Laws and Policies in Indonesia

Employment Contracts in Indonesia

Employment laws in Indonesia are primarily governed by Law No. 13 of 2003 on Manpower (as amended by the Job Creation Law No. 11 of 2020 and subsequent implementing regulations). These create a comprehensive framework covering contracts, wages, working conditions, termination, and worker protections.

Contract Requirements

All employment contracts must be in writing and include:

• Employer and employee full legal names and addresses
• Job title, position, and detailed responsibilities
• Work location (office-based, remote, or hybrid)
• Salary structure (base salary, fixed allowances, variable components)
• Working hours and overtime arrangements
• Probation period (if applicable)
• Contract duration (for fixed-term contracts)
• Leave entitlements
• Notice period requirements
• Termination conditions and severance obligations
• Social security registration details (BPJS)

Employment contracts must be signed within 30 days of the employment start date.

Types of Contracts

1. PKWTT (Perjanjian Kerja Waktu Tidak Tertentu) – Indefinite/Permanent Contracts

• Standard employment relationship for ongoing roles
• No predetermined end date
• May include probation period
• Requires cause and severance for termination

2. PKWT (Perjanjian Kerja Waktu Tertentu) – Fixed-Term Contracts

• Limited to specific project-based or seasonal work
• Cannot be used for permanent operational roles
• Maximum duration: 5 years (including extensions)
• Automatically converts to PKWTT if extended beyond legal limits
• No probation period allowed
• Compensation required upon contract completion

3. Outsourcing/Contract Workers

• Regulated through licensed outsourcing companies
• Permitted only for support functions (not core business)
• Workers still entitled to benefits and protections

Probation Period

For PKWTT (permanent contracts) only:

• Maximum probation: 3 months
• Must be clearly stated in employment contract
• Wages during probation cannot be below minimum wage
• Full benefits apply during probation (BPJS registration required)

Note: Probation periods are not permitted for PKWT (fixed-term contracts).

An EOR ensures all employment contracts comply with Indonesian labor law, Job Creation Law amendments, and Ministry of Manpower regulations.

---

Working Hours in Indonesia

Working hour regulations are designed to protect employee wellbeing while providing flexibility for different industries.

Standard Working Hours

Option 1: 5-day work week

• 8 hours per day
• 40 hours per week
• Common in office/tech sectors

Option 2: 6-day work week

• 7 hours per day
• 40 hours per week
• 5 hours on the 6th day
• Common in manufacturing/retail

Rest Periods

• Daily rest: Minimum 30 minutes after 4 consecutive hours of work (not counted as working time)
• Weekly rest: Minimum 1 full day per week (typically Sunday)
• Between shifts: Minimum 12 hours rest between work shifts

Overtime Regulations

Overtime limits:

• Maximum 4 hours per day
• Maximum 18 hours per week

Overtime compensation rates:

Regular working days (Monday–Friday or working days):

• First hour: 1.5× hourly wage
• Hours 2–4: 2× hourly wage

Weekly rest days (e.g., Saturday or designated rest day):

• Hours 1–7: 2× hourly wage
• Hours 8 onwards: 3× hourly wage

Public holidays:

• Hours 1–8: 2× hourly wage
• Hours 9 onwards: 3× hourly wage

Calculation basis:

• Hourly wage = (Monthly salary ÷ 173 hours)

Flexible Work Arrangements

Indonesia increasingly supports:

• Remote and work-from-home arrangements
• Hybrid work models (office + remote)
• Flexible scheduling (with agreement)
• Compressed work weeks (with proper structuring)

All arrangements must maintain the 40-hour weekly limit and proper overtime compensation.

---

Employee Leave in Indonesia

Indonesian labor law provides comprehensive leave entitlements to ensure work-life balance and employee wellbeing.

Annual Leave (Cuti Tahunan)

• Minimum entitlement: 12 working days per year
• Accrues after 12 months of continuous service
• Unused leave may be carried forward (company policy varies)
• Cash compensation for unused leave upon termination
• Employer may schedule leave timing with employee agreement

Sick Leave (Cuti Sakit)

Paid sick leave with medical certificate:

• Months 1–4: 100% of salary
• Months 5–8: 75% of salary
• Months 9–12: 50% of salary
• Beyond 12 months: unpaid (unless company policy extends)

Short-term sick leave (1–2 days) may not require medical certificate depending on company policy.

Maternity Leave (Cuti Melahirkan)

• Total duration: 3 months (90 days)
• Before delivery: 1.5 months (45 days)
• After delivery: 1.5 months (45 days)
• 100% paid by employer
• Additional leave possible for medical complications (with certificate)
• Miscarriage leave: 1.5 months fully paid

Menstruation Leave (Cuti Haid)

• 2 days per month for female employees experiencing pain during menstruation
• Employee may take leave on day 1 and/or day 2 of cycle
• Fully paid
• Medical certificate not typically required

Paternity Leave (Cuti Melahirkan Suami)

• 2 days paid leave when wife gives birth
• Must be taken around the time of birth

Marriage Leave (Cuti Pernikahan)

• 3 days paid leave for employee’s own marriage
• May require marriage certificate/proof

Bereavement Leave (Cuti Duka)

• 2 days paid leave for immediate family member deaths
• Typically includes: spouse, children, parents, siblings, parents-in-law

Religious Pilgrimage Leave (Cuti Ibadah)

• Available for religious obligations (e.g., Hajj)
• Duration varies by company policy
• May be unpaid or partially paid

Public Holidays (Hari Libur Nasional)

Indonesia observes 15–17 public holidays annually, including:

• National holidays (Independence Day, Pancasila Day, New Year’s Day)
• Religious holidays (Eid al-Fitr, Eid al-Adha, Christmas, Vesak, Nyepi, Chinese New Year)
• Joint leave days (cuti bersama) – additional days off surrounding major holidays

If work is required on public holidays, employees receive 2× regular daily wage.

---

Employee Benefits in Indonesia

Mandatory Statutory Benefits

1. BPJS Ketenagakerjaan (Employment Social Security)

BPJS-TK provides four programs:

A. JKK (Work Accident Insurance) – Jaminan Kecelakaan Kerja

• Employer contribution: 0.24% – 1.74% of gross salary (based on industry risk level)
• Employee contribution: 0%
• Covers workplace injuries and occupational diseases

B. JKM (Death Insurance) – Jaminan Kematian

• Employer contribution: 0.30% of gross salary
• Employee contribution: 0%
• Provides death benefits to beneficiaries

C. JHT (Old Age Savings) – Jaminan Hari Tua

• Employer contribution: 3.70% of gross salary
• Employee contribution: 2.00% of gross salary
• Lump-sum payment upon retirement or after job loss

D. JP (Pension Insurance) – Jaminan Pensiun

• Employer contribution: 2.00% of gross salary
• Employee contribution: 1.00% of gross salary
• Monthly pension payments after retirement age (56–65)

Total BPJS-TK employer cost: ~6.24% – 7.74%
Total employee deduction: ~3.00%

2. BPJS Kesehatan (Health Insurance)

• Employer contribution: 4.00% of gross salary
• Employee contribution: 1.00% of gross salary
• Total: 5.00%
• Covers employee and up to 4 family members
• Includes hospitalization, outpatient care, maternity, dental

Maximum salary base: IDR 12,000,000/month (contributions capped at this amount)

3. THR (Tunjangan Hari Raya) – Religious Holiday Allowance

• 1 month’s salary paid before major religious holiday (typically Eid al-Fitr)
• Mandatory for all employees (including those with <12 months service on pro-rata basis)
• Payment timing:
  • <12 months service: proportional to months worked
  • ≥12 months service: full month salary
• Must be paid 7 days before the holiday

Calculation:

• THR = Basic salary + fixed allowances (exclude variable pay)

4. Severance Pay (Pesangon)

Required upon termination (except for resignation or gross misconduct).

Severance calculation includes three components:

A. Severance Pay (Uang Pesangon) – Based on tenure:

• <1 year: 1 month salary
• 1–2 years: 2 months
• 2–3 years: 3 months
• 3–4 years: 4 months
• 4–5 years: 5 months
• 5–6 years: 6 months
• 6–7 years: 7 months
• 7–8 years: 8 months
• ≥8 years: 9 months

B. Service Appreciation Pay (Uang Penghargaan Masa Kerja):

• 3–6 years: 2 months
• 6–9 years: 3 months
• 9–12 years: 4 months
• 12–15 years: 5 months
• 15–18 years: 6 months
• 18–21 years: 7 months
• 21–24 years: 8 months
• ≥24 years: 10 months

C. Compensation for Rights (Uang Penggantian Hak):

• Unused annual leave
• Return transportation costs
• Other agreed-upon entitlements

Multipliers vary by termination reason:

• Company-initiated without fault: 100% severance + 100% appreciation + rights
• Mutual agreement: typically 100%/100% (negotiable)
• Efficiency/restructuring: 100%/100%
• Resignation: no severance (only unused leave)
• Gross misconduct after process: reduced or zero

Severance is calculated based on basic salary + fixed allowances.

5. Minimum Wage Compliance

• Minimum wage varies by province and regency/city
• Reviewed annually (typically increases 3–8% based on inflation and economic growth)
• Examples (2024):
  • Jakarta (DKI): ~IDR 5,067,381/month
  • Banten: ~IDR 3,139,275/month
  • West Java: varies by city (IDR 1,986,670 – IDR 4,940,120)
• All employees must earn at least local minimum wage
• Sectoral minimum wages may apply in certain industries

Common Additional Benefits Provided by Employers

To remain competitive, many Indonesian employers offer:

• Private health insurance (top-up beyond BPJS)
• Transportation allowance (fuel/commute reimbursement)
• Meal allowance (daily food stipend or cafeteria)
• Mobile phone/internet allowance (especially for remote workers)
• Annual performance bonuses (13th month, 14th month bonuses)
• Professional development (training, courses, certifications)
• Life and accident insurance (beyond BPJS coverage)
• Work-from-home equipment (laptop, monitor, chair)
• Gym memberships or wellness programs
• Employee assistance programs (EAP)

An EOR ensures all mandatory statutory benefits are calculated accurately, deducted properly, and remitted on time to government agencies.

---

Payroll & Tax in Indonesia

Payroll Currency

• All salaries must be paid in Indonesian Rupiah (IDR)

Payroll Cycle

• Most employers follow a monthly payroll cycle
• Common pay dates: 25th–30th of each month or 1st–5th of following month
• Payslips must be provided (physical or electronic)

Personal Income Tax (PPh 21)

Indonesia uses a progressive tax system for individual income:

Annual Taxable Income (IDR)	Tax Rate
0 – 60,000,000	5%
60,000,001 – 250,000,000	15%
250,000,001 – 500,000,000	25%
500,000,001 – 5,000,000,000	30%
Above 5,000,000,000	35%

Personal tax allowance (PTKP):

• Single taxpayer: IDR 54,000,000/year
• Married: additional IDR 4,500,000
• Each dependent (max 3): additional IDR 4,500,000

Employer responsibilities:

• Withhold PPh 21 (income tax) monthly from employee salary
• Remit to tax authorities by 10th of following month
• Provide annual tax summary (Form 1721-A1)
• File monthly tax returns (SPT Masa PPh 21)

Tax calculation methods:

• Gross method: Employee bears own tax (deducted from salary)
• Nett method: Employer pays tax on behalf of employee (grossed-up)

Employer Payroll Responsibilities

Indonesian employers must:

• Register all employees for NPWP (tax ID number)
• Calculate and withhold PPh 21 (income tax)
• Calculate and remit BPJS Kesehatan (health insurance)
• Calculate and remit BPJS Ketenagakerjaan (employment insurance)
• Pay THR (religious holiday allowance) annually
• Maintain detailed payroll records for 5 years
• Submit monthly BPJS contribution reports
• Submit monthly tax withholding reports
• Issue annual tax certificates to employees
• Comply with minimum wage regulations
• Process final settlements for terminated employees

Monthly Payroll Deductions

From employee gross salary:

• PPh 21 (income tax) – progressive rates
• BPJS Kesehatan employee portion (1%)
• BPJS-TK JHT employee portion (2%)
• BPJS-TK JP employee portion (1%)

Net salary = Gross salary – All deductions

Annual Tax Filing

• Employees must file SPT Tahunan (annual tax return) by March 31
• Employers provide Form 1721-A1 summarizing annual income and tax withheld
• Employers file annual reconciliation (SPT Tahunan PPh 21)

An EOR handles all payroll calculations, tax withholdings, BPJS remittances, government reporting, and compliance filings.

---

Employment Laws & Compliance in Indonesia

Key Compliance Areas

1. Written Employment Contracts

• Mandatory within 30 days of start date
• Must comply with PKWT or PKWTT requirements
• Clear termination and severance terms

2. Job Creation Law (Omnibus Law) Compliance

• Enacted 2020, substantially amended labor regulations
• Implementing regulations continue to evolve
• Covers contracts, outsourcing, severance, minimum wage

3. Minimum Wage Requirements

• Must meet provincial/city minimum wage
• Annual reviews and increases
• Sectoral wage requirements where applicable

4. Social Security (BPJS) Registration

• Must register employees within 30 days of hire
• Both health and employment programs mandatory
• Penalties for non-compliance

5. Working Hours and Overtime

• 40-hour maximum work week
• Proper overtime calculation and payment
• Rest period compliance

6. Leave Entitlements

• Annual leave after 12 months service
• Maternity, menstruation, sick leave
• Public holiday compensation

7. THR Payment

• Must pay by deadline (7 days before holiday)
• Correct calculation (1 month salary)
• Pro-rata for employees <1 year

8. Termination and Severance

• Proper cause and process required
• Severance calculation accuracy
• Bipartite negotiation attempts
• Industrial relations court procedures

9. Health and Safety

• Workplace safety standards (K3)
• Accident reporting
• Insurance coverage (BPJS JKK)

10. Data Privacy

• Personal Data Protection Law (UU PDP) – enacted 2022, enforcement from October 2024
• Employee data security and consent
• Cross-border data transfer restrictions

11. Tax Compliance

• Accurate PPh 21 withholding
• Timely monthly remittances
• Annual reporting and reconciliation

Termination & Notice Periods

Notice Period Requirements

Standard notice periods (by agreement or custom):

• Probation period: 7 days notice (either party)
• Permanent employees: 30 days notice (more common)
• Senior/management: 30–90 days (per contract)

Under Indonesian law:

• Either party may terminate with proper notice
• Employer termination requires valid reason + process
• Employee resignation requires notice per contract

Valid Reasons for Employer-Initiated Termination

1. Company efficiency/restructuring
2. Company closure
3. Company merger/acquisition
4. Company losses (sustained over time)
5. Employee misconduct (after proper process)
6. Continuous poor performance (after warnings)
7. Employee long-term illness (>12 months)
8. Mutual agreement

Termination Process Requirements

For misconduct terminations:

1. Written warning letters (typically 3: verbal, written, final warning)
2. Bipartite negotiation (employer-employee discussion)
3. If unresolved, proceed to mediation or Industrial Relations Court
4. Cannot summarily dismiss (except extreme gross misconduct)

For business reasons (efficiency, closure):

1. Notify employee in writing
2. Attempt bipartite negotiation
3. Calculate and offer proper severance
4. Reach mutual termination agreement
5. If disputed, proceed to mediation/court

Severance Payment Obligations

See detailed severance calculation in Benefits section above.

Payment must include:

• Severance pay (uang pesangon)
• Service appreciation pay (uang penghargaan)
• Compensation for rights (unused leave, etc.)

Timing: Must be paid within reasonable timeframe (typically within 7–14 days of termination)

Resignation by Employee

• Employee provides notice per contract (typically 30 days)
• No severance pay due from employer
• Employee entitled to:
  • Final salary (pro-rated to last day)
  • Unused annual leave cash-out
  • Outstanding benefits
  • Pro-rated THR (if applicable)

Non-Discrimination and Equal Treatment

Indonesian law prohibits discrimination based on:

• Gender
• Religion
• Race or ethnicity
• Disability
• Political affiliation
• Marital status
• Pregnancy

Employers must provide:

• Equal pay for equal work
• Equal opportunities for promotion
• Non-discriminatory hiring practices
• Reasonable accommodations for disabilities

Foreign Workers

Hiring foreign nationals requires:

• IMTA (Izin Mempekerjakan Tenaga Kerja Asing) – Foreign Worker Employment Permit
• RPTKA (Rencana Penggunaan Tenaga Kerja Asing) – Foreign Worker Utilization Plan
• KITAS (Kartu Izin Tinggal Terbatas) – Limited Stay Permit
• Work permit (ITAS) – Temporary Stay Permit
• Sponsoring employer must be registered Indonesian entity
• Positions restricted; some roles reserved for Indonesian nationals
• Compensation fund required (DKP-TKA)

An EOR with Indonesian entity can sponsor foreign workers on your behalf.