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Employer of Record (EOR) in Indonesia

Employer of Record in Indonesia

Skuad’s Indonesia Employer Of Record solutions can be the key to a smooth and swift expansion for your company in Indonesia.

Indonesia is among the fastest-growing economies in the world. We can attribute the surge in growth to an abundance of skilled labor and a highly employable workforce in the country. Several companies have leveraged this fast-paced growth potential and abundant talent to serve their needs as well. Even today, regardless of your base country, expanding to Indonesia can be instrumental to the growth of your business.

As with any nation, a new subsidiary requires an understanding of the local laws and regulations. Instead of going through the whole process yourself, it helps to partner with an Employer Of Record such as Skuad.

Skuad’s unified and automated global HR platform enables you to expedite the onboarding of your remote team, manage their payroll, benefits, etc. in compliance with the local laws. Do not worry about streamlining your expansion process. Skuad does it for you. Learn more

Indonesia at a Glance

Estimated Population: 274 million

Currency: IDR Indonesian Rupiah

Capital: Jakarta

Languages spoken: Indonesian, Javanese

GDP: USD 1.12 trillion

Employment in Indonesia

Labor and employment laws in Indonesia are generally considered to be favoring employees. These laws define employment very broadly and ensure that provisions such as social security are extended to all employees. Indonesian employment laws apply to all Indonesian nationals working in the country, but not to foreign nationals. In Indonesia, it is generally considered hard to terminate employment, and there are several types of employment defined under Indonesian law.

Some provisions of the Employment Laws to note before hiring in Indonesia are as follows.

Title Explanation

Law No. 13 of 2003 on Manpower as amended by Law No. 11 of 2020 on Job Creation (‘Manpower Law’)

The Manpower Law of the Indonesian Constitution is the primary law that deals with employment and labor rights in the country. It lays out regulations that need to be followed when hiring in Indonesia. It has a total of 17 parts, which deal with topics such as discrimination in employment, extension of job opportunities, employment of foreign workers, termination of employment, manpower development, and much more.

Law No. 2 of 2004 on Industrial Relations Dispute Settlement (‘IRDS Law’)

This law deals with disputes between employer and employee, employee group, or labor union. It also deals with disputes among labor unions in the same company. It establishes that such disputes must be attempted to be settled by negotiations before approaching the government.

Law No. 21 of 2000 on Employee/Labour Union (‘Labour Union Law’)

This law addresses the formation and legitimacy of trade unions as well as labor unions in Indonesia. It provides the right to every worker to become a part of a labor union and prohibits discrimination for membership. It also establishes the rights of labor and trade unions and addresses their finances, assets, and powers of dispute settlement.

Timings, holidays, and leave policies in Indonesia

Entitlements Explanations

Statutory Working Hours

7 hours for 6 working days, 8 hours for 5 working days

Job Specific Working Hours

The maximum number of working hours permitted in a week is 40.

Rest Period

At least one day every week and at least 30 minutes after every four hours of work in a day is the stipulated rest period.

Rest Period

The public holidays in Indonesia are as follows:

  • New Year’s Day
  • Chinese New Year
  • Isra Mi’raj
  • Bali Hindu New Year
  • Good Friday
  • Labour Day
  • Lebaran Holiday
  • Ascension Day of Jesus Christ
  • Hari Raya Eid Ul Fitri
  • Waisak DayPancasila Day
  • Pancasila Day
  • Eid Ul Adha
  • Islamic New Year
  • Independence Day
  • Prophet Muhammad’s Birthday
  • Christmas Day

Maternity Leave

Indonesia provides three months of maternity leave, of which at least half must be availed after childbirth.

Annual Leave Accrual Entitlement

A minimum of 12 working days of paid leave is mandated by law. There is no provision under which unused leaves may be paid out.

Contractors vs. Full-time Employees

Alongside the rest of the world, Indonesian companies have started transitioning to remote work culture. Most Indonesian companies are well acquainted with working outside offices. The infrastructure is adequate and freely available to facilitate the remote work environment.

Indonesian law broadly defines types of work. It recognizes all kinds of work; whether it is for an indefinite period or on a part-time basis or for a fixed-term only. If employment is supposed to be for a fixed term, it cannot exceed three years.

An individual’s employment must be in the form of a legal contract between the employee and the employer. This may also be between groups of employees and the employer. The total scope of the work, hours, remuneration, and all other details must be mentioned in the contract.

Scope of Negotiating Terms

When it comes to individual employees, the scope of negotiating employment terms is generally limited. Traditionally, employers have a set job description for a set job title, along with a predetermined remuneration. Salaries are generally standardized, as are benefits, and hence employees are not offered a lot of space to negotiate, especially at lower levels in the corporate hierarchy. This is highly at odds with the hiring process in western countries, where negotiation is an integral part of the hiring process.

Hiring in Indonesia

With the increasing reach of the internet everywhere, the recruitment process has become more or less standardized throughout the world. Most companies prefer to use online portals to hire candidates, especially when it comes to individual candidates. The popular job portals in Indonesia are Indeed, Jobindo, Jobstreet, and Monster. LinkedIn is also active in Indonesia and is the preferred medium for looking for candidates or conducting background checks.

The first step of finding suitable job candidates is determining the need for a new position in your company. Once this need has been determined, your HR team will draft a job description in consultation with the team that wants the candidate. The final job description will then be posted on several job boards, advertised, and displayed on your website’s careers page.

Once you have received enough candidates for the advertised post or the timeline for accepting applications has lapsed, your HR team goes through the applications and selects those who seem fit for the job. This may be done through a points-based system or by inputting simple filters into the form fields. The selected candidates may then go through a series of interviews as per your requirements. It is also important to conduct a thorough background check of the last few candidates before offering them a position in your company.

There are several advantages to hiring people through online portals or advertisements. Given the immense talent pool in Indonesia, you are sure to receive at least a few applications, which you can then go through and select candidates from. Your team does not need to seek out candidates, and the whole process can be conducted remotely. The presence of many online portals also means that you do not need to hire a third party to seek out candidates for you.

However, as with everything else, hiring candidates online also has several drawbacks. Even for the most junior of positions, the number of applications received can be overwhelming.

Additionally, most job portals in Indonesia do not have a truly comprehensive reach. When you need to hire a large number of candidates, the logistics of hiring people online might not work out with a limited HR team.

This is where partnering with a reputed EOR in Indonesia can help save precious time spent in the hiring process. Skuad offers reliable outsourcing services to help you hire the right people for the right job while navigating the legal framework and compliances, leaving you to focus on the growth and expansion of your business operations. Talk to Us

Probation & Termination

Indonesian employment laws are rather specific about both probation and termination. When it comes to probation, the term for which an employee may be retained on probation is limited. A probation period of no more than three months is allowed for any employee.

When terminating employment, employers must get the requisite permission from the Industrial Relation Court (IRC). Without the permission of the IRC, the employment contract cannot be ended even with mutual consent. There is no requirement of a notice period before ending a contract, but employers generally grant a period of 30 days.

Employees may also be terminated due to redundancies, but redundancies are only justified if the company or a part of it completely ceases to operate. Employees may also be terminated if they fail to follow the employee code of conduct of the company or disobey the terms listed in their employment contract.

It is required by law that employees be given severance pay when they are dismissed. This is usually one month’s pay for every year that the employee has served in the company, up to a period of nine years. The law also lays out the grounds on which employees may not be terminated, including pregnancy, short-term illness, and joining a union.

EOR Solution

Indonesia is among the several countries wherein having an EOR partner often becomes essential. Given the complexity of Indonesian employment laws, it is important to have a partner who knows the laws incisively and can provide recommendations and expertise in keeping your business activities within the limits of the law.

Having an EOR partner saves you the hassle of having to understand the law, interpret it as per the circumstances of your company, and take up staffing, payroll management, and employee record management yourself. These tasks can be handled by Skuad’s Indonesia EOR solutions. Book a Demo today!

Types Of Visas In Indonesia

Visa Category Explanation Duration

Tourist Visa

This visa is required for a short visit to Indonesia.

30 days

Social/Cultural Visa

This visa is issued for granting a visit to Indonesia for a social or cultural event or purpose.

60 days.

Business Visa

This visa is issued for granting a visit to Indonesia for business purposes such as participation in meetings, conferences, or other activities. These activities must not include employment.

60 days for a single visit or multiple visits within 12 months.

Temporary Stay Permit

This is the closest that an Indonesian visa comes to permitting foreign nationals to work in the country. It is gained in combination with an IMTA work permit.

6 months, 1 year, 5 years.

Work Permit

The two primary documents that foreign nationals require to work in Indonesia are the work visa and the work permit. The application fee for the work visa is USD 500, and a separate work permit is also needed to be able to work here.

Payroll & Taxes In Indonesia

It is important to understand the tax and contract structure in Indonesia and develop contracts within these legal limits. Working alongside an Employer Of Record can prove to be very useful when it comes to the development of a contract. EOR partners generally have great insight into the legal aspects of hiring and can hence reduce the time required for the process.

Payroll details

Process Details

Applying for a Tax Identification Number

As a newly incorporated company or subsidiary, it is compulsory to apply for a Tax Identification Number in Indonesia. This is a unique identity that will allow you to carry out taxation-related activities.

Choosing a Payroll System

One needs to consider various aspects before choosing a payroll. Firstly, legal aspects need to be taken care of, after which the standard industrial payroll system for the relevant field must be looked into. Several legal requirements such as leaves, bonuses, taxes, and a minimum wage must be considered while determining the final payroll system.

Note Down All Employee Information

It is vital to have all employee information on file at all times. Government authorities and internal audits may require this information at different points in time. Additionally, having employee information stored digitally makes the logistics of taxation and payroll management simpler.

Taxation in Indonesia

Tax Explanation

Income Tax

The annual personal income tax in Indonesia is as follows.

Up to IDR 50,000,000

5%

Between IDR 50,000,000 and IDR 250,000,000

15%

Between IDR 250,000,000 and IDR 500,000,000

25%

More than IDR 500,000,000

30%

Financial Year End date

31st December

Corporate tax

The annual corporate tax in Indonesia is as follows.

General

25%

Public company with more than 40% shares traded on IDX

20%

Companies with gross turnover less than IDR 50,000,000,000

12.5%

Companies with gross turnover less than IDR 4,800,000,000

1%

Sales Tax

10%

Employer Contribution Towards Social Security

5.74%

Employees’ Contribution Towards Social Security

2%

Incorporation: How to Set Up a Subsidiary in Indonesia?

The first step in the establishment of a subsidiary in Indonesia is to choose a company name and to get this company name registered at a bank after paying the requisite fees. Then, a notary needs to be arranged to notarize all the company documents and forms required as per Indonesian law.

After this, you will need to apply to the Ministry of Law and Human Rights to get the deed of your company approved. Next, a building management domicile certificate is required for setting up an office. Based on this certificate, you can apply for the company domicile certificate.

Further, the non-tax state revenue fees are required to be paid to avail of legal services. This allows you to apply for a permanent business trading license and then obtain a company registration certification. The final leg of this process is registration with the Ministry of Manpower.

Once your company is formally running, you will have to apply for the taxation identification number, social security, insurance, and other minor formalities. Skuad can aid you in significantly simplifying the process of establishing a subsidiary with its better understanding of local laws and processes. Partner with SKuad to open a subsidiary in substantially less time!

Professional Employer Organization (PEO)

An alternative to an Employer Of Record can be a Professional Employer Organization or PEO. A PEO does much of the same work that an EOR does. It helps you with contract development, employee record management, and payroll management. However, a critical difference between an EOR and a PEO is that employees hired by a PEO are on the payrolls of your company and you need to take final decisions on all matters related to Human resources. Whereas An EOR takes the burden off your shoulders as it becomes a legal employer and takes over the hassles of working through the various stages of documentation and employment contracts, handling payroll taxes, payroll compliance, etc.

Conclusion: What Gives Skuad’s Indonesia Solutions an Edge?

Skuad holds significant expertise and experience in establishing subsidiary units in Indonesia for several companies. Skuad’s unified and automated platform along with its strong international network provides you with an extra edge to reach your milestone faster. If Indonesia is the country of choice for your next expansion, contact Skuad now!

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