Indonesia

Employer of Record in Indonesia

Indonesia is among the fastest-growing economies in the world. The surge in growth can be attributed to an abundance of skilled labor and a highly employable workforce in the country. 

Several companies have leveraged this fast-paced growth potential and abundant talent to also serve their needs. 

Even today, regardless of your base country, expanding to Indonesia can be instrumental to your business's growth.

As with any nation, a new subsidiary requires an understanding of local laws and regulations. Without proper in-house expertise, maintaining compliance with Indonesia's legal frameworks can be extremely challenging. 

But why go through this tumultuous process alone when you can partner with an employer of record in Indonesia, such as Skuad!

Skuad’s Indonesia Employer Of Record solutions can be the key to your company's smooth and swift expansion in Indonesia. 

Its unified and automated global HR platform enables you to expedite the onboarding of your remote team and manage their payroll, benefits, etc., in compliance with local laws. 

Do not worry about streamlining your expansion process. 

Skuad does it for you. Learn more.

Indonesia at a Glance

• Estimated Population: 279.8 million 
• Currency: IDR Indonesian Rupiah
• Capital: Jakarta
• Languages spoken: Indonesian, Javanese‍
• GDP: USD 1.37 trillion
  

Hire Employees in Indonesia

The traditional way to hire employees in Indonesia is to hire directly, meaning setting up a business subsidiary, sourcing candidates, and maintaining compliance with the Indonesia labor laws of the country. 

Another method is to hire through an employer of record in Indonesia, who will assume all legal and administrative responsibilities on your behalf. 

We have provided you with a detailed overview of both approaches so you can choose the one that works best for your business. 

Direct hiring: setting up a subsidiary 

The first step in establishing a subsidiary in Indonesia is to choose a company name and register it at a bank after paying the requisite fees. 

Then, a notary must be arranged to notarize all the company documents and forms required by Indonesian law.

After this, you must apply to the Ministry of Law and Human Rights to get your company's deed approved. 

Next, a building management domicile certificate is required to set up an office. You can apply for the company domicile certificate based on this certificate.

Further, non-tax state revenue fees must be paid to avail of legal services. This allows you to apply for a permanent business trading license and obtain a company registration certification. The final leg of this process is registration with the Ministry of Manpower.

Once your company is formally registered, you must apply for a tax identification number, social security, insurance, and other minor formalities.

Steps involved in direct hiring in Indonesia

With the increasing reach of the internet worldwide, the recruitment process has become more or less standardized. 

Most companies prefer online portals to hire candidates, especially individual candidates. The popular job portals in Indonesia are Indeed, Jobindo, Jobstreet, and Foundit. LinkedIn is also active in Indonesia and is the preferred medium for looking for candidates or conducting background checks.

The first step in finding suitable job candidates is determining the need for a new position in your company. 

Once this need has been determined, your HR team will draft a job description in consultation with the team that wants the candidate. 

The final job description will be posted on several job boards, advertised, and displayed on your website’s careers page.

Once you have received enough candidates for the advertised post or the timeline for accepting applications has lapsed, your HR team reviews the applications and selects those who seem fit for the job. 

This may be done through a points-based system or by inputting simple filters into the form fields. 

The selected candidates may then undergo a series of interviews per your requirements. It is also important to conduct a thorough background check of the last few candidates before offering them a position in your company.

Pros and cons of direct hiring in Indonesia

There are several advantages to hiring people through online portals or advertisements. Given Indonesia's immense talent pool, you will receive at least a few applications, which you can then go through and select candidates from. 

Your team does not need to seek out candidates; the whole process can be conducted remotely. The presence of many online portals also means that you do not need to hire a third party to seek out candidates for you.

However, as with everything else, hiring candidates online has several drawbacks. Even for the most junior positions, the number of applications received can be overwhelming.

Additionally, most job portals in Indonesia lack a comprehensive reach. When you need to hire a large number of candidates, the logistics of hiring people online might not work out with a limited HR team.

Hiring through EOR services in Indonesia

Indonesia is among several countries where having an EOR partner often becomes essential. 

Given the complexity of Indonesian employment laws, it is important to have a partner who knows the laws incisively and can provide recommendations and expertise on keeping your business activities within the limits of the law.

Having an EOR partner saves you the hassle of understanding the law, interpreting it according to your company's circumstances, and managing staffing, payroll, and employee records yourself. 

Skuad’s Indonesia EOR solutions can handle these tasks. It offers reliable outsourcing services to help you hire the right people for the right jobs while navigating the legal framework and compliances, leaving you to focus on the growth and expansion of your business operations. 

‍Book a Demo today!

Onboarding and Agreements

Employee onboarding can be defined as the process of integrating a new employee into the organization. 

This includes making them feel welcome, valued, and supported and familiarizing them with the company’s culture and ethics. 

The first step of a successful onboarding process is drafting an employment contract. 

An employment contract is a legal agreement (written or oral) between the employer and employee that highlights all the essential terms and conditions of the working relationship. 

Types of employment contracts in Indonesia

Under the employment law in Indonesia, the Manpower Law, an employment contract can be categorized into the following types:

• Fixed-term employment agreements: These refer to employment contracts used for a specific period and must be written in Bahasa Indonesia. Labor law stipulates that fixed-term contracts can only be valid for two years, with an option of renewal for a maximum period of one year.

• Permanent employment agreements: These refer to contracts for an unspecified period and can be made orally or in writing. They must contain all essential details such as the employee's name and address, type of work, wage, and so on. Furthermore, if the agreement is made orally, the employer must issue a letter of appointment.

• Outsourcing employment agreements: This type of employment contract is primarily used when a company outsources work to a third-party service provider. It is only valid for certain types of work, such as work performed separately from the main activities, work that supports the company, or work that does not directly inhibit the production process.

Onboarding checklist

The employee onboarding process does not simply end with drafting the employment agreement. It entails several other crucial steps that can categorized into two main phases.

Taxes

Ensuring tax compliance in Indonesia is also necessary when hiring employees from this country. 

Employers in Indonesia must withhold income taxes from their employee’s paychecks and report the wages they withhold within the deadline, the 10th of the following month.

Below, we have highlighted a detailed overview of the rules and regulations related to the same. 

Employer taxation

Employee taxation

VAT taxation

The VAT tax rate applicable on the deliverables of goods and services within Indonesia is currently set at 11%.

Compliance

Labor and employment laws in Indonesia are generally considered to favor employees. 

These laws broadly define employment and ensure that provisions such as social security are extended to all employees. 

Indonesian employment laws apply to all Indonesian nationals working in the country but not to foreign nationals. 

In Indonesia, it is generally considered hard to terminate employment, and several types of employment are defined under Indonesian law.

Some provisions of the Employment Laws to note before hiring in Indonesia are as follows.

Independent contractors vs. full-time employees

Along with the rest of the world, Indonesian companies have started transitioning to a remote work culture. Most Indonesian companies are well acquainted with working outside offices. 

The infrastructure is adequate and freely available to facilitate the remote work environment.

Indonesian law broadly defines types of work. It recognizes all kinds of work, whether for an indefinite period on a part-time basis or a fixed term only. 

If employment is supposed to be for a fixed term, it cannot exceed three years.

An individual’s employment must be a legal contract between the employee and the employer, or between groups of employees and the employer. The contract must mention the total scope of the work, hours, remuneration, and all other details.

Fines/penalties for worker misclassification

If an employer fails to comply with the distinction between an employee and an independent contractor, it can lead to worker misclassification. 

The Indonesian authorities are strict regarding such events and impose hefty fines and penalties, such as the following.

• Penalty for failure to submit a tax return - IDR 100,000 for monthly income tax return.
• Administrative penalties for late payments, with the tariff based on the current interest rate determined by the Ministry of Finance, for 24 months.
• Fine constituting 400% of the unpaid amount + imprisonment for six years.
• Denial from receiving public service for violation of social security requirements
• Imprisonment for up to eight years or a fine of up to IDR one billion.

IP protection 

The Directorate General of Intellectual Property (DGIP) is a government agency overseeing IP protection rights in Indonesia. 

Here, we have highlighted some key information related to the main IP rights. 

Indonesia Work Visas & Permits

Types Of Visas In Indonesia

Get to know more about visas in Indonesia through Skuad experts today!

Indonesia Work Permit Visa

Foreign nationals require two primary documents to work in Indonesia: a work visa and a work permit. The application fee for the work visa is USD 500, and a separate work permit is also needed.

Payroll

To set up a payroll in Indonesia, follow the following steps:

Best ways to pay employees in Indonesia

The traditional method of paying employees in Indonesia is through bank transfers, paycheques, mobile wallets, or cash. 

However, it usually involves a lot of paperwork and can get extremely complicated, especially when hiring multiple employees simultaneously. 

In addition to this, you will need to ensure tax compliance in Indonesia and learn about the latest currency exchange rates. 

A simple alternative to this approach is to partner with an employer of record service in Indonesia, like Skuad. 

Skuad’s unified platform boasts several payroll features that make the entire process of making international payments easy and seamless. It includes,

• Global payroll in 100+ currencies. 
• Data protection and security
• Automated invoicing and payments
• Optimized exchange rates and more.

Benefits and Compensation

When hiring in Indonesia, you need to disburse all mandatory insurance and health benefits to employees under the Social Security program. They include the following,

• Health security: Members of the National Social Security System receive healthcare and protection benefits, including promotional, preventive, curative, and rehabilitative services.
• Employment injury security: Any worker who suffers from an employment injury or occupational disease is entitled to healthcare and cash benefits. 
• Old-age security: It is administered to ensure that members receive cash benefits if they retire, suffer from total permanent disability, or die.
• Pension security: If employees lose or are short of income due to retirement age or suffer from total permanent disability, they become entitled to pension security in Indonesia.‍
• Death security: It is administered to grant death benefits to the deceased member’s beneficiaries.
  

Worker Rights

The labor law of Indonesia highlights a few other terms and conditions of employment that must be fulfilled when hiring employees in this country. They include,

Statutory working hours in Indonesia

Seven hours for six working days, 8 hours for five working days.

Job-specific working hours

The maximum number of working hours permitted in a week is 40.

Rest period

At least one day every week and at least 30 minutes after every four hours of work in a day is the stipulated rest period.

Probation period

When it comes to probation, the term for which an employee may be retained on probation is limited. A probation period of no more than three months is allowed for any employee.

Indonesia Minimum wage

The minimum wage in Indonesia usually varies from province to province. For example, the current minimum salary in Jakarta is set at IDR 5,067,381.

Anti-discrimination laws/acts

Articles 5 and 6 of the Manpower Law and Law No. 21 of 1999 prohibit any form of workplace discrimination against employees based on race, gender, color, nationality, or social origin.

Health and Safety

The Workplace Safety Act (Law No. 1 of 1970) is the primary legislation in Indonesia that emphasizes all guidelines related to health and safety at the workplace and emphasizes prevention.

Remote and Hybrid Work

With the advent of the COVID-19 pandemic, almost all companies worldwide have been forced to switch to different work models, such as fully remote teams, hybrid teams, split teams, and so on. 

While some have been able to achieve a successful transition process, others have faced numerous challenges. 

This is roughly what remote work readiness is all about. It refers to an organization’s ability to perform daily operations and maintain productivity outside a traditional office environment. 

When hiring in Indonesia, it is very important to determine the effectiveness of remote work readiness at your company. It includes careful consideration of various factors, such as:

• Technology and infrastructure

Do you have the necessary tools and equipment to facilitate remote work? This includes a reliable internet connection, laptops, mobile devices, and efficient communication platforms. 

• Flexible work arrangements

Remote work is all about flexibility, and this must be highlighted in your existing work policies. Make sure that these guidelines target key areas of remote work arrangements, such as performance evaluation, time management, or communication expectations.

• Training and development

Carefully evaluate the training and development needs of your team members and employees. Check for gaps in essential skills related to remote work, such as digital literacy, time management, or remote collaboration.

Salary

There is no concept of a fixed salary in Indonesia, meaning the compensation package for Indonesian employees can differ based on multiple factors. 

For example, a newly graduated individual who is thinking about joining the workspace will be compensated far less than someone who has a proven record of work experience in a particular field. 

In addition, the salary of employees in Indonesia can also differ based on the nature of the work itself. 

Higher-level executives who are tasked with overseeing an organization's day-to-day compensation or participating in critical decision-making processes receive much higher salaries than people employed in more general roles.

The best way to determine your employees' compensation packages is to understand and learn about current salary trends. 

Skuad’s salary benchmarking tool helps you do just that and enables you to tap into robust compensation data like minimum salary in Indonesia so that you can make fair and competitive offers tailored to each market.

Scope of negotiating terms

The scope of negotiating employment terms is generally limited when it comes to individual employees. Traditionally, employers have a job description for a job title and a predetermined remuneration. 

Salaries are generally standardized, as are benefits, and hence, employees are not offered much space to negotiate, especially at lower levels in the corporate hierarchy. 

This is highly at odds with the hiring process in Western countries, where negotiation is an integral part of the hiring process.

Leave Policy

Moving on, let’s take a look at the leave policy in Indonesia.

Annual leave accrual entitlement

The law mandates a minimum of 12 working days of paid leave. There is no provision allowing for the payment of unused leave.

Maternity leave

Indonesia provides three months of maternity leave, of which at least half must be availed after childbirth.

Paternity leave

A minimum of two days of paternity leave is provided to employees in Indonesia.

Childcare leave

Employees get to receive two days of childcare leave.

Other types of leave

Public holidays

The public holidays in Indonesia are as follows:

Background Checks

Running a background check in Indonesia is an important part of the hiring process to ensure the safety of your employees. A few examples of such checks include, 

Criminal record check

• To run a criminal record check, you need to obtain the Police Clearance Certificate, also known as SKCK, issued by the Indonesian national police.
• It documents an individual's past convictions, including prison sentences, a history of fines, and pending court cases.

Credit history check

• A credit history check is commonly performed in Indonesia to assess an individual's creditworthiness and financial well-being. 
• It includes uncovering all key details related to the number and types of credit accounts, amounts owed, and available credit used. 

Social media check

• A social media check involves reviewing a person’s accounts on various social media platforms, such as LinkedIn, Facebook, or Twitter.
• The goal is to discover crucial information about an individual’s personality, interactions with others over the internet, communication skills, and so on.

Termination and Offboarding

When terminating employment, employers must get the requisite permission from the Industrial Relations Court (IRC). 

Without the permission of the IRC, the employment contract cannot be ended even with mutual consent. 

There is no requirement for a notice period before ending a contract, but employers generally grant 30 days.

Employees may also be terminated due to redundancies, but redundancies are only justified if the company or a part of it completely ceases to operate. 

Employees may also be terminated if they fail to follow the employee code of conduct of the company or disobey the terms listed in their employment contract.

It is required by law that employees be given severance pay when they are dismissed. This is usually one month’s pay for every year that the employee has served in the company, up to nine years. 

The law also lays out the grounds on which employees may not be terminated, including pregnancy, short-term illness, and joining a union.

Cultural Considerations

One key aspect of expanding your business globally, such as in Indonesia, is dealing with cultural differences. 

What might be considered normal or polite in your homeland might not be the same for other regions. 

Therefore, a detailed understanding of the distinct cultural norms is extremely important since it facilitates cross-cultural collaboration.

For example, one of the key characteristics of the Indonesian work culture is punctuality and preparedness. 

Arriving on time and being prepared for meetings are generally viewed as a sign of respect for others' time and highlight professionalism. 

If you anticipate any delays, it is always advisable to inform the participants beforehand. 

Furthermore, the work culture of Indonesia is also highly motivated by professional appearance. 

Being well-groomed and wearing appropriate business attire will help you make a strong impression on your fellow workers and significantly impact how you are perceived in the professional setting.

Professional Employer Organization (PEO)

An alternative to an Employer Of Record can be a Professional Employer Organization or PEO. A PEO does much of the same work that EOR Solutions Indonesia does. 

It helps with contract development, employee record management, and payroll management. 

However, a critical difference between an EOR and a PEO is that employees hired by a PEO are on the payrolls of your company, and you need to make final decisions on all matters related to Human resources. 

Whereas An EOR takes the burden off your shoulders as it becomes a legal employer and takes over the hassles of working through the various stages of documentation and employment contracts, handling payroll taxes, payroll compliance, etc.

Conclusion

Skuad holds significant expertise and experience in establishing subsidiary units in Indonesia for several companies. 

Skuad’s unified and automated platform and strong international network provide you with an extra edge to reach your milestone faster. 

If Indonesia is the country of choice for your next expansion, contact Skuad now!

FAQs

1) What is an employer of record in Indonesia?

In Indonesia, an Employer of Record (EOR) legally hires employees on your behalf and manages Indonesia payroll, taxes, onboarding, and benefits administration, ensuring compliance with Indonesian labor laws without setting up a local entity.

2) What is the difference between EOR and PEO?

An employer of record (EOR) legally hires employees for clients and manages a globally distributed workforce. However, a Professional Employer Organization (PEO) co-employs staff and shares responsibilities with the client company. A PEO requires the client to set up a local entity.

3) What is the employer of record for international employees?

Employer of Record services help companies seeking to leverage international talent pools. They assume legal employer responsibilities of your global team. This eliminates the need for a local entity setup, which is a complex process.

4) Is an employer of record the same as a staffing agency?

No. An EOR (Employer of Record) takes on full-fledged global workforce management and the legal responsibility of employees. In contrast, a staffing agency focuses on sourcing, screening, and providing employers with a list of qualified candidates.

5) How much does an employer of record cost in Indonesia?

The total cost of an EOR in Indonesia varies depending on the services you want, the number of employees you wish to hire, and the service provider, among other things.

6) How do I choose an employer of record in Indonesia?

In order to select the right Indonesia EOR solution or a remote workforce management service provider Indonesia, a detailed analysis of various factors, such as the range of services offered, their experience, reputation, scalability, and customer support, is extremely important.