Doing Business & Hiring in Indonesia

Should you hire through an EOR or set up an Indonesian entity?

Use an Employer of Record when you want people working in Indonesia without incorporating: the EOR employs them through its own entity, registers them with BPJS Ketenagakerjaan and BPJS Kesehatan, withholds PPh 21, and carries the statutory exposure. Set up a PT PMA when you need to sign local revenue contracts, hold a licence, sponsor RPTKA-based work authorisation in your own name, or commit to a market for the long term. The capital threshold for the second route fell in October 2025, which changes the calculation for a lot of companies — see the PT PMA section.

What catches foreign employers in Indonesia is not incorporation. It is the gap between the numbers that get published and the numbers that actually apply: a provincial minimum wage that is superseded by a district one, a pension ceiling that moved in March 2026 while the official website still shows the old figure, a work permit regime whose central document was abolished in 2018 and is still being cited by advisers, and a paid-up capital rule that halved and then quartered. Every one of those is cheap to get right at the start and expensive to unwind later.

Almost every Indonesian budget we are asked to review has been built on the provincial UMP. If the work is done in a regency or city with its own UMK, that budget is short from the first payroll run, and the shortfall compounds into THR and severance.

EOR vs. your own PT PMA

The side-by-side most employers actually need. For the mechanics of the EOR side, see our Indonesia Employer of Record guide; if you are engaging independent contractors rather than employees, see Contractor of Record in Indonesia.

Whichever path you take, the arithmetic below is the same. The sections that follow set out where each figure comes from and which of them are still moving.

What does an Indonesian employer pay in BPJS contributions in 2026?

About 10.24% to 11.74% of wage, across two schemes and six components. BPJS Ketenagakerjaan takes JHT old age at 3.70%, JP pension at 2.00%, JKK work accident at 0.24%–1.74% by risk tier and JKM death at 0.30%. BPJS Kesehatan takes 5% of wage in total, of which the employer pays 4%. The employee side is 4.00%: 2.00% JHT, 1.00% JP and 1% Kesehatan. The range in the employer figure is entirely the JKK risk tier your activity falls into.

The pension ceiling moved in March 2026

The JP contribution wage cap rose to Rp 11,086,300 per month with effect from March 2026, up from Rp 10,547,400. At the ceiling the employer JP contribution is Rp 221,726 and the employee's is Rp 110,863. Wages above the ceiling attract no further JP contribution on either side.

JKP: the scheme employers do not pay for

Job loss insurance is worth understanding precisely because the employer contribution is zero. The 0.36% total premium is funded by the government at 0.22% plus 0.14% recomposed from the existing JKK contribution — no new line on your payroll. The benefit to the employee is 60% of wage for up to six months under PP 6/2025. It does not replace severance, and it does not reduce what you owe under PP 35/2021.

BPJS Kesehatan: who is covered by the 5%

The 5% premium under Perpres 64/2020 is split 4% employer and 1% employee, computed on a base with a floor equal to the district or city minimum wage and a ceiling of Rp 12,000,000 per month — so the employer share caps at Rp 480,000. That one premium covers five people: the employee, a spouse and up to three children. Additional dependants beyond that are +1% each, paid by the employee.

If you have an Indonesian entity and want the monthly run, both BPJS remittances and PPh 21 off your plate, our payroll outsourcing in Indonesia handles it end to end.

Sources. JKK, JKM, JHT and JP rates: BPJS Ketenagakerjaan, under Government Regulations PP 44/2015, PP 45/2015 and PP 46/2015. Health insurance: BPJS Kesehatan, under Presidential Regulation Perpres 64/2020. Employment terms: Ministry of Manpower (Kemnaker). Last verified 2026-09.

What is the minimum wage in Indonesia in 2026?

Provincial minimum wages took effect on 1 January 2026: DKI Jakarta Rp 5,729,876, Bali Rp 3,207,459, Banten Rp 3,100,881, East Java Rp 2,446,880, Central Java Rp 2,327,386 and West Java Rp 2,317,601. But the provincial figure — the UMP — is a floor, not the rate you owe. Where the regency or city where the work is done has set its own UMK, that figure is higher and it is the binding one.

2026 provincial minimum wages

Monthly provincial minimum wages effective 1 January 2026. The DKI Jakarta figure is set by Kepgub DKI 1142/2025. Status recorded 3 September 2026.

What changed for 2026: PP 49/2025

The 2026 round was set under PP 49/2025, signed on 17 December 2025. Two changes matter commercially. It raised the alpha index range to 0.50–0.90, which widens the band within which provinces set the annual increase, and it revived sectoral minimum wages — so a sector-specific floor can sit above the general regional one. Neither is a detail you can safely ignore when modelling a multi-site Indonesian workforce.

How does THR work, and who qualifies?

THR — tunjangan hari raya, the religious holiday allowance — is due to every employee with at least one month of continuous service, on fixed-term PKWT and indefinite PKWTT contracts alike, with no exclusion for probation. Twelve months or more earns one month's wage; one to eleven months earns (months ÷ 12) × one month's wage. It is due at the latest seven days before the religious holiday, in full and in cash.

• Who is covered: anyone with one month or more of continuous service. PKWT and PKWTT are treated identically, and being on probation is not a ground to withhold it.
• How much: one month's wage at twelve months or more of service; pro rata below that, at months of service divided by twelve.
• When: no later than 7 days before the religious holiday.
• How: in full, in cash. Instalments are prohibited.
• Late: a 5% fine on the total owed — and paying the fine does not discharge the underlying obligation.
• Not paid at all: escalating administrative sanctions, up to suspension of business operations.

Basis: PP 36/2021 Articles 9, 62 and 79, and Permenaker 6/2016.

What are the working time and leave rules in Indonesia?

40 hours a week, worked either as 7 hours over 6 days or 8 hours over 5 days. Overtime is capped at 4 hours a day and 18 hours a week, and the hourly overtime rate is 1/173 of monthly wage. Annual leave is a minimum of 12 working days after twelve months of service. Maternity leave is 3 months guaranteed, extendable to six on medical certification.

Overtime multipliers

Overtime requires both written consent from the employee and a written order from the employer — an informal request does not create a compliant overtime record, and the absence of one is a routine finding in labour inspections.

Maternity leave changed in 2024

UU 4/2024, in force since 2 July 2024, replaced the old three-month rule with a graduated entitlement:

• 3 months guaranteed, extendable to 6 months where medically certified.
• Wages at 100% for the first three months and the fourth month.
• Wages at 75% for the fifth and sixth months.

We do not publish a paternity leave figure on this page because the available sources conflict. Ask us for the position that applies to your specific contract form rather than relying on a number quoted second-hand.

Probation and contract type

What does it cost to terminate an employee in Indonesia?

Three components, then a multiplier. Under PP 35/2021, within the UU 6/2023 framework, a termination package is built from uang pesangon (UP), severance proper; uang penghargaan masa kerja (UPMK), a long-service award; and uang penggantian hak (UPH), compensation for accrued rights. UP is one month per year of service, capped at nine months at eight years or more. A multiplier is then applied to UP according to the reason for the termination — from 0.5× to 2.0×.

The three components

UPH is payable in essentially every termination scenario, including resignation. That is the component foreign employers most often leave out of a leaver calculation, because it has no equivalent in most home jurisdictions — and because part of it, the repatriation cost for the worker and their family, is open-ended if the contract does not define it.

The UP multiplier by reason for termination

Two structural points follow from the table. First, the reason you record is the price you pay: "efficiency to prevent losses" is 1.0× UP, while "efficiency following losses" is 0.5× — the same word, half the bill, and a documentary burden attached to the cheaper one. Second, the cap on UP at nine months is a cap on one of three components; UPMK and UPH continue on top of it, so a long-service termination is materially more expensive than the nine-month headline suggests.

What work authorisation do foreign employees need in Indonesia?

A Pengesahan RPTKA, then an e-visa, then an ITAS. There is no IMTA: it was abolished by Perpres 20/2018, and under PP 34/2021 and Permenaker 8/2021 the Pengesahan RPTKA is itself the work authorisation. Any adviser, template or article still telling you to apply for an IMTA is working from pre-2018 material.

The sequence, in order

1. OSS/NIB check — confirm the sponsoring entity's registration supports the intended role.
2. RPTKA lodged at tka-online.kemnaker.go.id.
3. HPK feasibility assessment, conducted by video conference.
4. Pengesahan RPTKA issued — this is the work authorisation.
5. Billing code issued, then the DKPTKA levy paid.
6. e-visa applied for at evisa.imigrasi.go.id.
7. Biometrics, then the ITAS is issued.

Cost and timing

The levy is the part that surprises budgets. US$100 per position, per person, per month means a two-year RPTKA for one engineer is US$2,400 of levy, payable up front for the whole period, before the visa stage even begins. Multiply by headcount before you commit to a hiring plan.

Two restrictions that shape the org chart

• Foreign nationals are barred from any position managing personnel under Permenaker 8/2021 Art. 49(1)(k). If your intended hire is an HR director, an HR manager, or any role whose core responsibility is personnel management, the answer is no — restructure the role before you lodge the RPTKA, not after it is refused. Other prohibited positions exist; we do not publish an itemised count here because the underlying list is disputed.
• A local understudy (tenaga kerja pendamping) must be appointed for skills transfer, with accredited training and Indonesian-language training. Directors, commissioners and company representatives are exempt from the understudy requirement.

Sponsorship runs through a registered Indonesian entity. If you do not have one and do not want to incorporate for a single hire, an Employer of Record in Indonesia can act as the sponsoring employer for the RPTKA and ITAS.

Indonesia work permit guide: RPTKA, visa index, ITAS/KITAS, fees and timeline →

How much capital do you need to set up a PT PMA?

Two different numbers, and almost every published guide conflates them. The investment plan must exceed IDR 10 billion per five-digit KBLI code per project location, excluding land and buildings — unchanged. The minimum issued and paid-up capital is IDR 2.5 billion, reduced from IDR 10 billion by Peraturan Menteri Investasi/Kepala BKPM No. 5/2025, promulgated on 24 October 2025.

What the paid-up capital rule actually requires

• IDR 2.5 billion issued and paid up.
• It must remain in the company account for at least twelve months under Article 26 of BKPM Regulation 5/2025.
• After that it is deployable on fixed assets, construction or operating costs, consistent with the declared investment plan.
• Different minimums survive in sectors governed by their own legislation — natural resources, energy and financial services among them. Check your KBLI before you rely on the general rule.

Structure, licensing and timeline

OSS-RBA: what licence your risk tier buys you

Licensing runs through the risk-based OSS system, and the tier your KBLI falls into determines how much paperwork stands between incorporation and trading.

KBLI 2025 is now operative. Existing businesses do not need new permits on account of the change — a point confirmed by BPS on 27 April 2026. New entrants should classify against KBLI 2025 from the outset, because the five-digit code drives the investment-plan threshold, the risk tier and any equity cap all at once.

What corporate and payroll tax will you pay in Indonesia?

Corporate income tax is 22% as standard, with 19% for qualifying listed companies and reductions for small turnover. VAT is 12% headline but 11% effective on ordinary goods and services. Employment income is taxed at 5%–35% on a progressive scale, withheld monthly under the TER average-effective-rate method.

Corporate income tax

• 22% standard rate.
• 19% for qualifying listed companies.
• Turnover up to IDR 4.8 billion: 11%.
• Turnover IDR 4.8–50 billion: a 50% reduction on the portion of income attributable to the first IDR 4.8 billion.

VAT: 12% headline, 11% effective

This is the most misreported Indonesian tax fact, so it is worth stating precisely. The statutory rate is 12%. But PMK 131/2024 applies an 11/12 "other value" base to non-luxury supplies, which produces an effective 11% on ordinary goods and services. The full 12% applies only to luxury goods subject to PPnBM. Both "Indonesia raised VAT to 12%" and "Indonesian VAT is 11%" are half-right; quoting either alone will mis-price a contract.

PPh 21: employment income tax

PTKP: the non-taxable income allowance

Monthly withholding does not apply those brackets directly. Since PP 58/2023 and PMK 168/2023, employers withhold using the TER average effective rate method, with categories A, B and C determined by PTKP status, and December as the true-up month where the annual progressive calculation is applied and the difference settled. Filing runs through Coretax. Payroll systems built for the pre-2024 monthly gross-up produce the right annual answer and the wrong monthly one, which is a reliable source of employee complaints in the middle of the year.

Sources. PPh 21 withholding: Directorate General of Taxes (DJP), under UU 7/2021 (HPP) and the effective-rate (TER) method introduced by PP 58/2023. Last verified 2026-09.

Is Indonesia's employment law about to change?

Yes, but it has not changed yet. As of 3 September 2026 the RUU Pelindungan Ketenagakerjaan is in progress, not passed. The DPR approved it as an initiative bill on 27 August 2026. It runs to roughly 20 chapters and 262 articles and is now in joint deliberation with the government.

• Deadline: 31 October 2026, set by Constitutional Court Decision 168/PUU-XXI/2023, which ordered a standalone employment law separated from UU 6/2023.
• Still under negotiation: the scope of outsourcing, the decent wage concept, and PKWT rules.
• Until it passes, nothing changes. PP 35/2021 and PP 36/2021 as amended remain the operative rules — for severance, for THR, and for everything else set out on this page.

The practical consequence for anyone budgeting an Indonesian workforce in the next two quarters: price against the current rules, and put a review point in your calendar for November. The three items under negotiation — outsourcing scope, the decent wage and PKWT — are precisely the ones that would change a workforce model built on fixed-term or contracted-out labour.

Common mistakes

1. Budgeting salaries against the provincial UMP when the work location has a UMK. The UMK is higher and it is the binding figure — and the error propagates into THR and severance, both of which are computed on wage.
2. Using the old JP pension ceiling. It is Rp 11,086,300 from March 2026, not Rp 10,547,400 — and the public BPJS website still shows the old number.
3. Modelling Indonesian employer cost as a capped amount per head. JP and Kesehatan cap; JHT does not.
4. Paying THR in instalments, or excluding employees still on probation. Both are non-compliant: THR is due in full, in cash, seven days before the holiday, to anyone with a month of service.
5. Assuming the 5% THR late fine settles the matter. It does not — the THR itself is still owed, and repeated failure escalates toward suspension of operations.
6. Writing a probation clause into a PKWT. Probation is valid only in a PKWTT; in a PKWT the clause is void and service runs from day one.
7. Forgetting UPH on a resignation. Accrued leave and repatriation costs for the worker and family are payable in essentially every exit scenario.
8. Leaving uang pisah undefined in the contract, company regulations and CLA. The law does not set the amount; if your documents are silent, the entitlement is contestable.
9. Applying for an IMTA. It was abolished in 2018 — the Pengesahan RPTKA is the work authorisation.
10. Under-budgeting the DKPTKA. It is US$100 per position, per person, per month, paid up front for the whole RPTKA period, with part-months charged in full.
11. Planning a foreign hire into an HR or personnel-management role. Foreign nationals are barred from any position managing personnel under Permenaker 8/2021 Art. 49(1)(k).
12. Quoting IDR 10 billion as the PT PMA capital requirement. Paid-up capital has been IDR 2.5 billion since 24 October 2025; the IDR 10 billion figure is the investment plan, per KBLI per location.
13. Assuming a PT PMA can use the 0.5% final UMKM rate. PP 20/2026 closed that regime to companies on 22 April 2026 — every PT is on 22%.
14. Quoting Indonesian VAT as a flat 12%, or a flat 11%. It is 12% headline with an effective 11% on ordinary goods and services, and the full 12% only on luxury goods subject to PPnBM.
15. Treating the draft manpower law as if it were in force. As of 3 September 2026 it is not; PP 35/2021 and PP 36/2021 as amended still govern.

Frequently asked questions