Guide to Hiring in Indonesia

Employment trends and job market analysis

Businesses in Indonesia are diversifying. The young talents of Indonesia are numerous, focusing on tech and non-tech industries. Much of the local talent pool in the tech industries tends to focus on software and data engineering.

Those in the non-tech industries focus on media and communications, as well as business development. As of 2021, the literacy rate was 99.81%, with 9.67% of the population over the age of 15 completing their tertiary studies. It is worth bearing in mind that for a developing country, these numbers will only keep rising. 

Currently, the business climate in Indonesia remains firm. Domestic demands remain strong, and their inflation is under control. The service, agriculture, and industrial sectors are among the best industries to foray into in Indonesia.

Other industries that are expected to grow rapidly in the coming years include petroleum and natural gas, textiles and apparel, mining, footwear, plywood, rubber, and chemical fertilisers. 

Payroll and taxes

The following is a summary of the mandatory contributions in 2022: 

Table 1: Types of mandatory contributions from employers/employees

Working hours

A regular work week in Indonesia are 40 hours per week – either seven hours a day for six working days weekly, or eight hours a day for five working days a week. If these hours are exceeded, or if employees are required to work over weekends/public holidays, employers need to provide overtime pay. 

Overtime hours should not exceed three hours per day and 14 hours per week. 

Overtime wages can be calculated as follows. 

Table 2: Overtime hours and wage calculation

Labour laws

Here are some key points regarding labor laws in Indonesia that companies expanding their business there should be aware of:

Employment contracts

In Indonesia, employment contracts can be either fixed-term or indefinite. Fixed-term contracts are limited to a maximum of two years, while indefinite contracts have no specified end date. A copy of the contract must be provided to both the employee and the manpower authorities.

Trade unions and collective bargaining

Indonesian labor law recognises the right of employees to form unions. Companies should be aware of the regulations governing union activities.

Collective bargaining is allowed, and employers are expected to engage in good faith negotiations with unions.

Occupational health and safety

In Indonesia, companies prioritise occupational health and safety (OHS) compliance to ensure a safe and secure working environment for employees. Compliance is typically achieved through a combination of proactive measures, regular training programs, and adherence to government regulations. Employers are required to conduct risk assessments and implement preventive measures to mitigate workplace hazards.

Companies often establish OHS committees to oversee safety protocols and address concerns raised by employees. These committees play a crucial role in promoting a culture of safety within the organisation. Regular workplace inspections are conducted to identify potential hazards, and companies are expected to promptly address any issues that may compromise employee well-being.

Moreover, adherence to government regulations, such as those outlined by the Ministry of Manpower and Transmigration, is crucial. Employers are obligated to provide appropriate safety equipment, conduct emergency drills, and ensure compliance with industry-specific safety standards. In the event of workplace accidents, prompt reporting to the relevant authorities is mandatory. 

Minimum wage

According to Indonesia’s Ministry of Manpower and Transmigration, the minimum wage in Indonesia increased from IDR 4.42 million per month to IDR4.64 million per month as of 2021. This was enforced on January 1st, 2022 and is still in effect. 

Employee benefits

In terms of employment laws, Indonesia uses a civil law system. These laws can be quite stringent to protect the citizens. However,  foreign employers are not required to set up an entity to employ Indonesian citizens. They may be employed directly or through agencies.

Indonesia’s employment laws, although stringent, are straightforward. According to the Labor Law (Law No 13 of 2003), employers must ensure that their Indonesian employees: 

• Receive at least minimum wage according to their respective sector and province; 
• Receive social security – encompassing pension, healthcare, life & accident insurances, and old-age benefits; 
• Receive one month’s salary as a religious holiday allowance; 
• Receive statutory absence or payment in lieu if the employee does not exhaust their annual leaves; and 
• Receive overtime work payment. 

According to the Manpower Law of Indonesia, employees are obligated to provide several benefits and allowances for their employee aside from fair wages and other statutory requirements, which include: 

• Healthcare insurance 
• Pension/retirement benefits 
• Life and accident insurance 
• Food and transportation allowance maternity and paternity leave 
• Paid sick leave 
• Annual paid leave 
• Death benefits 

Supplementary benefits beyond statutory compliance can effectively attract and retain a highly motivated talent force, which in turn translates into an effective workforce. 

Supplementary benefits that attract the Indonesian talent pool include the following: 

• Dental and optical care; 
• Additional time off 
• Free meals 
• Flexi hours 
• Mobile and internet allowance; and
• Educational assistance for employees and/or their children 

Employees are also eligible for a yearly religious holiday bonus called Tunjangan Hari Raya (THR), paid out one business week before the religious festivities: 

• Eid al-Fitr for Muslims 
• Christmas for Christians 
• Balinese Hindu New Year for Hindus
• Wesak Day for Buddhists 
• Lunar New Year for Confucians 

Employers who do not pay out this bonus on time are liable to be fined. 

For those who have facilities for remote workers, there is an opportunity for remote hiring in and to Indonesia. There are talks of granting digital nomads five-year visas, which will not be subject to any taxation on foreign-sourced income. 

As of now, this is intended to attract tourists to Indonesia where they can work remotely. Those who want to legally work in Indonesia full-time, however, still need to apply for a work permit. 

As many full-time workers have become remote workers since the advent of COVID-19, this visa may be an attractive benefit for employees who seek work-life balance.  

Employee rights

When hiring staff in Indonesia, it is essential to be aware of and respect their fundamental rights, as outlined in the Indonesian labour laws mentioned above. One of the key rights is the freedom of association, allowing staff to form and join trade unions. While union participation is voluntary, companies should recognise and engage in constructive dialogue with unions, fostering a positive industrial relations environment.

Indonesian labour laws also emphasise the right to collective bargaining. Workers are expected to engage in good faith negotiations with employee representatives regarding employment terms and conditions. This includes discussions on wages, working hours, and other relevant matters. Companies must be prepared to negotiate in a fair and transparent manner to maintain a harmonious relationship with their workforce.

Employees in Indonesia are entitled to fair and just working conditions. This includes reasonable working hours, and workers must comply with the standard 40-hour workweek. Overtime work is regulated, ensuring that staff are compensated appropriately for additional hours worked beyond the standard schedule.

Overall, respecting employee rights in Indonesia involves upholding principles of fairness, transparency, and adherence to legal standards. Companies that prioritise these rights contribute to a positive workplace culture, fostering staff satisfaction and productivity.

Types of leave available

The Indonesian law has provisions for several types of leaves, including annual, maternity, sick leave and more. 

Annual leave

After 12 months of continuous service, workers are entitled to 12 days of paid time off. The number of days they may take off continuously depends on their work agreements or company regulations. 

Some of the paid leaves for permanent employees are as follows: 

1. The employee gets married – three days’ paid leave
2. The marriage of their children– two days’ paid leave
3. The circumcision of their children– two days’ paid leave
4. The baptism their children– two days’ paid leave
5. The employee's partner gives birth or miscarries – two days’ paid leave
6. The death of a husband/wife, parent/in-law or child  – two days’ paid leave
7. The passing of a  family member – one day paid leave

Public holidays

As stipulated by Indonesian labour laws, employees can take all national public holidays off. If they are required to work on public holidays, they should be compensated with overtime pay.

Public holidays include:   

Hari Raya Natal (Christmas Day)

Table 3: National Public Holidays in Indonesia

Additional holidays may be considered as part of the employees' annual leave, subject to the discretion of organisations/workers.

Table 4: Additional Public Holidays in Indonesia

Sick leave

Absence from work due to illnesses is not to be deducted from the allotted days of an employee’s annual leave. For employees who have a written statement by a qualified doctor, the wages they are to receive are as follows: 

Table 5: Length of sick leaves and percentage of wages paid

People who menstruate are entitled to paid leave on their first and second days of menstruation if their condition affects their job performance.   

Maternity and paternity leave

New mothers are entitled to full wages during their maternity leave, including 1.5 months before and 1.5 months after the birth – with certification from a qualified obstetrician or midwife. 

In the event of a miscarriage, the employee is entitled to 1.5 months of paid leave – with certification from a qualified obstetrician or midwife. 

The duration of leave before and after birth, as well as miscarriage, can be extended, subject to recommendation by a qualified doctor. 

Under Indonesian law, new fathers can take off two days after a birth or a miscarriage. They can extend this to one month if they have a doctor's note requiring additional leave for a medical reason.

Attracting talent

Retaining talent in the 21st century requires a balance of tangible and non-tangible benefits. Companies need to go a step beyond wages if they aim to attract and retain top talents in their industries. Modern job seekers seek fair compensation and work-life balance and want a sense of belonging, a healthy workplace culture, and an organisation whose values match their own. 

Here are some tips on how to hire people in Indonesia:

Be strategic with employee branding

As for the younger generation, leaving a positive impact on posterity is essential. Many millennial job candidates also want to work with colleagues of top calibre besides looking for jobs with excellent career advancement opportunities.  

It is upon the organisations to stand out – branding their company as something that the current generation will work with is essential. Potential employers need to think beyond financial compensation to attract and retain talent. Employer brand attractiveness is key to attracting and retaining modern Indonesian employees.  

Place ESG values at the forefront

According to a recent study by Ilmia & Artisola (2022), millennials are known as the “green generation,” and most Indonesian millennials would exclude companies that do not reflect their values regarding environmental responsibility. With Indonesia’s dominating demographic being the millennials, it is wise for companies to implement green strategies to attract young, talented potential employees in Indonesia.

For the younger generation worldwide, social and environmental values are essential, and organisations with a positive impact on both are preferred. Addressing these demands and needs is key to attracting and retaining top talent and solving the talent shortage. 

Find a balance between governance and flexibility

Different people thrive under different circumstances, and this also applies to working models.

Allowing employees to choose their preferred work mode can only increase productivity. Providing access to productivity and collaboration tools and mechanisms will further boost morale. Most young Indonesian job seekers prefer a hybrid mode of work.

Furthermore, the top three things that matter the most to them at work are a good relationship with colleagues, a good relationship with superiors, and an excellent work-life balance. 

Provide opportunities for continuous learning

There is a need for continuous engagement between the organisation and the employee to ensure that the worker’s experience is optimal, with a maximum capacity for career growth opportunities.

In these terms, one-on-one mentorship and coaching for career advancement, as well as continuous learning systems introduced in the workplace may significantly impact attracting and retaining potential employees.

Hiring best practices

When hiring employees in Indonesia, there are several specific best practices that companies should consider to ensure a smooth and effective recruitment process.

Adhere to local labour laws

Ensure strict adherence to Indonesian labour laws and regulations throughout the when you hire locally in Indonesia. This includes obtaining the necessary work permits for foreign hires and complying with specific industry-related regulations.

Provide transparent job descriptions

Provide clear and transparent job postings that outline the roles, responsibilities, and qualifications required for the position. This helps in attracting candidates who align with the company's needs. It also helps to attract passive candidates who aren't actively looking for work, but who might be interested if they're presented with the right offer. 

Engage in diversity and inclusion activities

Promote diversity and inclusion by actively seeking candidates from various backgrounds. This not only aligns with modern workplace values but also reflects positively on the company's image.

Practice efficient interviewing processes

Streamline the interview process to respect candidates' time and maintain their interest. Efficient scheduling and timely communication demonstrate professionalism and consideration for applicants.

Localise compensation packages

Tailor compensation packages to align with local market standards. Be aware of average salary expectations in the specific industry and region to remain competitive.

Verify references

Conduct thorough reference checks to verify the accuracy of candidates' qualifications and work history. This helps in ensuring that the selected candidate is the right fit for the position.

Implement a cultural onboarding process

Implement a cultural onboarding process that helps new hires acclimate to the company's culture and work environment. This includes providing information about company values, expectations, and team dynamics.

Foster continuous employee engagement

Foster continuous employee engagement by maintaining open lines of communication with new hires. Regular check-ins and feedback sessions can help address concerns and promote a positive employee experience.

Attend networking and industry events

Attend local networking events and industry conferences to establish connections within the professional community. Building a strong network can lead to valuable referrals and insights into the local talent pool.

By incorporating these best practices into the hiring process, companies can enhance their ability to attract, select, and retain top talent in Indonesia while maintaining compliance with local regulations and cultural norms.

Termination of employment

In Indonesia, an employee must be given a 30-day notice to terminate the employment contract. Termination can be initiated by the employer via dismissal or by the employee via resignation. There are two types of termination: 

Table 6: Termination with cause vs. termination without cause

There are four types of termination settlements in Indonesia: 

Severance pay – payment due to termination of employee 

Long service pay – compensation/reward for long years of service 

Compensation of rights pay – compensation for unused annual leave, maternity leave, medical, accommodation, traveling expenses, etc. 

Separation pay – voluntary compensation as a reward for services rendered by employees 

*Not all employees are entitled to termination compensations - only permanent staff are eligible. Contract staff have a contract completion allowance at the end of the contract. If 12 months have been completed upon the end of the contract, they will be eligible for one month's salary. If the agreement is less than 12 months, the payment will be prorated. 

There are two types of employment agreement contracts in Indonesia:

definite term contracts (contract has a set end date – employer and employee can choose to end or renew the contract at the end) and indefinite term contracts (contract has no set end date). 

For definite term employment contracts, employees are not entitled to any termination compensations. Only indefinite term contract employees can avail the termination compensations. 

An employee CANNOT be terminated under the following circumstances: 

• Unable to work for up to 12 months due to illness 
• Unable to work due to law restrictions 
• Marriage 
• Childbirth, nursing, miscarriage 
• Involved in labourer rights/union activities outside of working hours 
• Whistleblowing on employers 
• Performing compulsory religious activities 
• Disability/injury due to work accidents 
• Marital status 
• Religion 
• Race 
• Physical appearance 
• Gender/sexuality 
• Political views 
• Medical condition 

The minimum statutory termination benefits for permanent staff in Indonesia are calculated as follows: 

Table 7: Severance pay according to years of service completed

Table 8: Service pay according to years of service completed

What are my options for hiring?

For businesses seeking to attract talent in Indonesia, there are a variety of solutions provided by Airswift to ease your hiring process within compliance with local laws.

With our long-standing expertise and knowledge, we minimise the risks of hiring, and onboarding the cream of the crop Indonesia has to offer. Let us bear the administrative tasks while you concentrate your efforts on your growing business. 

Talent acquisition

When growing a business, there is always risks involved. That is why it is important to have talents with appropriate knowledge and expertise. In Airswift, you get a local talent acquisition professional to source high-quality employees in a competitive market. 

We also offer contract hiring for short-term projects and flexible staffing solutions – you will never have to compromise quality when you need to hire contractors urgently. Our database of highly qualified contractors ensures that you will have the best for your organisation.  

If you seek a more permanent staffing solution, our professional recruitment services can connect you with the best talents from Indonesia who meet your requirements. 

Employer of record

If you are looking for ways to hire people remotely but do not want to set up a physical office, an employer of record in Indonesia might be just what you need. 

A third-party employer of record (EOR) allows you to avoid the hassle of setting up a local office and focusing on running your business instead. They handle tasks like paying employees' wages and providing them with statuary benefits. 

*Although the information provided has been produced from sources believed to be reliable, no warranty, express or implied, is made regarding the accuracy, adequacy, completeness, legality or reliability of any information. For the latest information and specific queries regarding particular cases, please contact our team.