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Indonesia – Employer of Record
AVASO provides employer of record services for customers that want to hire employees and run payroll without first establishing a branch office or subsidiary in Indonesia. Your candidate is hired via AVASOs’ Indonesia PEO in accordance with local labor laws and can be onboarded in days instead of the months it typically takes. The individual is assigned to work on your team, working on your company’s behalf exactly as if he or she were your employee to fulfill your in-country requirements.
Table of Contents
- Hiring, Negotiating and Doing Business in Indonesia
- Employment Contracts in Indonesia
- Indonesia Working Hours
- Vacation Leave in Indonesia
- Sick Leave in Indonesia
- Maternity/Paternity Leave in Indonesia
- Termination/Severance in Indonesia
- Indonesia Tax
- Health Insurance Benefits in Indonesia
- Bonus in Indonesia
- Indonesia Holidays
Our solution enables customers to run payroll in Indonesia while HR services, tax, and compliance management matters are lifted from their shoulders onto ours. As a Global PEO expert, we manage employment contract best practices, statutory and market norm benefits, and employee expenses, as well as severance and termination if required. We also keep you apprised of changes to local employment laws in Indonesia.
Your new employee is productive sooner, has a better hiring experience and is 100% dedicated to your team. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. AVASO allows you to harness the talent of the brightest people in more than 185 countries around the world, quickly and painlessly.
Hiring, Negotiating and Doing Business in Indonesia
Like many Asian countries, Indonesian culture is centered around the group rather than the individual. As a result, businesses tend to be hierarchical and the concept of “face” is very important. Communication tends to be indirect, and the word “yes” often actually means no; it is frequently cited that the Indonesian language even has 12 words for yes which actually mean no. Negotiations often take a long time, and deliberations can be a show of respect. Hard sell tactics will not work, as Indonesians do not like to be pressured or rushed. Time is seen as fluid in Indonesia, with the idea that everything will happen in its own time and space. The first time you meet with a potential business partner, you should think of it as an opportunity to establish a relationship and should not expect to get actual business accomplished. Generally, the visitor is expected to end the meeting after 45 minutes to an hour.
When negotiating terms of an employment contract and offer letter with a local employee in Indonesia, it may be useful to keep the following standard benefits in Indonesia in mind:
Employment Contracts in Indonesia
Fixed-term employment agreements in Indonesia must be written in Bahasa Indonesia, the official language of Indonesia, and may be bilingual. In the event of any inconsistency in the bilingual versions of the employment agreements, the Bahasa Indonesia version will prevail.
Employment contracts in Indonesia can either be fixed-term or for an unspecified period of time. Fixed-term contracts are given for defined time periods or until the completion of a certain job. These contracts cannot exceed two years; however, extending a contract for up to one year is allowed.
Best practice is to put a strong employment contract in place in Indonesia which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Indonesia should always state the salary and any compensation amounts in Indonesia rupiah rather than a foreign currency. The employment contract template is part of the service with AVASO; no need to draft a separate template if you use our employer of record and PEO service in Indonesia.
Indonesia Working Hours
The Indonesia workweek is 40 hours, with either 7 hours a day for 6 days a week or 8 hours a day for 5 days a week.
If employers request extra hours, they must pay 1.5 times their regular wages for the first hour and 2 times their regular wages for any hour after that. Wages should include and fixed allowances. Maximum overtime allowed is 3 hours a day or 14 hours a week. Senior-level positions are excluded from overtime. There must be a written order from the employer and written consent for the employee for any overtime worked.
Vacation Leave in Indonesia
Employees are entitled to statutory annual paid leave of 12 days per year. It is not typical to provide more than the statutory days and “Cuti Bersama”.
The Indonesian government also declares “Cuti Bersama” which means “taking leave together, this is also referred to shared leave. Cuti Bersama was introduced by the Indonesian government for the purpose of stimulating domestic tourism within the country and increasing the efficiency of public servants. For example, if a holiday falls on a Thursday, a “joint holiday” program encourages the employer to give Friday off. The holiday is counted in public servants’ overall leave. Most businesses follow this concept by adjusting employees’ annual leave in line with government policy. The Cuti Bersama changes each year and is dictated by the government. In 2017 it January 2nd, June 26th-28th, and December 26th.
Sick Leave in Indonesia
The concept of a set number of sick days does not exist in Indonesia. Instead, the employee’s salary is reduced based on the time the employee has been out. For the first four months, the employee is entitled to 100% of their pay. After the first four months, the employee’s pay is reduced by 25% and an employer may terminate an employee who has been sick for 12 months. Sick pay is covered by the employer, not the government.
Maternity/Paternity Leave in Indonesia
Female employees are entitled to take 3 months’ fully paid maternity leave, of which 1.5 months are taken prior to the birth, and 1.5 months are taken post-natal.
Male employees are entitled to 2 days’ paid paternity leave.
- Employees are entitled to paid family leave in Indonesia, under the following circumstances:
- Marriage of the employee’s child: two days’ paid leave
- Circumcision of the employee’s child: two days’ paid leave
- Baptism of the employee’s child: two days’ paid leave
- Death of the employee’s child: two days’ paid leave
Although full salary is due to the employee for the above circumstances, the employer is not obligated to pay the allowances that are conditional to the attendance of the employee.
Termination/Severance in Indonesia
Employment contracts for an unspecified period of time can include a probationary period of up to 3 months. Fixed-term contracts may not include a probationary period.
There is no required notice period for employers. Employees may resign with 30 days’ notice. The Labor Law provides different formula of severance pay for the different reasons for the dismissal/employment termination. This includes events such as imprisonment, death, retirement, bankruptcy, etc.
- Standard severance pay: one month of wages for service of less than one year, plus an additional month of wages for every year of service, up to nine months’ salary.
- Long Service pay which amounts to two months’ salary after the first three years of service, followed by an additional one month’s salary for every three years of service thereafter, up to a maximum of ten months’ salary for 24 years of service.
- Compensation Pay must be paid to cover the following:
- annual leave that has not expired or been taken.
- relocation expenses (expenses to return the employee and their family to the place from which they were recruited).
- medical and housing allowance: 15% of the total severance pay and service appreciation pay, if any.
- other benefits provided under the employment agreement, the company regulations or the CBA.
- other compensation amounts as determined by the Industrial Relations Court (this can include special arrangements between the employer and employee).
- Separation Pay is a voluntary award provided to the employer as compensation for the employee’s service and is regulated by the employment agreement.
There are only 5 termination reasons that allow an employer only to only pay the compensation owed, with no severance or separation pay:
- Employee resigns at her own will
- Grave Misconduct
- Severe Chronic illness for more than 12 months
- Disability due to work related accident
- 5 days of missing work
As of January 1, 2014, Indonesia implemented a universal social security system intended to cover all employees and residents under a single health care system by 2019 and a single employment benefit system by 2029. The national social security covers five programs, including:
- Health insurance – 4% employer, 1% employee
- Occupational injuries – 0.24% to 1.74% employer
- Old age saving – 3.7% employer, 2% employee
- Pension benefits – 2% employer, 1% employee
- Death benefits – 0.3% employer
Residents of Indonesia are subject to the following rates of Income Tax:
- Up to IDR 50 million: 5%
- From IDR 50 million up to IDR 250 million: 15%
- From IDR 250 million up to IDR 500 million: 25%
- Over IDR 500 million: 30%
Health Insurance Benefits in Indonesia
Indonesia has compulsory universal healthcare which is funded through payroll taxes and the general budget. Employers are required to enroll their employees in this system. Any employee hired through globalization partners will automatically have the employee enrolled in the universal healthcare. This is mandatory for all employees, including expats.
Bonus in Indonesia
Employees are paid a mandatory 13th-month salary payment in Indonesia, often referred to as THR. This is considered a religious day allowance and is paid one week before the respective religious holiday. Since most of the country is Muslim, most employers provide this bonus one week before the Muslim holiday, Idul Fitri (the end of Ramadhan), regardless of the employee’s religion. Other employers will provide the bonus in December for any non- Muslim employees. If the employee has worked for less than 12 months, he or she is entitled to a prorated amount.
Indonesia celebrates 14 public holidays for which employees are given the day off, including:
- New Year’s Day
- Chinese New Year
- “Nyepi” Bali Hindu New Year
- Good Friday
- Labor Day
- Ascension Day of Jesus Christ
- Ascension Day of the Prophet Muhammad
- Buddhist Holy Day of Waisak
- Ascension Day
- Eid al-Fitr
- Independence Day
- Idul Adha
- Islamic New Year
- Birthday of the Prophet Muhammad
- Christmas Day
It should be noted as well that 87% of the population in Indonesia observe Islam as their religion and consequently Islamic holidays such as the Birthday of the Prophet Muhammed are widely celebrated across Indonesia.