Employer of Record in Indonesia

Hiring independent contractors has boomed in popularity because of the cost savings and flexibility they offer. It can be a great option if you require niche skills or short-term project support. Contractors allow businesses to access specialized skills quickly, without the time and cost of setting up a local entity.

However, it’s important to know the limits of this model: contractors are not a substitute for full-time employees. Relying on them for ongoing, long-term roles can create serious compliance risks, including employee misclassification, which can lead to fines, back taxes, and reputational damage.

Playroll’s contractor management solutions make it simple to compliantly engage, onboard, and pay contractors around the world. We provide clear visibility into agreements, streamline payments, and reduce compliance risks – so you can focus on getting the work done. And when you’re ready to take the next step, we can help seamlessly convert contractors into full-time employees through our global Employer of Record service.

Businesses can only operate smoothly in Indonesia if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Indonesia below, to avoid any compliance issues.

Employment Contract Requirements

In Indonesia, employment is governed by Law No. 13 of 2003 on Manpower. Contracts must be in Indonesian using the Latin alphabet, with the Indonesian version being legally binding. Employment contracts should outline:

• Employee details
• Position and type of work
• Salary details
• Contract period

Onboarding Process

We can help you get a new employee started in Indonesia quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations. For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

Probation Period in Indonesia

The maximum probation period in Indonesia is 3 months. This probation period can only be applied to employees who are on permanent employment contracts (known as indefinite-term contracts). Probation is not applicable to fixed-term (temporary) employment contracts.

In Indonesia, standard working hours are 8 hours per day, amounting to 40 hours per week for five-day workers. If an employee works more than 3 hours in a day, a meal break of at least 30 minutes must be given.

Exceeding standard weekly hours in Indonesia constitutes overtime, governed by contract terms or collective agreements, with a maximum of 4 hours per day and 18 hours per week allowed. Overtime compensation on weekdays starts at 150% of the regular hourly wage, rising to 200% for subsequent hours.

Global expansion shouldn't mean losing time to paperwork or dealing with complicated, country-specific HR systems. An Employer of Record helps you keep your focus on talent by handling the operational side of employment in Indonesia. That includes onboarding, contract management, payroll processing, and statutory compliance, all aligned with local laws and best practices. The EOR guarantees that employees are legally employed and properly supported from day one.

This streamlined setup allows you to prioritize recruiting the best people and integrating them into your company culture. Your team stays lean, and you avoid getting caught up in the details of local processes or shifting regulations. For founders, global hiring managers, or HR teams working across borders, an EOR multiplies your impact, reducing admin time, preventing errors, and helping ensure that new hires have a smooth experience from the get-go.

In Indonesia, employers must navigate various payroll taxes and regulations to ensure compliance. Key payroll taxes include the progressive income tax (PPh 21), where rates range from 5% to 35%, and mandatory social security contributions, including BPJS Kesehatan (health insurance) and BPJS Ketenagakerjaan (employment insurance), with both employer and employee contributions. The employer's contribution totals approximately 10.24%-11.74%, while the employee’s is around 4%. Additionally, employers are responsible for the mandatory annual Tunjangan Hari Raya (THR) holiday bonus.

Payroll cycles are generally monthly, with income tax payments due by the 7th of each month, and social security contributions due by the 15th. Employers must also be mindful of regional minimum wage rates, which vary across provinces. Using payroll management software can streamline this process by consolidating payroll data, ensuring accurate tax calculations, and helping employers stay compliant with ever-changing tax laws and local requirements in Indonesia.

‍

Hiring in Indonesia means taking on local payroll obligations, which often include unique tax rates, contribution rules, and strict documentation. If you're not familiar with the system, or don't have a local entity, it’s easy to make mistakes. That’s where an Employer of Record ccomes in. The EOR manages payroll for your team on your behalf, ensuring every process is accurate, timely, and legally compliant.

Key Ways an EOR Supports Payroll in Indonesia:

• Full Legal Compliance: Ensures all payments, deductions, and filings meet country-specific requirements.
• Payroll Setup & Processing: Handles salary calculations, tax withholdings, and local reporting obligations.
• Statutory Benefit Contributions: Pays into required social programs and manages country-mandated benefits.
• Employee Documentation: Generates compliant contracts and manages hiring and termination paperwork.
• Local Currency Payouts: Delivers salaries in local currency, avoiding delays or exchange rate issues for employees.

In Indonesia, employers seeking to hire foreign nationals must navigate a multifaceted process involving several permit types, including the Expatriate Placement Plan (RPTKA), Limited Stay Permit (KITAS), and Limited Stay Visa (VITAS). The application process can span from several weeks to months, with standard processing times now extending to one month or more, up from the previous 10-12 working days.

Renewal of work permits should be initiated at least two months before expiration to maintain legal employment status. Additionally, Indonesia offers the E33G remote worker visa for digital nomads, introduced in April 2024, valid for up to 1 year and non-extendable. Applicants must have a minimum annual income of USD 60,000, provide bank statements showing a minimum balance of USD 2,000 over the last 3 months, and pay a visa fee of 7,000,000 IDR (approximately INR 37,317).

Employers should be cognizant of challenges such as complex regulations, processing delays, and cultural integration, and consider engaging professional services to ensure compliance and facilitate a seamless hiring process.

Mandatory Leave Entitlement in Indonesia

The annual leave entitlement in Indonesia is 12 days for a full time worker. These can include public holidays on top of that or within those days, which would otherwise be unpaid.

Public Holidays In Indonesia

Annually, the government in Indonesia has the authority to determine whether public holidays that coincide with weekends will be rescheduled to a weekday or forfeited altogether.

Paid Time Off in Indonesia

In Indonesia, paid leave is specified in the employment contract, ensuring a minimum of 12 days of annual paid leave after one year of service. Employees who have worked continuously for six years with the same employer can also take one month of leave in their seventh and eighth years of service.

Maternity Leave In Indonesia

Pregnant employees are entitled to 6 months, (26 weeks), of paid leave, for the first two children. The employer covers 100% of their salary during this period. This leave is usually 8 weeks before delivery and the rest after childbirth. For the subsequent children, the entitlement is 12 weeks.

Paternity Leave In Indonesia

Employees are given two days of paid paternity leave, during which they receive 100% of their average salary. The employer is responsible for covering this payment, and the leave duration cannot be extended.

Sick Leave In Indonesia

In Indonesia, there is no specified limit on sick leave duration. Compensation during sick leave varies depending on the duration of absence and is paid by the employer as follows:

Parental Leave In Indonesia

In Indonesia, there is no specific legal provision addressing parental leave.

Bereavement Leave

Employees receive two days of paid leave in the event of the passing of a 1st or 2nd-degree relative.

Marriage Leave

Indonesian employees are eligible for three days of leave to attend their own marriage rites, or two days if it involves their child's wedding

Adoption Leave

Adoptive parents in Indonesia enjoy the same leave entitlements as natural parents. This includes three months of paid leave for female employees and two days of paid leave for fathers.

Employers in Indonesia are required to provide key mandatory benefits, including Social Security (BPJS), Religious Holiday Allowance (THR), Overtime Pay, Paid Leave, and adherence to Minimum Wage regulations, ensuring employees receive essential financial and social protections. Additionally, many employers offer supplemental benefits such as Private Health Insurance, Transportation and Meal Allowances, Flexible Working Arrangements, and Professional Development Programs to attract and retain talent.

To remain compliant, employers must stay updated on evolving labor laws, tax implications of benefits-in-kind, and legal obligations under Indonesia’s employment regulations, ensuring a balanced and competitive benefits package.

When hiring across multiple countries, maintaining consistency in how you deliver employee benefits quickly gets tricky. Each country, including Indonesia, has its own legal rules, cultural norms, and contribution systems. An Employer of Record helps you strike the right balance between global structure and local compliance. They take over the complexity of delivering benefits that are aligned with Indonesia’s legal requirements and competitive with local market expectations.

From ensuring statutory benefits are in place to managing local onboarding timelines and enrollment systems, the EOR provides a seamless experience for both employer and employee. This makes it easier to grow your team across borders without reinventing your benefits process in each new location. You stay in control of your overall benefits strategy, while the EOR takes care of executing it in a way that works legally and culturally in Indonesia. It’s a smarter way to scale benefits globally without losing local relevance.

Termination Process in Indonesia

In Indonesia, prior to termination, employers are required to engage in negotiations with employees or labor unions to explore alternatives. If termination becomes necessary, clear written explanations for the reasons must be provided. Valid grounds for employee dismissal in Indonesia include:

• Violation of the employment agreement
• Imprisonment of the employee
• Extended illness of the employee for more than 12 months
• Unjustified absence from work for more than five days, after being notified twice

Notice Period in Indonesia

In Indonesia, employers must notify employees of termination in writing. The notice periods for employer-initiated terminations are as follows:

• During the probation period: 7 working days
• Regular employees: 14 working days, unless otherwise agreed in the employment contract, company regulations, or collective labor agreement (provided the agreed period is not shorter)
• For employee-initiated terminations (resignation), employees must submit a written notice at least 30 days before their last working day.

Severance in Indonesia

Severance pay is mandatory, if applicable, and is determined based on the employee's length of service as follows:

• Less than 1 year of employment: 1-month wage
• 1 year or more but less than two years: 2 months' wage
• 2 years or more but less than 3 years: 3 months' wage
• 3 years or more but less than four years: 4 months' wage
• 4 years or more but less than 5: 5 months' wage
• 5 years or more but less than 6: 6 months' wage
• 6 years or more but less than 7: 7 months' wage
• 7 years or more but less than 8: 8 months' wage
• 8 years or more: 9 months' wage