Labor Law

Employment Contract in Indonesia

Fixed-term employment agreements in Indonesia must be written in Bahasa Indonesia, the official language of Indonesia. While the duration of these contracts is Max. 5 years, they can be extended by an additional year if both parties agree. Employment agreements for an unspecified period are also allowed.

Best practice in Indonesia is to draft a concise, strongly worded written contract detailing the employee's compensation, benefits, job responsibilities, and termination rules. Offer letters and employment contracts should always state wages and remuneration in Indonesian Rupiah (Rp) and not in foreign currency.

Working with our Indonesian PEO, Remoly's team of local experts can provide assistance in drafting strong employment contracts that comply with local regulations.

Fixed Term

Indefinite

Working Hours in Indonesia

The standard working week in Indonesia is 40 hours. A work week is usually divided into five eight-hour days, or six seven-hour days.

If the employer requires the employee to work overtime outside of this time frame, the employee shall be paid overtime pay. The overtime rate is generally 1.5 times the employee's base rate for the first overtime hour worked, and 2 times the employee's base rate for subsequent hours. The overtime limit in Indonesia is 3 hours per day, or 14 hours per week.

In Indonesia, a written agreement regarding requests for overtime hours is necessary. This must be agreed to by the employee.

In most cases, there is no overtime pay for senior positions in Indonesia.

IncomeTax

The following income tax rates apply to residents of Indonesia:

• Below IDR 50 million: 5%
• IDR 50 million to IDR 250 million: 15%
• IDR 250 million to IDR 500 million: 25%
• Over IDR 500 million: 30%

Health Insurance

Indonesia has a mandatory universal healthcare system. Employers and employees share the cost of health insurance, which amounts to about 5% of income. Expatriates need to make these contributions as well.

Holiday Policy

Take a Vacation

Indonesian labor laws require employees to take 12 days of paid leave per year. Indonesia also has what is called “Cuti Bersama” (common leave). This is a shared leave taken by all employees on the same day to encourage domestic travel. The days of Cuti Bersama change every year and are determined by the government. This form of leave is usually deducted from the employee's vacation time.

Sick Leave

Indonesian law does not require employers to provide a certain amount of sick leave. An employee's sick pay may be reduced based on the length of leave.

Employees are entitled to 100% of their wages for the first four months of their illness. If an employee is ill for more than four months, his salary will be reduced by 25%. If an employee is ill for more than 12 months, the employer has the legal right to terminate the employee's employment.

Maternity and Paternity Leave

Expectant mothers are entitled to three months of paid maternity leave. Half of this leave is usually used before the child is born, and the remaining half is used after the child is born. Maternity leave is paid in full based on the mother's salary.

Fathers in Indonesia are entitled to two days of paternity leave.

Family Leave

Indonesian employees are entitled to paid family leave under the following circumstances:

• Circumcision of employees' children
• Baptism of employees’ children
• Marriage of employee's child
• Death of employee's child

Although the employer is not required to pay the typical benefits to which the employee is entitled, the employee will still receive full pay while on leave.

Salary and Benefits

Indonesian Compensation Law

In Indonesia, the minimum wage depends on where your business operates and local financial needs. After an employee has worked for the enterprise for more than one year, the minimum wage limit no longer applies. At this point, the employer and employee will typically negotiate an appropriate wage and/or benefit package.

Indonesia's compensation laws may also be affected by collective bargaining agreements (CBA). Likewise, conditions will vary across locations and provinces.

A CBA will cover an organization for a period of two years. Business owners can begin negotiations within three months of the expiration of a collective bargaining agreement, and all negotiations should include salary projections and bonuses. Alternatively, the employer and employee can determine an appropriate compensation package through direct negotiations.

Welfare Protection in Indonesia

In Indonesia, by law, every company's benefit management plan is required to include statutory benefits. This includes breaks on 14 public holidays nationwide. Many employees may also request additional time off to observe religious traditions.

Employees in Indonesia are entitled to 12 days of annual leave as well as shared leave (called "Cuti Bersama"). This form of leave is available to all employees on the same day and is intended to encourage domestic tourism.

After 30 days of employment, employees must join the National Social Security Scheme (BPJS). This covers:

• Workplace Accident and Death Benefits;
• Pension (Local employee);
• health care.

Workplace accident and death insurance is fully employer-sponsored. Other benefits are paid partly by the employer and partly by the employee.

Indonesia Welfare Management

For employers who choose to monitor pay and benefit distribution themselves (rather than outsourcing), it is important that they do so in the most effective manner. Employers need to be aware that many employees expect supplemental benefits to be included in their wages. While such benefits are not mandatory, providing them to employees will help employers attract and retain the best talent.

Since the majority of Indonesia's population is Muslim, employers should also pay attention to how benefits are distributed. For example, all employees in Indonesia are eligible for a 13-month bonus - known as THR. This is a religious day allowance paid to practicing Muslims one week before a holiday (Eid al-Fitr) and to non-Muslim employees on a specified date in December each year.

Benefits and Compensation Limitations

Perhaps the biggest limitation to managing benefits and compensation in Indonesia is establishing a local entity. This is required before a business can successfully recruit employees and add them to the company payroll.

Depending on the type of entity a business chooses, the registration process in Indonesia can take weeks or even months. When you partner with Remoly, you no longer need to worry about the burden of setting up a foreign subsidiary. With our Indonesia PEO and employer of record services, you can start doing business in Indonesia quickly, compliantly and cost-effectively.