10 Notable Points When Hiring in Indonesia

Indonesia offers a vibrant and diverse talent pool, along with a dynamic business landscape. However, navigating the local hiring process and understanding employment regulations can be challenging without the right knowledge. If you are considering expanding your team or venturing into the Indonesian job market, this resource is designed to provide you with essential insights and valuable information.

Here are the 10 key points that will help to ensure a successful hiring process in Indonesia:

1. Compliance with Employer Cost You Must Follow

In Indonesia, the employer cost is generally estimated at around 4.24% of the employee's salary.

2. Vital Inclusions for Contracts

When hiring, contracts in Indonesia must be written in the Indonesian language using the Latin alphabet and may also be bilingual if necessary. They must be documented in writing and signed by both parties to ensure their validity and enforceability. A comprehensive contract should include the following essential elements:

• Name, address of the company, and nature of business
• Position
• Place of work
• Salary and payment method
• Terms of employment which cover the rights and obligations of employer and employee
• Start date and period of employment agreement
• Place and date the employment agreement is made

3. Essential Documents for Onboarding in Indonesia

• Passport / ID
• Tax ID Number
• Citizen ID Number
• BPJS KeteN/ Agakerjaan Card
• BPJS Kesehatan Card
• Tax payment form the previous employer

In Indonesia, the onboarding process usually lasts around three business days, regardless of whether the employee is onsite or remote.

4. Mandatory Benefits for Employees in Indonesia

In Indonesia, It is important for employers to take note that both on-site and remote employees are entitled to receive mandatory benefits, which encompass:

• Social Security Program (BPJS)
• Workers Compensation Insurance
• Unemployment Insurance
• Public Health Insurance
• Pension Fund
• Health Benefits Package (optional)

5. Compulsory Paid Time Off & Public Holidays

Full-time employees, both remote and on-site employees in Indonesia are entitled to 12 days of paid time off (PTO) per year. PTO accrues at a rate of 1 day per month, meaning employees earn PTO gradually over the course of the year. Eligibility for annual leave begins after completing one year of employment. On the other hand, part-time employees are not entitled to PTO benefits.

In Indonesia, there are more than 15 national holidays celebrated. The national holidays typically include:

6. Minimum Wage Requirements

In Indonesia, the minimum wage varies depending on the local province's regulations. The minimum wage ranges from IDR 1,958,169 (equivalent to approximately US$126) to IDR 4,901,798 (equivalent to approximately US$316) per month. The specific minimum wage for each province is determined by regional authorities and is subject to periodic adjustments. It is important for employers to comply with the minimum wage requirements set by the respective province where their business operates.

7. Overtime Pay & Maximum Hours

In Indonesia, overtime payment is mandatory for employees. Employees are allowed to work a maximum of 4 hours of overtime per day or 18 hours per week. The rate of overtime pay varies depending on factors such as whether it is a regular work day or a weekend, as well as the number of overtime hours worked. Overtime pay can range from 150% to 400% of the employee's hourly wage.

The standard working hours in Indonesia are 8 hours per day for 5 working days, totalling 40 hours per week. However, for those who work 6 days a week, the standard working hours are 7 hours per day, also totalling 40 hours per week. The standard work week generally starts on Monday and ends on Friday.

Bonus

By law in Indonesia, full-time employees are entitled to receive an additional 13th-month salary known as Tunjangan Hari Raya (THR). This allowance is paid during the Eid al-Fitr holiday, which typically falls in the month of April. The calculation for the THR is based on the employee's gross annual salary divided by 12, and it is paid once a year. According to the applicable laws and regulations, the THR payment must be made no later than 7 days before the religious holiday to ensure timely compensation for employees.

8. Individual Income Tax

In Indonesia, the individual income tax is calculated using progressive rates. The income tax rates range from 5% to 35%. The specific tax rate applicable to an individual depends on their income bracket. As the income increases, the corresponding tax rate also increases. 

• Up to IDR 50 million - 5%
• From IDR 60 million to IDR 250 million - 15%
• From IDR 250 million to IDR 500 million - 25%
• From IDR 500 million to IDR 5 billion - 30%
• Above IDR 5 billion - 35%

9. Leave Policies in Indonesia

Maternity Leave

In Indonesia, pregnant employees are entitled to 3 months of paid leave. Out of the total duration, 1.5 months must be taken before the child's birth, and the remaining 1.5 months must be taken after the child's birth. During the maternity leave period, the employee will receive 100% of their salary, and it is the employer's responsibility to provide the payment.

It's important to note that the employee cannot extend their maternity leave beyond the designated 3-month period.

Paternity Leave

In Indonesia, employees are entitled to two days of paid paternity leave. During this period, the employee will receive 100% of their average salary, and the employer is responsible for providing the payment. 

Sick Leave

Employees can use sick leave without a maximum limit, and the employer pays it at varying rates based on the duration of the leave.

10. Procedures for Terminating Employees

In Indonesia, terminating employment can be a complex process. Employers are generally not allowed to terminate employees without cause, except during the probationary period. Termination must be supported by valid reasons. Compliant termination grounds may include:

• Voluntarily by the employee
• By mutual agreement
• Death of worker
• Completion of assignment
• By the expiration of the contract
• Unilaterally by the employer based on:
  • probation period
  • objective grounds
  • disciplinary dismissal
  • performance due to unsuitability for the job
  • merger or acquisition of the company
  • bankruptcy
  • inability to work due to medical conditions

Notice Period

Termination initiated by the employer:

• Notice during probation period - 7 days
• Minimum notice period - 14 days

Termination by employee:

• Minimum notice period - 30 days

Severance

In Indonesia, employees who are terminated are entitled to receive severance pay, which is determined based on factors such as the duration of employment and the employee's base salary.