Table of Contents

Indonesia

Table of Contents

Currency

Indonesian Rupiah (IDR)

Payroll Frequency

Monthly

Employer Taxes

10.24% - 11.74%

About Indonesia

Indonesia is a country composed of an archipelago in Southeast Asia that is home to over 300 ethnic groups. It is currently the largest economy in that region and is also the world’s fourth most populous. What makes the country stand out is its economic growth and ability to develop as a middle-income country by implementing a 20-year economic development plan. This has helped the country raise its GDP per capita from $857 in 2000 to $3847 in 2017. These economic plans directly target the poor who constitute about 10% of the population. Indonesia’s GDP is comprised of sectors that include about 46 percent services, 40 percent industry, and 14 percent agriculture; the country produces rubber, palm oil, poultry, beef, forest products, marine products, and other farm products. Indonesians are mostly Javanese, Sundanese, Malay and Batak. Bahasa is the official language, with English, Dutch and Javanese also spoken widely. Muslims make up to 87 percent of the population.

Employment Relationship

• Permanent Employment

Indefinite term (permanent) employment contracts are allowed under Indonesian law. Additionally, for jobs that are permanent in nature (generally defined as non-seasonal and non-project-based work), an employment agreement must be indefinite.

• Fixed-Term or Specific-Purpose Contracts

In Indonesia, a work contract for a specified period can only be made for the following types of work: Work of a temporary nature Completed in a short period of time (5 years at most) Considered to be seasonal, or to be repeated Related to new products, activities, or supplemental products still in the experimental stage Employers cannot impose a probationary period on fixed-term contract employees. The maximum duration of a fixed-term employment agreement is five years. The employee can be hired under multiple fixed-term contracts, but the total duration may not exceed 5 years.

• Temporary Employment Contratcs

Temporary employees are employees who are employed for a specified or unspecified period through an outsourcing company. In Indonesia, outsourcing companies must be legal entities with a valid business license issued by the national government.  Employees' protection, wages, welfare, conditions of employment, and disputes are the responsibility of the outsourcing company. These rights can be transferred to the beneficiary company due to a change in the outsourcing company's business when the worker is in progress working under a fixed-term contract. This must be stipulated in the employment contract as a guarantee of work for the worker. Failure to include this guarantee will cause the outsourcing company to be responsible for the aforementioned rights even when there is a change in the outsourcing company's business. 

Probationary Period

A work agreement for a specified period (i.e., a fixed-term employment contract) cannot stipulate a probation period. If any fixed-term contract includes a probationary period, the latter is considered null and void by the law. In case of employment for an unspecified length of time (i.e., an indefinite employment contract), the labor code limits the probationary period to a maximum of three months. It cannot be renewed or extended. During the probationary period, the employer has to pay at least the minimum wage to the employee. However, an employer has the right to terminate employment without notice or severance during the probationary period.

Working Hours

The regular workweek is 40 hours, and employees who work over 40 hours a week are eligible for overtime. Employers can distribute the 40 working hours in a week in the following ways: No more than 7 hours a day for 6 working days in a week, or No more than 8 hours per day for a 5-day week The employee can work overtime if they agree to do so. This agreement must be made in writing. The maximum amount of overtime the employee is allowed to make is 4 hours a day and 18 hours a week. The employee is entitled to a rest of 1 day after 6-day working week and 2 days after a 5-day working week. 

Holidays / PTO

• Statutory Holidays

The following holidays are recognized as public holidays in Indonesia in 2022: New Year’s Day – January 1 Chinese New Year – date subject to change annually Isra Miraj – date subject to change annually Day of Silence (Hari Raya Nyepi) – date subject to change annually Good Friday – date subject to change annually Labor Day – May 1 Waisak Day – date subject to change annually Ascension Day of Jesus Christ – date subject to change annually Pancasila Day – June 1 Lebaran Holiday – date varies annually Hari Raya Id-ul-Fitri – date varies annually Independence Day – August 17 Id-ul-Adha – date subject to change annually Islamic New Year – date subject to change annually Christmas Day – December 25   Employers may require their employees to work during formal public holidays if the nature of their job calls for continuous, uninterrupted operation or if it is stipulated in their employment contract. Employees who work on formal public holidays are entitled to overtime pay.

• Paid Annual Leave

Employees who have worked for 12 consecutive months are entitled to annual paid leave of 12 days. Employees who have been working consecutively for 6 years at the same enterprise are entitled to a long service leave of at least 2 months provided in the seventh and eighth year of employment for 1 month each year. In these cases, the employees are not entitled to their annual leave in addition to their long service leave. The long service leave is granted after every 6 consecutive years of work for the same enterprise. The employee is entitled to half of their monthly earnings during the leave for the eighth year. 

• Sick Leave

Employers are obliged to pay an employee's wages if the employee cannot perform work because of an illness. Employees must provide a letter from a physician who treats them, stating that they are sick. The amount of wages payable to an employee who cannot perform work because of an illness is determined as follows: For the first 4 months of illness, employees are entitled to receive 100% of their wages. For the next 4 months of illness, employees are entitled to receive 75% of their wages. For the following 4 months, employees are entitled to receive 50% of their wages. For the subsequent months until termination, employees are entitled to receive 25% of their wages.

• Maternity Leave

Per the labor law of Indonesia, female employees are entitled to 1.5  months of rest before the estimated birth time (by an obstetrician or a midwife) and another 1.5 months of rest after that (for a total of three months of paid maternity leave). It can be extended in case of any medical complications. A female employee who has a miscarriage has a right to a paid period of rest of 1.5 months or a period of rest stated in the medical letter issued by the obstetrician or midwife who treats her. Female employees are entitled to receive their full wages during maternity leave, paid by the employer. Employers are prohibited from terminating an employee because they are pregnant, giving birth, or miscarrying.

• Paternity Leave

An employee is entitled to 2 days of paid leave in the following cases: His wife gives birth to a child or suffers a miscarriage Their child is baptized An employee's son is circumcised

Termination of Employment

• Notice Period

Indonesian labor regulations require employers, workers and laborers, trade and labor unions, and the government to make every effort to prevent the termination of an employment relationship.   An employer wishing to terminate an employee must give at least 14 days' written notice. This period is shortened to 7 days if the employee works under an indefinite employment contract during the probationary period. An employee who wishes to terminate the employment relationship must give 30 days notice in writing to the employer. 

• Severance Benefits

Severance benefit entitlements in Indonesia vary according to any applicable employment agreement provisions, applicable company regulations, applicable collective bargaining agreement,  time of service, and the situation regarding the termination. Statutory severance pay is determined as follows: 1 months' wages for less than 1 year of employment 2 months' wages for 1 to 2 years of employment 3 months' wages for 2 to 3 years of employment 4 months' wages for 3 to 4 years of employment 5 months' wages for 4 to 5 years of employment 6 months' wages for 5 to 6 years of employment  7 months' wages for 6 to 7 years of employment 8 months' wages for 7 to 8 years of employment  9 months' wages for 8 or more years of employment The calculation of the sum of money paid as the long-term service benefit is determined by the number of years of employment. It ranges from 2 months of wages for individuals with 3 to 6 years of services to 10 months of wages for employees who worked 24 years or more. The wage components to be used for calculating the severance benefits and the service reward pay include the basic wage that the employee received and all forms of fixed allowances provided to employees and their families.