonesia quickly without establishing a local entity, eliminating incorporation costs and ongoing administration.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s managed payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.