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Indonesia has emerged as a significant player in the global economic landscape. It boasts a rapidly growing economy, with a GDP exceeding US$1.32 trillion in 2022.
Apart from the stable economy, another notable advantage of hiring in Indonesia includes its young and dynamic workforce.
A significant amount of the Indonesian population is under the age group of 29. This can especially be helpful for global businesses, as they can access a vast pool of young professionals ready to join the workforce.
However, to know how to hire in Indonesia, you need more than just an understanding of the employment market. Here are some of the basic information that you must be aware of.
The official language of Indonesia is Bahasa Indonesia, which is spoken by the majority of the population.
The Indonesian Rupiah (IDR, Rp) is the official currency of Indonesia.
The standard working hours consist of 40 hours of work per week for all employees and seven or eight hours per day, depending on the spread of the working week.
The current minimum wage has been revised to IDR 5,067,381 from IDR 4,901,798.
In addition, you will need an in-depth knowledge of labor laws and regulations to ensure optimal compliance.
In this blog, we’ve listed various approaches of recruitment in Indonesia to help you.
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Indonesia has its complexities, but there's a strong reason it's a top choice for global expansion.
Here's why: a skilled and adaptable workforce, combined with attractive government incentives and a network of trade deals, creates a very employer-friendly environment for building your international team.
Best ways to hire
There are three main ways by which you can hire in Indonesia efficiently. They include establishing a local entity, hiring employees through an EOR, and hiring independent contractors using an AOR.
How to hire employees by setting up a local entity
It is a traditional method that comprises various crucial tasks alongside maintaining compliance with local labor laws.
It includes obtaining approval of the company name or applying for a business identification number, among others.
One primary advantage of setting up a local entity is that it grants you complete control over your workforce.
However, it also demands an extensive knowledge of legal and administrative requirements.
This includes obtaining approval of the company name, applying for a business identification number, and ensuring compliance with local labor laws and regulations.
Although it does allow you (a business owner) complete control over your workforce, the process demands extensive knowledge of legal and administrative requirements.
How to hire employees via EOR (Employer-of-Record)
To hire employees via an EOR, you need to partner with a global employment platform.
An employer of record allows you to hire employees in Indonesia without setting up a legal entity.
An EOR, such as Skuad, ensures compliance with local laws and handles all administrative, HR, and payroll tasks.
Opting for an EOR service helps you focus more on your core business.
How to hire contractors through AOR (Agent of Record)
An AOR facilitates recruitment in Indonesia by identifying and sourcing suitable independent contractors for your organization's needs.
An AOR has various responsibilities, from initiating and negotiating contracts to recruiting and paying independent contractors.
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Hire and pay talent globally, the hassle-free way with Skuad
If you wish to hire employees in Indonesia, then a detailed understanding of the various costs associated with the same is essential. Let’s take a look.
Types of costs
Setting up a local entity
Partnering with Skuad (AOR/EOR)
Upfront costs
It involves high upfront costs, such as setup fees and hiring legal and accounting experts.
Typically low since Skuad already has an established presence in Indonesia.
Compliance costs
Requires continuous investment in legal consultations and other measures as you navigate the complex regulatory landscape.
Significantly low as Skuad comes alongside built-in compliance management and in-house expertise.
Administrative and operational costs
Very high; you will be responsible for building HR, finance, audit, and legal teams.
Typically low since Skuad handles all administrative burdens and ensures scalability.
Types of costs
Partnering with Skuad (AOR/EOR)
Setting up a local entity
Upfront costs
Typically low since Skuad already has an established presence in Indonesia.
It involves high upfront costs, such as setup fees and hiring legal and accounting experts.
Compliance costs
Significantly low as Skuad comes alongside built-in compliance management and in-house expertise.
Requires continuous investment in legal consultations and other measures as you navigate the complex regulatory landscape.
Administrative and operational costs
Typically low since Skuad handles all administrative burdens and ensures scalability.
Very high; you will be responsible for building HR, finance, audit, and legal teams.
In addition to this, there are quite a few other types of costs involved when hiring an employee in Indonesia. Here is a cost breakdown:
Indonesian employment laws are about creating a level playing field for workers and fostering a positive work environment. They act as a rulebook that covers everything from how many hours you work each week to what kind of leave you get.
Here's a quick rundown of some key regulations:
The Manpower Act: This act acts as your guide for essential aspects like temporary contracts, outsourcing, working hours and breaks, and even termination procedures.
Trade Union Laws: These laws recognize your employees' right to form or join worker representative groups (unions) for collective bargaining.
Social Security Laws: These ensure your employees have access to crucial benefits like healthcare and retirement plans, simplifying your HR tasks.
Law on Elimination of Sexual Violence in Employment: It promotes a safe work environment free from harassment and assault, protecting both your employees and your company's reputation.
Indonesia has some stringent laws to govern various aspects of employment, ranging from employment contracts and wages to working hours and leave policies. Some of its key policies include,
The primary employment law in Indonesia is the Manpower Act, also known as Law No. 13 of 2003.
Employers are also required to take care of overtime compensation. It cannot exceed four hours per day or 14 hours per week.
The maximum probationary period for any employee in Indonesia is three months.
However, this only applies to open-ended or indefinite contracts and is not allowed in fixed-term contracts.
Additionally, in the event of termination of an employment contract, employers are required to provide an individual with a notice period ranging from 30 to 90 days.
To comply with these employment laws (even more), you might find it challenging to understand. This is especially true when you lack the legal expertise or an in-house team to deal with all compliance-related issues.
2. Payroll
On top of the employment laws, there are some unique aspects to payroll in Indonesia. Keep these in mind:
Monthly payday: Salaries typically land in employee accounts on the last working day of the month.
Bonus time: You have to provide a special annual bonus – the Tunjangan Hari Raya (THR). Think of it as a 13th-month pay to celebrate the major religious holiday, Hari Raya Idul-Fitri. The timing usually means it hits employee accounts at least a week before the festivities.
These regulations can be highly tedious without proper legal support. The best way to deal with this challenge is to set up a robust payroll system, which, although advantageous, can cost a lot of company resources and energy.
3. Competitive Talent Landscape
The competitive talent landscape in Indonesia presents significant challenges for businesses looking to hire global employees. Several critical factors contribute to this. They include,
Indonesia's rapidly growing economy and expanding industries have resulted in a constant need for skilled professionals across various sectors.
Some of the many reasons include the outmigration of skilled workers, a lack of capacity to provide training, and an aging workforce.
The available training programs often lag behind the industries' growing needs, rendering them outdated and ineffective.
The communication gap between you and training organizations can also often result in mismatches between the skills acquired through training and those required by employers.
4. English proficiency
In other Southeast Asian countries, English is the primary business language, and almost everyone speaks it. However, the same cannot be said for Indonesia.
Indonesia is a linguistically diverse country, with hundreds of local languages spoken by various communities in this region.
This diversity has also limited the emphasis on English language acquisition.
5. Complex Visa regulations and requirements
Obtaining the correct work permits in Indonesia can be relatively challenging, especially for employers.
It is an extensive process that requires the submission of various documents, including a valid passport, work visa (RPTKA), company information, tax identification number, and more.
The government agencies including the Ministry of Manpower (MOM), and the Ministry of Law and Human Rights (Kemenkumham) take care of the work permit and immigration processes. All these tasks may have lengthy processing times, especially if additional scrutiny is required.
This delay can further hurt the hiring timeline and operational plans.
Hire in Indonesia with Skuad
When it comes to facilitating international hiring, very few can beat Skuad. With expertise in over 160 countries, Skuad is an all-in-one platform that ensures a seamless global employment experience and 100% compliance.
With Skuad, you can digitally onboard new employees within minutes. This includes sending locally compliant contracts, collecting relevant documents, and issuing work devices.
What’s more?
Skuad also enables you to provide country-specific benefits to keep your team healthy and motivated. From medical and dental benefits to paid time off and reimbursements, Skuad enables you to demonstrate your commitment to your employees' well-being and satisfaction.
However, do not just take our word for it.
Sign up today and experience the difference first-hand!
One platform to grow your global team
Hire and pay talent globally, the hassle-free way with Skuad
Q1: What is the difference between contractors and employees in Indonesia?
Ans: One of the main differences between hiring employees and hiring contractors in Indonesia is that the former usually works for one company and, therefore, is subject to the rules and policies laid down by that particular organization. Conversely, a contractor can work for multiple organizations at a time.
Q2: How much does recruitment cost in Indonesia?
Ans: The cost of recruitment in Indonesia usually varies depending on several factors, such as the method of hiring, the complexity of the process, and the industry as a whole.
Q3: What are the working rules in Indonesia?
Ans: Under the labor laws of Indonesia, the standard working hours per week consist of 40 hours.
Q4: What is the employment law in Indonesia?
Ans: The Manpower Act is the primary legislation in Indonesia that covers various aspects of the employment relationship, such as working hours, wages, and overtime.
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