Employ Candidates Compliantly in Indonesia

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  1. Overview: Indonesia
  2. Global HR Compliance
  3. Global PEO and payroll
  4. Work permit for hiring expats via PEO
  5. Expand without a company set up
  6. Contractor vs. employee: which is better?
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Global HR Compliance in Indonesia

If you hire international workforce, or plan to hire, then Hiring and Firing Workforce in Indonesia Guide below will help you understand the nuances of labor legislation in the country.

Companies hire international workforce for various reasons but in most cases they are:

  • entering the foreign markets to sell company products. To do so, the company hires sales representatives who would represent their product and sell it to their local client base.
  • hiring a global talent with unique skills that is unavailable in the local market or costs the company less than the talent with similar skills hired in the home country.

Before entering a certain foreign market or engaging a global talent, it is crucial for the company to understand how it can make local hires and reward its workers on a monthly basis. Growing companies often face a challenge of paying benefits and bonuses to the commission-based independent sales representatives they are working with.

If you intend to hire and pay your foreign workforce in full compliance with labor laws and regulations of Indonesia, then the Global Employer of Record service from Acumen International may be the best way for you to go. We are an International PEO company and we specialize in global employment, meaning we can employ your employees in Indonesia and act as their legal employer on your behalf. We will payroll your foreign workforce monthly and provide benefits to them through our global network so you don’t have to set up your own legal entities there.

We are experts in global workforce employment in , and our goal is to become your single provider. Instead of working with numerous local staffing agencies and legal advisors, Acumen International can solve your global business challenges and save you time, costs, and resources.

Our team of English-speaking professionals frees you from working through language nuances. Acumen International works 24/7 and can assist you whenever you need, regardless of time zones. Our goal is to create tailored labor solutions for you that are managed legally and in full compliance with the local employment laws.

With our knowledge and deep understanding of local nuances, you easily satisfy your need for skilled professionals in your global industry. With our qualified local partners, you can trust that your global workforce satisfies all local tax, social security, and immigration requirements in Indonesia.

Hiring and Firing Workforce in Indonesia Guide

One of the greatest challenges individuals or companies face whilst doing business in Indonesia and any country for that matter is the need to familiarize and comply with the nitty-gritty details of the local labor regulations. Unfortunately, these challenges have scared many off their dreams of expanding globally. However, there is good news for you: you can now and always expand globally without having to go through all the stresses and strains of global expansion.

Acumen International can help you fast-track your possibilities of entering and expanding your business in Indonesia by providing you with an Employer of Record services. Our unique mix of PEO/EOR solutions will enable you to jumpstart your global operations almost immediately, cost-effectively and compliantly without any requirement to set up a legal entity first or thereafter.

Here are some of the key facts you need to know about employment in Indonesia:

# Employment Agreements

Permanent employment contracts

An indefinite-term employment contract or a permanent employment contract is the most common type of contract where an employee works in a company on an ongoing and predictable basis, until the employee stops working or being terminated by the employer. A probation period of a maximum of three months is usually included in the contract. Once the indefinite-term employment contract is agreed verbally, it is the employer’s responsibility to provide an appointment letter or offer letter to the employee. The termination of an employee under an indefinite-term employment contract is more complicated than that of a fixed-term employment contract. An indefinite-term employment agreement may provide for a probation period of up to three months. In the event an indefinite-term employment agreement is made verbally, the employer is required to provide a letter of appointment to the employee. The letter shall contain at least the following information:

  • The employee’s name and address.
  • The date the work commences.
  • The type of work.
  • The employee’s proposed wages.

Fixed-term contracts

Fixed-term employment agreements are subject to more strict requirements than indefinite-term employment agreements. A fixed-term employment agreement must be in writing and in the Indonesian language. The parties typically provide that the English version of a bilingual agreement will prevail in the event of a conflict or inconsistency. If not in writing, a fixed-term employment agreement is deemed an indefinite-term employment agreement. Additionally, a fixed-term employment agreement cannot include a probation period. A fixed-term employment agreement that is based on a certain period of time (unlike seasonal contracts, etc.) may last for up to two years, and may be “extended” once for a maximum period of one year. Then, after a grace period of at least 30 days, it can be “renewed” one time for a maximum period of two years. Only fixed-term employment contracts need to be made in writing. They should be written in Indonesian.

#Employment Termination and Severance Pay (Dismissal)

Termination without cause

The employee is terminated due to company’s merger, bankruptcy, or re-organization.

Termination with cause

  • The employee is terminated because of Misconduct or violation of the employment contract.
  • Not able to work for more than six months due to legal disputes. 
  • Being absent from work for more than five consecutive working days without proper reasons and adequate evidence.

There are a number of circumstances under which an employee can apply to end their employment and receive severance pay: 

  • If they are ordered to complete illegal acts. 
  • If the employer abuses the employee physically or verbally.
  • If wages are not paid for three consecutive months. 
  • If the employer does not meet their obligations towards the employee. 
  • If the employee is made to perform duties outside of those defined in their job contract. 
  • If the employee is asked to perform tasks not in their contract which endanger their health, life, safety or morality.

#It is prohibited to dismiss

An employee cannot be dismissed under certain circumstances, including the following:

  • The employee is ill (the employee must have this validated in writing by a doctor), provided the employee is not absent for a period of more than 12 months.
  • The employee is fulfilling state obligations, as defined in valid legislation. 
  • The employee is fulfilling religious obligations (for example, praying, taking part in a religious ceremony).
  • The employee is getting married. This means that an employee cannot be fired the day that they are getting married. In addition, an employee is entitled to three days’ paid family leave when getting married.
  • The employee is pregnant, breastfeeding, giving birth or has recently had a miscarriage.
  • The employee is related by blood to another worker, unless the dismissal is required by a collective bargaining agreement. 
  • The employee belongs to a trade union.
  • The employee has reported a crime committed by their employer.
  • The dismissal is due to discrimination on any basis.
  • The worker is disabled or ill due to a work-related accident and the period of recovery is indeterminable.

Dismissal under one of the circumstances listed above will be declared null and void, and the employer will then be obliged to re-employ the employee concerned.

#Notice period

Indonesian law does not set out any notice period for employment termination. In practice, some employment agreements stipulate a 30-day notice period for termination. However, employers must note that a written notice alone is not sufficient to legally terminate ties with an employee, and employers must first seek approval for the termination from the Industrial Relations Court. 

#Severance payments

Should termination of employment take place, the entrepreneur is obliged to pay the dismissed worker severance pay and or a sum of money as a reward for service rendered during his or her term of employment [reward-for-years-of-service pay] and compensation pay for rights or entitlements that the dismissed worker/ labourer has not utilized. The calculation of severance pay shall at least be as follows:

  • 1 (one)-month wages for years of employment less than 1 (one) year.
  • 2 (two)-month wages for years of employment up to 1 (one) year or more but less than 2 (two) years.
  • 3 (three)-month wages for years of employment up to 2 (two) years or more but less than 3 (three) years.
  • 4 (four)-month wages for years of employment up to 3 (three) years or more but less than 4 (four) years.
  • 5 (five)-month wages for years of employment up to 4 (four) years or more but less than 5 (five) years.
  • 6 (six)-month wages for years of employment up to 5 (five) years or more but less than 6 (six) years.
  • 7 (seven)-month wages for years of employment up to 6 (six) years or more but less than 7 (seven) years.
  • 8 (eight)-month wages for years of employment up to 7 (seven) years or more but less than 8 (eight) years.
  • 9 (nine)-month wages for years of employment up to 8 (eight) years or more.  

#Employee Benefits and Contributions

Mandatory benefits required by law to be provided by an employer:

  • Salary
  • Overtime Pay
  • Paid Annual Leave
  • Festive Holiday Leave
  • Employees are paid a mandatory 13th-month salary payment in Indonesia, often referred to as THR
  • Healthcare and social security program (BPJS)
  • Sick Days
  • Pension Fund
  • Severance Pay

Non-mandatory benefits that are offered by an employer

As the workforce becomes more competitive with highly skilled workers, companies are finding ways to ‘sweeten the deal’ for hiring or rewarding their loyal employees. These benefits are not required by Manpower Law, but they go a long way for employee morale and job satisfaction. 

  • Bonus structures for employees
  • Additional days for annual leave
  • Expanded Inpatient and Outpatient health insurance to cover family members
  • Permission to work remotely 
  • Mobile phone credit allowance
  • Meal allowance or stipend

#Probationary period

Only a permanent employment agreement may provide for a probationary period. A fixed-term employment agreement cannot include probation. The Labor Law allows a maximum probationary period of three months, during which time the employer can terminate the employee without having to follow the termination procedures as prescribed by law. 

#Overtime

The maximum hours of overtime that employees can work are 3 hours per day, and 14 hours per week.  In addition to paying the overtime fee, companies must provide enough rest time, and adequate food and drinks (minimum 1,400 calories for 3 hours of overtime). It should be noted that employees who are in higher positions – while typically working longer hours – are not entitled to overtime pay since they generally have higher salaries. 

#Work hours

Every entrepreneur is under an obligation to observe the ruling concerning working hours. The working hours shall be arranged as follows: 

  • 7 hours a day and 40 hours a week for 6 workdays in a week.
  • 8 hours a day, 40 hours a week for 5 workdays in a week.

Rulings concerning the working hours as referred above do not apply to certain business sectors or certain types of work. Rulings concerning working hours for certain business sectors or certain types of work shall be regulated with a Ministerial Decision. 

#Annual Leave

Entrepreneurs are under an obligation to allow their workers/ labourers to take a rest and leave. The period of rest and leave shall include:

  • The period of rest or a break between working hours that is no shorter than half an hour after working for 4 (four) hours consecutively and this period of rest shall not be inclusive of working hours. 
  • The weekly period of rest that is no shorter than 1 (one) day after 6 (six) workdays in a week or no shorter than 2 (two) days after 5 (five) workdays in a week. 
  • The yearly period of rest that is no shorter than 12 (twelve) workdays if the worker/labourer works for 12 (twelve) months consecutively. 
  • A long period of rest of no less than 2 (two) months, which shall be awarded in the seventh and eighth year of work each for a period of 1 (one) month to workers/ labourers who have been working for 6 (six) years consecutively at the same enterprise on the condition that the said workers/ labourers will no longer be entitled to their annual period of rest in 2 (two) current years. This ruling shall henceforth be applicable every 6 (six) years of work.

The application of the ruling concerning the yearly period of rest that is no shorter than 12 (twelve) workdays if the worker/labourer works for 12 (twelve) months consecutively shall be determined and specified in a work agreement, the enterprise’s rules and regulations or a collective work agreement. The provisions concerning the long period of rest of no less than 2 (two) months only apply to workers/ labourers who work in certain enterprises (it shall be determined and specified with a Ministerial Decision). 

#Sick leave

Employees are entitled to paid sick leave in the case of illness or injury that is evidenced by a medical certificate or statement. Employees are also entitled to long-term paid medical leave provided that such leave is recommended in writing by a doctor and lasts for a period greater than one year. Female employees are also entitled to two days of menstrual leave (the first and second day of menstruation).

#Parental leave

Paternity leave

Pregnant employees are entitled to take three months’ paid maternity leave, of which 1.5 months are taken in the pre-natal period and 1.5 months are taken in the post-natal period. In this period, employees receive their full salary. A pregnant employee is entitled to receive her full salary during her pregnancy. An employee who has had a miscarriage is entitled to a 1.5-month rest period, provided this is recommended in a medical statement issued by an obstetrician or midwife. Employers must provide proper opportunities to female employees, whose babies still need breastfeeding, to breastfeed their babies if this must be performed during working hours.

Paternity leave

Male workers are entitled to two days’ paid paternity leave if their wife gives birth or miscarries. 

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