To achieve success in the Indonesian market, it’s essential to streamline your growth process. Indonesia’s rapidly growing economy offers immense potential for companies seeking expansion opportunities. The nation’s pool of skilled labor and highly employable workforce make it an enticing destination for business expansion.
However, navigating the intricacies of local rules and regulations can be a challenging and time-consuming task. This is where Marzuna’s Employer Of Record solutions come to the rescue. Partnering with us allows you to swiftly and effortlessly enter the Indonesian market without the hassle of handling everything on your own.
Our comprehensive and automated global HR platform simplifies payroll administration, ensures strict compliance with local labor laws, and facilitates the seamless integration of your remote employees. We take care of all the essential HR tasks, from managing benefits to ensuring the proper employment contracts are in place, so you can focus on your core business operations.
By leveraging our Employer Of Record solutions, you can confidently expand your business activities in Indonesia, knowing you have a reliable and knowledgeable partner to guide you through the complexities of the local business environment. Seize Indonesia’s vast growth potential and capitalize on our streamlined and effective expansion strategies to elevate your business to new heights.
It is generally thought that Indonesian labor and employment laws are advantageous to workers. These regulations define employment in a rather broad manner, ensuring that benefits such as social security are available to all employees. Indonesian employment laws apply to all Indonesian citizens employed there, however they do not apply to foreign nationals. There are several distinct forms of employment defined under Indonesian law, and it is often believed to be difficult to terminate employment there.
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 primary component of legislation governing employment and labour rights in Indonesia is the Manpower Law of the Constitution. It outlines the laws that must be adhered to while employed in Indonesia. There are 17 sections in all, and they cover a wide range of subjects, including hiring foreign labour, terminating employees, developing human resources, and discrimination in the workplace. |
| Law No. 2 of 2004 on Industrial Relations Dispute Settlement (‘IRDS Law’) | This legislation covers conflicts between an employer and an individual employee, a group of employees, or a labour organisation. It also addresses disagreements between unions working for the same employer. It states that before going to the government, such conflicts must first be tried to be resolved via dialogue. |
| Law No. 21 of 2000 on Employee/Labor Union (‘Labour Union Law’) | This legislation deals with the establishment and legality of labour unions and trade unions in Indonesia. It guarantees everyone’s right to join a union and outlaws discrimination in union membership. Additionally, it tackles the finances, assets, and dispute-resolution capabilities of labour and trade unions while establishing their rights. |
Timings, holidays, and leave policies in Indonesia
| Entitlements | Explanation |
|---|---|
| Statutory Working Hours | 8 hours for 5 days of work, 7 hours for 6 days of work |
| Job Specific Working Hours | 40 hours is the most that may be worked in a week. |
| Rest Period | The required relaxation break is at least 30 minutes after each four hours of work in a day and at least one day every week. |
| Paid Public Holidays | The public holidays in Indonesia are as follows:
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| Maternity Leave | Indonesia offers three months of paid maternity leave, at least half of which must be used following childbirth. |
| Annual Leave Accrual Entitlement | The legislation requires at least 12 working days of paid leave. There is no clause that allows for the payment of unused leave. |
In Indonesia, businesses have been quick to embrace the global trend of adopting a remote work culture. The concept of working outside traditional office spaces has become a commonplace practice among Indonesian companies. The infrastructure necessary to support remote work is well-established and readily available, facilitating a flexible and adaptable working environment.
Indonesian labor law provides a broad definition of work, encompassing all forms of employment, including temporary, part-time, or fixed-term arrangements. If a job is designated with a specific term, it cannot extend beyond three years.
Employment relationships in Indonesia are required to be formalized through a written contract between the employer and the employee, with potential involvement from various employee groups. This contract is expected to comprehensively outline the scope of the job, the number of working hours, compensation, and all other relevant details.
In terms of negotiating employment terms, the scope for individual employees is typically constrained in Indonesia. Employers often maintain standardized job descriptions and salary structures for each job title, leaving little room for employees to negotiate, particularly at lower levels within the corporate hierarchy. This stands in contrast to the employment practices in Western nations, where negotiation plays a pivotal role in the hiring process.
The global expansion of businesses and the ever-expanding reach of the internet have standardized the hiring process, even in Indonesia. Online job boards have emerged as the preferred method for identifying and recruiting specific individuals. Indonesia boasts several renowned job portals, such as Indeed, Jobindo, Jobstreet, and Monster. LinkedIn also provides a valuable tool for applicant search and background checks.
To kickstart the process of finding qualified candidates, your HR team collaborates with the relevant departments to create a job description based on the recognized needs within your organization. This job description is then disseminated, posted on various job sites, and made available on the careers section of your company’s website.
Once a sufficient number of applications have been received or the application deadline has passed, your HR staff evaluates all submitted applications and selects those that best align with the job specifications. This selection process may involve the use of filters or a points-based system to narrow down the pool of candidates. The chosen applicants then undergo interviews tailored to your specific requirements. Conducting comprehensive background checks on the shortlisted individuals is crucial before extending a job offer.
Leveraging online job boards and digital marketing for recruitment offers numerous advantages. Given Indonesia’s vast talent pool, you are likely to receive a substantial number of applications, allowing you to select highly qualified individuals. The remote nature of the process means your staff doesn’t need to actively seek out applicants. Furthermore, the presence of multiple online portals can eliminate the need for third-party employment agencies.
However, like any approach, online hiring comes with its challenges. Even for entry-level positions, the sheer volume of applications can be overwhelming. Additionally, most Indonesian employment portals have limited reach, making it challenging to hire a significant number of applicants solely through online platforms, especially if you have a small HR team.
To address these issues and streamline the recruitment process, collaborating with a reputable Employer Of Record (EOR) like Marzuna in Indonesia can be highly beneficial. Our company specializes in reliable outsourcing services that help you identify the ideal personnel while ensuring compliance with rules and regulations. Entrusting us with your recruitment responsibilities allows you to focus on promoting the growth and development of your company’s operations, knowing that your hiring needs are in capable hands.
Indonesia has well-defined employment laws that provide a clear framework for probation periods and termination procedures. According to these laws, probationary periods are limited to a maximum of three months for any employee.
In the context of terminating employment, employers must seek permission from the Industrial Relation Court (IRC). Even with mutual consent, an employment contract cannot be terminated without the approval of the IRC. Although there is no mandatory notice period specified before ending a contract, it is customary for employers to grant a 30-day notice.
Employee termination can also take place due to redundancies, but this is only considered justifiable if the company, or a significant portion of it, ceases its operations. Additionally, employees may be terminated if they violate the company’s code of conduct or breach the terms outlined in their employment contract.
Under Indonesian law, employees are entitled to receive severance pay upon dismissal. Typically, this severance pay amounts to one month’s salary for each year of service, up to a maximum of nine years. The law also identifies grounds on which employees cannot be terminated, including pregnancy, short-term illness, and participation in a union.
Adhering to these legal requirements is of paramount importance for employers in Indonesia. Ensuring compliance with these regulations and providing fair treatment to employees is essential for maintaining a work environment that is both legally sound and respectful.
One country where having an EOR partner like Marzuna is often required is Indonesia. Having a partner who is familiar with the rules and can provide guidance and expertise in keeping your business activities within the confines of the law is essential, especially considering how complicated Indonesian employment laws may be.
Working with an EOR partner like Marzuna may save you the headache of having to understand the legislation, interpret it in light of your company’s demands, and manage personnel, payroll administration, and employee record keeping in-house. Marzuna is able to do these tasks. Purchase a demo now!
| Visa Category | Explanation | Duration |
|---|---|---|
| Social/Cultural Visa | This visa is granted to anyone who wishes to go to Indonesia for social or cultural events. | 60 days |
| Business Visa | This visa is granted to those who wish to go to Indonesia for professional reasons, such as attending conferences, meetings, or other events. These pursuits cannot include employment. | 60 days for a single visit or multiple visits within 12 months |
| Temporary Stay Permit | This is the closest an Indonesian visa gets to allowing visitors entering the country to work. In conjunction with an IMTA work permit, it is obtained. | 6 months, 1 year, 5 years |
The work visa and the work permit are the two main papers that foreign people need in order to work in Indonesia. A second work permit is also required in order to be allowed to work here, and the application price for the work visa is USD 500.
It’s critical to comprehend Indonesia’s tax and contractual framework and create contracts that adhere to these regulations. When it comes to the creation of a contract, working with an Employer Of Record may be quite beneficial. EOR partners typically have excellent insight into the legal ramifications of recruiting, which helps shorten the process’s duration.
| Process | Explanation |
|---|---|
| Applying for a Tax Identification Number | Applying for a Tax Identification Number (TIN) as a newly formed company or subsidiary is required in Indonesia. You can do actions linked to taxes using this special identity. |
| Choosing a Payroll System | Before selecting a payroll, one must take into account a number of factors. Legal considerations must be addressed first, and only then should the typical industrial payroll system for the appropriate area be examined. The final payroll system must take into account a number of regulatory obligations, including minimum wage, taxes, and leave policies. |
| Acquisition of employee information | All personnel information must be kept on file at all times. Internal audits and governmental entities may both need this data at various times. Additionally, the administration of taxes and payroll is made easier due to the digital storage of employee information. both domestic and international workers. |
In Indonesia, employers are required to deduct income taxes from their workers’ paychecks and report the amounts deducted by the 10th of the following month.
Employer Taxation
| Tax | Explanation | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Corporate tax | The annual corporate tax in Indonesia is as follows.
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| Employer Contribution Towards Social Security | 5.74% |
Employee Taxation
| Tax | Explanation | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Income Tax | The annual personal income tax in Indonesia is as follows.
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| Financial Year End date | 31st Dec | ||||||||
| Sales Tax | 10% | ||||||||
| Social Security Contributions | 2% |
Establishing a subsidiary in Indonesia involves a series of critical steps that must be meticulously followed in accordance with Indonesian law. The first step entails selecting a company name and formally registering it at a bank by fulfilling the requisite financial obligations. Subsequently, all company documents and forms must undergo notarization by a qualified notary.
Following this, the next stage is to apply to the Ministry of Law and Human Rights for approval of your company’s deed. To establish an office, you will need to obtain a building management domicile certificate, a pivotal document that enables you to subsequently apply for the company domicile certificate.
Additionally, it is necessary to pay non-tax state revenue fees to access essential legal services. This step will grant you the ability to apply for a permanent business trading license and acquire a company registration certification. Lastly, registration with the Ministry of Manpower is mandatory to ensure full compliance with labor regulations.
Once your subsidiary is officially established, you will need to proceed with applications for a taxation identification number, social security registration, insurance coverage, and fulfill other minor formalities.
Navigating these multifaceted procedures and ensuring adherence to local laws can be a complex and time-consuming endeavor. However, we offer a valuable solution to significantly streamline the process of establishing a subsidiary in Indonesia. Leveraging our profound understanding of local laws and processes, we provide invaluable support throughout the entire journey, ensuring a smooth and efficient establishment of your subsidiary. Partnering with us allows you to establish your subsidiary in a considerably shorter timeframe, enabling you to direct your focus towards the growth and success of your business.
