The expansive labor market in Indonesia presents numerous opportunities for business expansion within the country. Nevertheless, it is imperative, when incorporating employees from Indonesia, to acquire a comprehensive understanding of the nation's employment regulations. The ensuing sections aim to provide guidance through the intricacies of the labor process in the country.
Employee Contract
Public and Provincial Holidays
Leave Information
Basic
Employment contracts are drafted in the Indonesian language using the Latin alphabet. While dual-language contracts are permissible, it is mandatory to have one version composed in the Indonesian language.
Probation Period
Employees in Indonesia are given a probationary period of up to 3 months.
13th Month Pay
The 13th-month pay is mandatory for Indonesian employees.
Employee Benefits
Indonesian employees may be given the following supplemental benefits on top of their leave benefits, social security and yearly bonus:
- Meal Allowance
- Health Insurance
- Pensions
- THR payment
- Transportation Allowance
Salaries in Indonesia can be paid weekly, bi-weekly, or monthly depending on the employment contract.
The minimum Wage in Indonesia is IDR 4,641,854 per month.
Employees are not permitted to work more than 3 hours a day and 14 extra hours per week. Below are the rates for overtime work: Weekdays, 1st hour – 150% of the hourly salary Weekdays, subsequent hours – 200% of the hourly salary.
Employer Payroll Cost:
| Type |
0.24% – 1.74% |
| Occupational accident insurance |
12.5% |
| Life insurance |
0.3% |
| Old age benefits |
3.7% |
| Pension plan |
2% |
| Health Insurance |
4% |
Employee Payroll Cost:
| Type |
Contribution |
| Old age benefits |
2% |
| Pension plan |
1% |
| Health Insurance |
1% |
Employee Income Tax
| Taxable Income |
Tax Rate |
| 0 – 60 million IDR |
5% |
| 60 million IDR – 250 million IDR |
15% |
| 250 million IDR – 500 million IDR |
25% |
| 500 million IDR – 5 billion IDR |
30% |
| 5 billion IDR and above |
35% |
VAT
The standard VAT rate has traditionally been 11% in Indonesia.
If an employer wants to terminate its employees, it has to obtain approval from the Industrial Relations Court (IRC) by filing a lawsuit, or if they signed a Mutual Termination Agreement, then the Mutual Termination Agreement should be registered with the IRC.The Labor Law prohibits the dismissal of an employee based on reasons such as marriage, absence due to illness for less than 12 consecutive months, or the employee's involvement in a trade union.
Probationary employees are given up to 30 days of the notice period. On the other hand, employees after probation are given up to 3 months.
Severance pay
Severance pay regulations in Indonesia include severance pay, performance allowances, indemnity, and other types, and the payment terms are usually based on the reason for dismissal and the employee's length of service, and the specific calculation method and amount vary depending on the company's regulations and employment contract.
An Indonesian work permit and KITAS/KITAP.is required for foreign employees working in the country. The validity of these documents can be 3 months to a year (renewable).