Hire in Indonesia: A Comprehensive Guide for 2026

Introduction

Employment in Indonesia is governed by the Ministry of Manpower Act (MoM), as amended by the Job Creation Law and a subsequent Constitutional Court decision. Companies that hire in Indonesia register with both social security agencies, Badan Penyelenggara Jaminan Sosial (BPJS) Kesehatan and BPJS Ketenagakerjaan, before they can legally employ anyone.

Most foreign employers plan for the possibility that a contractor arrangement gets challenged. The harder problem is that Indonesian law never recognised it, since the Manpower Act allows only indefinite and fixed-term employment and files everything else, part-time and daily workers included, under the second.

An engagement carrying the marks of employment is a fixed-term agreement from the day it began, written in a language and form the law will not accept. Ending one early costs the wages remaining on its term.

This guide covers entity setup, hiring through an Employer of Record (EOR) or an Agent of Record (AOR), contract types, working hours, payroll and tax rules, and the full cost of an Indonesian hire.

How to hire remote employees in Indonesia?

There are three main ways by which you can hire in Indonesia. They include establishing a local entity, hiring employees through an EOR, and hiring independent contractors using an AOR.

The choice decides who signs the employment agreement, who carries social security registration and payroll, and how much capital you have to put on the table before anyone starts.

How to hire in Indonesia by setting up a local entity?

The required company structure is a Perseroan Terbatas Penanaman Modal Asing (PT PMA), Indonesia’s foreign-owned limited liability company, and the entry cost fell sharply in late 2025.

Under Investment Coordinating Board (BKPM) Regulation No. 5 of 2025, effective as of 2 October 2025, the government lowered the paid-up capital requirement for foreign investment companies from the previous Rp10 billion to Rp2.5 billion (Indonesian Rupiah IDR, Rp) for each company established in Indonesia.

Any budget built on the old figure is cut by a factor of four. Two conditions qualify that headline:

• The capital is not free to use, because shareholders must declare that paid-up capital will remain in the company's bank account for at least 12 months, with exceptions only for asset acquisition, construction, or operational expenditure.
• And the separate investment threshold did not move, since the regulation maintains a minimum investment value above Rp10 billion per business classification code at the five-digit level per project location, excluding land and buildings.

Registration includes obtaining approval of the company name and applying for a business identification number.

The number is the Business Identification Number (NIB), and it functions as an authorization for customs access, an importer identification number, social security registration, and evidence of mandatory labour reporting, so it is the single document that turns the entity into an employer.

When you can start depends on your risk classification. Low-risk businesses may commence full operations with an NIB alone, while medium-high and high-risk businesses may begin preparatory activities with an NIB but must obtain verified standard certificates or effective licenses before full commercial operations can begin.

Confirm your KBLI code (Indonesian Standard Industrial Classification) and risk level before you plan a hiring date, because it decides whether the entity can employ immediately or only prepare to.

How to hire employees through EOR in Indonesia?

An employer of record allows you to hire employees in Indonesia without setting up a legal entity. The EOR acts as the legal employer, signs the employment agreement, and takes on payroll, social security registration and contributions, income tax withholding, statutory benefits, and offboarding. Day-to-day direction of the work stays with you, along with the decisions on pay, scope, and headcount.

The headline capital cut is smaller than it looks, since the money stays locked in the company's bank account for a year and the separate investment threshold did not move. The capital is committed before the first employment agreement is signed, and it stays committed whether the hiring plan works or not.

Skuad helps remove that dependency. Skuad acts as the legal employer across 160+ countries, so your company can hire, onboard, and pay employees without registering a local entity or committing capital ahead of the first hire.

Here is what Skuad helps with:

• Employment contract generation across 160+ countries, aligned with local labor laws and statutory requirements
• Statutory contribution workflows across supported markets, covering applicable social insurance and pension obligations
• Payroll processing in 70+ currencies, with tax withholding and statutory deductions applied at the point of payment
• Statutory benefits and paid leave administration in line with local requirements across supported markets
• Termination and offboarding support, including notice periods and severance calculations as required locally
• Background verification covering identity, employment history, and criminal records before onboarding

See Skuad's Indonesia hiring guide for the full breakdown of local rules before you hire.

How to hire contractors through AOR in Indonesia?

An Agent of Record (AOR) lets you engage contractors in Indonesia without setting up a local entity. It acts as a third-party intermediary and assumes responsibility for your contractor workforce, covering worker classification, contract administration, payments, and tax compliance.

Classification carries more weight in Indonesia than in most markets, because the law recognises no middle ground. The Manpower Law classifies two types of workers: those based on an indefinite-period employment agreement, and those employed under a fixed-term employment agreement; even part-time workers, daily workers, and foreign workers are categorised under fixed-term employment agreements.

An arrangement that looks like employment does not become something else by being called a contractor engagement; it becomes a fixed-term employment agreement with all the formalities that attach to one.

Keep the engagement scoped to a deliverable, invoiced against milestones, and free of fixed hours and internal reporting lines, and keep the evidence.

Deliverables, milestones, and payment records are where that evidence lives, and Skuad supports contractor engagement across supported markets.

Here is what Skuad helps with:

• Contractor onboarding with locally compliant agreements
• Worker classification checks that help flag engagement risk before an agreement is signed
• Invoice generation, approval workflows, and contractor payouts in 70+ currencies
• Contractor records, agreements, and payment history in one dashboard alongside full-time employees
• Conversion from contractor to full-time employee through EOR across 160+ countries

Compare EOR and contractor pricing for your Indonesian hires.

What type of employment contract do you need in Indonesia?

Indonesia recognises two employment contracts. Foreign employers need to pay particular attention to whether the contract is written or verbal.

Permanent contracts are informal by comparison. The Manpower Law enables permanent employment contracts to be made in writing or verbally, and where one is verbal, the employer must issue an appointment letter with essential details, such as the identity of the employee, address, the starting date of work, type of work, and wages.

Fixed-term contracts are the opposite, and getting the form wrong is fatal. It is mandatory for fixed-term employment contracts to be made in writing and must use the Indonesian language and Latin script.

Failure to do so in the language would render the fixed-term employment contracts contrary to the intended nature and legal requirements. An English-only fixed-term contract, which is what most foreign employers reach for first, does not hold.

For an ongoing remote role, the permanent contract is the honest starting point, and it also avoids the language and form trap entirely.

What are the employment laws in Indonesia?

The primary employment law in Indonesia is the Manpower Act, also known as Law No. 13 of 2003. It has since been amended by the Job Creation Law and by a Constitutional Court decision, and the rules below reflect that combined position.

One structural point shapes everything else: if you employ at least 10 people, you are required to establish a Company Regulation, which becomes effective after being approved by MoM or an authorized official and is valid for not more than 2 years before renewal. Terms you would normally leave to individual contracts belong in that document.

What are the working hour rules in Indonesia?

The break rule compounds across a full day. Because it applies after every four consecutive hours, employers are typically required to provide approximately 1 hour of daily rest time as the standard rest period for employees who work 8 hours or more, and that hour falls outside the 40 hours

How is overtime paid in Indonesia?

The caps are 4 hours per day and 18 hours per week. Two conditions apply alongside them, and both are documentary.

Overtime may only be performed upon the employer's instruction and with the employee's consent, in writing or through digital means, so a verbal ask does not satisfy the rule. And employers must provide adequate rest periods and a meal containing at least 1,400 calories if overtime work lasts for 4 hours or more. That last one surprises foreign employers, and it is not substitutable for cash.

What are the probation and termination rules in Indonesia?

The maximum probationary period for any employee in Indonesia is three months. However, this only applies to open-ended or indefinite contracts and is not allowed in fixed-term contracts.

Termination is where Indonesia diverges most sharply from other markets, because it is a process rather than a notice period. The employer is required to officially and reasonably convey the notification letter to the employee and/or labour union at least 14 working days before the intended termination.

From there, employees will be deemed terminated if they do not contest the termination upon receiving notification, or upon obtaining a conclusive and legally binding court decision. If they do contest, the matter moves to mediation, and then the Industrial Relations Court, and the timeline stops being yours to control.

The Manpower Law prohibits terminating employment on grounds including absence due to illness supported by a doctor's certificate for up to 12 consecutive months, marriage, pregnancy, childbirth, miscarriage, or breastfeeding, union membership, formation, or activities, and reporting the employer to authorities for criminal conduct.

Where an employee has a permanent disability or illness caused by work where the recovery period cannot yet be determined, a termination is deemed null and void by law, and the employer is obliged to re-employ the employee.

Two smaller points worth knowing. Retirement age is currently 59. And if you were planning to protect the role with a non-compete, claims based on non-competition and non-solicitation are generally unlikely to succeed in Indonesia, with legal actions enforcing them remaining very rare in practice, so use confidentiality clauses instead.

What are the payroll and tax rules in Indonesia?

The Indonesian Rupiah (IDR, Rp) is the official currency of Indonesia. Monthly payday: salaries typically land in employee accounts on the last working day of the month. You withhold the employee's income tax and social security at source, then pay your own contributions on top. The first thing to establish is not a rate; it is which wage floor applies to you.

What is the minimum wage in Indonesia?

Indonesia has no single national minimum wage. Each province sets its own Provincial Minimum Wage (UMP) or City Minimum Wage (UMK), and the employer must comply with the relevant UMP or UMK where the business is located.

Rates are reset annually by Governor's Decree under a national formula. For 2026, the calculation is inflation plus economic growth multiplied by alpha, with alpha set between 0.5 and 0.9, set out in Government Regulation No. 49 of 2025, which provides the legal framework and calculation formula for setting minimum wages nationwide.

Jakarta gives you the top of the range. The 2026 provincial minimum wage has been set at Rp5,729,876, up from Rp5,396,761, a 6.17 percent rise or Rp333,115. Provinces at the other end of the scale fall well under half that, which is why a national band is not a usable planning figure and why the location of the role, rather than the role itself, drives the floor.

Jakarta's governor stated that the policy applies across all sectors without exception and that where there are violations, the provincial government will take firm action in accordance with the law.

Where a wage is made up of basic wage and fixed allowances, the basic wage shall be at least 75% of the total. Loading a package with allowances to hold the basic wage down does not work, and the basic wage is what the social security calculation base runs on.

What are the social security contribution rates in Indonesia?

Contributions run through two agencies, BPJS Kesehatan covering health insurance and BPJS Ketenagakerjaan covering accident insurance, old age savings, death insurance, unemployment insurance, and pensions. Employers must complete registration before they can legally hire employees.

Two things shape what you actually pay. The calculation base is basic salary plus fixed allowance, which is why the 75% rule above matters.

And two programmes are capped: healthcare has a maximum calculation base of IDR 12 million per month, while the pension base is updated annually based on BPJS regulation, so pull the current ceiling before running payroll.

Above those thresholds, the contribution stops rising, and the effective employer rate falls away on senior salaries.

Employees' contributions are collected by the employer through payroll deductions and must be paid to BPJS together with the contributions borne by the employers, so a single late remittance exposes both halves.

Tapera

One contribution you may have budgeted for is no longer owed. Tapera, the public housing savings program, required employers to register employees and contribute alongside them until the Constitutional Court intervened.

• On 29 September 2025, through Decision No. 96/PUU-XXII/2024, the Court ruled that the mandatory participation requirement under the Tapera framework is inconsistent with the 1945 Constitution, granting the petition in its entirety.
• For employers, the effect is immediate. The annulment of the obligation to register employees and deduct Tapera contributions means that these administrative practices no longer have a valid legal basis.
• Anyone still running the deduction is taking money off employees without one, and firms are advising clients to temporarily suspend Tapera-related deductions and review internal policies or employment handbooks that refer to Tapera participation.
• The Court held that the Tapera Law shall remain temporarily in force and must be restructured within a maximum period of two years from the date of the decision, which puts the deadline at September 2027.

A multi-year cost model should carry a placeholder for whatever emerges, without assuming the old 3% split returns in the same form.

How much income tax is withheld in Indonesia?

Resident employment income is taxed on five progressive bands:

Those are annual bands, and they are not what comes off a monthly payslip. Since 1 January 2024, monthly withholding has run on the average effective rate (TER) for income tax Article 21, introduced by Government Regulation Number 58 Year 2023 with implementing guidelines in Minister of Finance Regulation Number 168 Year 2023.

The monthly effective rate is classified into three categories, A, B, and C, set by the employee's non-taxable income status, meaning their marital status and number of dependants.

Employers calculate the tax by multiplying the gross income of employees by the average effective rate that is already available in the table, and the calculation using the general rate is only carried out at the last tax period, or in December each year.

Two practical consequences:

• The monthly rates range from 0 percent to 34 percent, and employees with income below Rp5,400,000 per month are subject to a monthly rate of 0 percent.
• December carries the full-year reconciliation, so take-home pay in that month can move sharply in either direction, which is worth telling a new hire before it happens.

An Indonesian payslip is assembled from rules that move independently of each other. The wage floor resets by governor's decree, the contribution base depends on how a package splits between basic wage and allowances, and one contribution was struck down in September 2025 with a replacement due within two years. A setup that was correct in January is not necessarily correct by June.

Skuad supports global payroll processing in 70+ currencies, with tax withholding and statutory deductions applied at the point of payment, alongside statutory contribution workflows across supported markets.

The payslip still has to be right in the month it is issued, whichever way the rules moved.

What is the cost of hiring remote employees in Indonesia?

Salary and the BPJS contributions are the predictable part. Two other costs decide an Indonesian budget: one annual payment that is not optional, and an exit cost that grows steeply with tenure and can be multiplied on top.

What mandatory costs come on top of salary in Indonesia?

You have to provide a special annual bonus, the Tunjangan Hari Raya (THR). Think of it as a 13th-month pay to celebrate the major religious holiday, Hari Raya Idul-Fitri.

THR is given to employees at least one week before the start of the religious holiday observed by the employee, and all employees, whether permanent or contract-based, are eligible.

Employees working for more than 12 continuous months are entitled to THR equivalent to one month's salary, while those with one month or more but less than 12 months receive a pro-rata amount on the formula (service period divided by 12) times one month's salary.

Follow two things for budgeting. Accrue from the first month rather than the anniversary, because someone hired in September owes a pro-rata THR at a March holiday. And note that the holiday is the employee's own, so a mixed workforce has more than one payment date in the year.

Paid annual leave applies alongside it at a minimum of 12 days after completing one year of continuous service, and untaken days become a cash liability at exit rather than expiring, as the compensation pay component below shows.

What does it cost to end an employment relationship in Indonesia?

This is where Indonesia gets expensive, and the structure matters as much as the numbers. Severance pay applies only to PKWTT employees, the indefinite-term category, and the package has three separate components that stack.

The multiplier is the part that catches people out. The scale above is the baseline, and certain grounds apply a multiple to it. On retirement, for instance, the employee receives severance pay amounting to 1.75 times the standard Severance Package plus service pay equivalent to 1 time.

Fixed-term contracts work differently and are not automatically cheaper. PKWT employees fall outside the severance package but are eligible to receive compensation upon the expiration of the PKWT term, and ending one early is expensive.

The terminating party must give indemnity fees to the other party in an amount equivalent to the employee's wages for the remaining period of the agreement. A three-year contract cancelled in month six carries thirty months of wages.

Who pays when an employee is off work in Indonesia?

Indonesia is the opposite of most of the region here, and it is the single biggest cost difference to plan for.

Maternity leave is not funded by the state; it lasts three months, divided into one-and-a-half months before the expected delivery date and one-and-a-half months after childbirth, and throughout it a woman is entitled to receive her full pay and benefits as stipulated in her employment agreement. Three months of full salary, on your payroll, with no reimbursement mechanism.

Working women may receive up to an additional three months of leave in special conditions proven by a doctor, and in that case the employee continues to receive her full pay in the fourth month and 75% of the pay for the fifth and sixth months, all employer-funded.

Paternity leave is short by comparison, at two days under the Manpower Law plus an additional three days under Law No. 4/2024, totalling up to five days.

Long-term sickness is the cost nobody models. Indonesia does not transfer it to the state; it puts it on your payroll on a declining scale, and it can run for a year before termination becomes available:

This connects back to the employment laws section, where illness certified by a doctor for up to 12 consecutive months is a prohibited ground for termination. You fund the absence, and you cannot end it, so the two rules compound.

Absences like that never appear in a salary band, and the Skuad employee cost calculator helps you model total employment cost before an offer goes out, using the market and the salary figure you enter. Treat the output as a budgeting estimate.

Estimate the total cost of an Indonesia hire before you make the offer.

What are the challenges of hiring in Indonesia?

Indonesia is straightforward to hire into. The exposure falls into three places: a termination that does not stick, criminal liability attached to employment breaches, and a bonus that can suspend your operations if you miss it. Each one carries a number or a consequence you can plan against.

1. Terminations that fail

A termination on any of the prohibited grounds is null and void by law, and the employer must reemploy the employee. There is no buy-out equivalent, so the exposure is the role coming back rather than a capped payment.

The employee has 7 working days to reject the notice with reasons, after which the matter runs through bipartite negotiations, mediation at the local manpower office, and the Industrial Relations Court, with a cassation appeal to the Supreme Court available after that.

And once a decision binds, ignoring it is not an option: the court has authority to order executorial attachment on the employer's assets.

2. Criminal liability

Indonesia attaches imprisonment to employment breaches in a way most markets do not, and the ranges are wide. Failure to provide protection covering employee welfare, safety, and physical and mental health may result in imprisonment for 1 month to 4 years and/or a fine ranging from IDR 10 million to IDR 400 million.

Terminating a mother who exercises her maternity rights carries imprisonment for a minimum of one month and a maximum of 12 months and/or a fine of at least 10 million rupiah and up to 100 million rupiah.

And the Manpower Law also includes criminal sanctions, such as imprisonment and/or fines, for employers who fail to meet their obligation to provide termination benefits, which turns a severance dispute into something with personal consequences attached.

3. THR non-payment can stop the business

THR Non-payment attracts a fine of 5% of the THR amount, which does not waive the employer's obligation to pay, and from there the administrative sanctions run to restriction of business activities, permanent or temporary suspension of production facilities, and suspension of business activities.

A cash-flow decision to defer one bonus payment can end in the regulator suspending operations, which makes THR an operational risk rather than a payroll line.

All three follow from process rather than from commercial judgment, and Skuad Shield supports compliance monitoring across supported markets, so your team is not following regulatory change on its own.

Here is what Skuad helps with:

• Compliance monitoring across supported markets, with updates as local employment requirements change
• Employment contract generation across 160+ countries, aligned with local labor laws and statutory requirements
• Termination and offboarding support, including notice periods, documentation, and severance calculations as required locally
• Statutory benefit and leave administration in line with local requirements across supported markets
• Worker classification checks that help flag engagement risk before an agreement is signed

Hire in Indonesia without carrying the employer liability

Most employment mistakes come with a price attached, and in Indonesia three of the larger ones do not. A termination on a prohibited ground is void by law, and the employee returns to the role, with no buy-out available to close it.

Failing to pay termination benefits or dismissing a mother who exercises her maternity rights carries imprisonment alongside the fine, and a missed THR payment can end with the regulator suspending business activities.

All three attach to whoever signed the employment agreement and completed the social security registration. An entity makes that your company and, where the sanction is criminal, individuals within it. An EOR holds that position for full-time employees, and an AOR does the same for contractors.

Skuad acts as the legal employer across 160+ countries and supports contract generation, worker classification checks, payroll in 70+ currencies, and compliance monitoring from a single platform.

Book a demo to see how quickly Skuad can onboard your first Indonesia hire.

FAQs

1. What does it mean to hire in Indonesia through an EOR?

To hire in Indonesia through an Employer of Record means the provider acts as the legal employer under the Manpower Law, using its own Indonesian entity. It signs the employment agreement, processes payroll, withholds Article 21 Income tax, and registers the worker with both BPJS agencies, while you direct the work.

2. Can a foreign company hire in Indonesia without a local entity?

A foreign company generally hires in Indonesia through an EOR, since it must register with both BPJS agencies before it can legally employ anyone. Setting up directly means incorporating a PT PMA, which under BKPM Regulation 5/2025 requires paid-up capital of Rp2.5 billion held in the company account for at least twelve months.

3. How much does it cost to hire in Indonesia beyond gross salary?

Employer BPJS contributions generally run around 10 to 12% of the calculation base across health, accident, death, old age, and pension programmes, though health and pension bases are capped. On top comes the THR, a mandatory religious holiday bonus equal to one month's salary for staff past twelve months.

4. What are the misclassification risks when you hire contractors in Indonesia?

Indonesian law recognises no true contractor category, so an engagement carrying the marks of employment is treated as a fixed-term agreement from day one. If the written form or Indonesian-language requirement is not met, it can convert to indefinite, exposing you to back BPJS contributions and severance.

5. What paid leave applies when you hire in Indonesia?

Employees get at least 12 days of annual leave after one year. Maternity leave is three months at full pay funded by the employer, not the state, which is unusual for the region. Long-term sickness also includes coverage on your payroll on a declining scale for up to twelve months.

6. What does it cost to dismiss an employee when you hire in Indonesia?

Severance for indefinite-term staff consists of three components: severance pay scaling to nine months, service pay, and compensation pay for untaken leave, with multipliers on certain grounds. Termination is a process running through notice, mediation, and the Industrial Relations Court, so timelines can extend.