Hiring Employees in Indonesia: An Employer's Guide
The main rules for employing staff in Indonesia, in plain English: contracts, working hours, leave, pay, social security, tax, foreign staff and ending employment. Each section links to a calculator that does the arithmetic.
Fixed-term or permanent
Indonesian law has two kinds of employment agreement. A fixed-term agreement (perjanjian kerja waktu tertentu, PKWT) is for work that is temporary, seasonal or expected to be finished within a set time. It must be in writing and in Indonesian; a bilingual contract is allowed, and the Indonesian text prevails if the two differ. It may last at most five years including extensions, and the employer registers it online with the Ministry of Manpower within three working days of signing. A fixed-term agreement used for permanent work becomes a permanent one by law.
A permanent agreement (perjanjian kerja waktu tidak tertentu, PKWTT) is for ongoing work. It may be made orally, but the employer must then give the employee a letter of appointment. Only a permanent agreement may include a probation period, of at most three months, and the wage during probation may not be below the minimum wage. A probation clause in a fixed-term agreement is void, and the period counts as service.
When a fixed-term agreement ends, the employer pays compensation (uang kompensasi) to an employee with at least one month of continuous service: one month's wage for 12 months of service, pro rata for shorter or longer periods. This does not apply to foreign employees. A party that ends a fixed-term agreement early pays the other the wages for the rest of the term.
Working hours, rest and overtime
Normal working time is 40 hours a week: 7 hours a day over six days, or 8 hours a day over five days. Employees get a break of at least half an hour after four hours of continuous work, and weekly rest. Overtime needs an order from the employer and the employee's agreement, may not exceed 4 hours a day and 18 hours a week, and is paid from an hourly wage of 1/173 of the monthly wage; the overtime pay calculator applies the rates. Some sectors and kinds of work may use other working-time arrangements set by the Ministry.
Leave
After 12 months of continuous service an employee is entitled to at least 12 working days of paid annual leave. Employees do not have to work on public holidays; many private employers count collective leave days (cuti bersama) against annual leave, and the public holiday calendar lists both. Women are entitled to maternity leave of at least three months, normally one and a half months before and after the birth, which Law 4/2024 allows to be extended by up to three more months in specific medical conditions. Paid leave is also due for certain family events, for example three days for the employee's own wedding, two days when the employee's wife gives birth, and two days for the death of a spouse, parent, child or parent-in-law.
Pay
Every province has a minimum wage (upah minimum provinsi, UMP) set by the governor each year and in force from 1 January, and many regencies and cities set a higher local minimum (UMK). The minimum applies to employees with less than one year of service; for everyone, the employer must keep a wage structure and scale (struktur dan skala upah). Micro and small businesses are exempt from the minimum wage and agree wages with their employees within a floor set by the regulation. Before each employee's religious holiday the employer pays the holiday allowance (THR): one month's wage after 12 months of service, pro rata from one month. The THR calculator works it out.
Social security and income tax
Every employee, including a foreign national who has worked in Indonesia for at least six months, must be enrolled in national health insurance (BPJS Kesehatan) and the employment programmes (BPJS Ketenagakerjaan). The employer registers the employees, pays its own share and deducts the employees' share from the salary; the BPJS calculator shows both sides and the total monthly cost of an employee. The employer also withholds income tax (PPh 21) from the salary every month with the TER rates and settles the year in December; see the salary calculator.
Company obligations
- Report the company and its workforce to the Ministry of Manpower (wajib lapor ketenagakerjaan, WLKP) and keep the report up to date.
- With 10 or more employees, have company regulations (peraturan perusahaan) approved by the manpower authorities, unless a collective labour agreement with a union applies.
- Register each fixed-term agreement, and keep the wage structure and scale.
- Pay wages on time; the wage regulation sets a fine for late payment.
Employing foreign nationals
A foreign national may be employed only in an employment relationship for certain positions and a certain period, and only with the competence the position requires. Individuals may not employ foreign workers. The employer needs a foreign worker utilisation plan (rencana penggunaan tenaga kerja asing, RPTKA) approved by the Ministry of Manpower, pays a compensation fee (DKPTKA) of US$100 per position per month, and the foreign employee needs a stay permit for work (KITAS) from immigration. The employer must also appoint an Indonesian employee as a counterpart for the transfer of skills, provide training for Indonesian staff, and send the foreign employee home when the employment ends.
Hiring without an Indonesian company
A foreign company without a legal presence in Indonesia generally cannot register as an employer there. Common routes are an employer of record, a local company that employs the staff on the foreign company's behalf and runs payroll, BPJS and tax, or setting up a foreign-owned limited company (PT PMA). Indonesian law defines an employment relationship by three elements: work, wages and instructions (pekerjaan, upah, perintah). An arrangement with independent contractors that has all three can be treated as employment, with all the obligations on this page.
Ending employment
A fixed-term agreement ends on its end date or when the agreed work is finished. To terminate a permanent employee, the employer needs a reason recognised by the regulation and notifies the employee in writing at least 14 working days in advance (7 working days during probation). If the employee rejects the termination, the dispute goes to bipartite negotiation, then to mediation at the local manpower office, and finally to the industrial relations court. Depending on the reason, the employee receives severance pay, long-service pay and compensation of rights; the severance pay calculator estimates them.
Frequently asked questions
Can a fixed-term contract include probation?
No. Probation of up to three months is allowed only in a permanent agreement. A probation clause in a fixed-term agreement is void, and the period counts as service.
How much annual leave is required?
At least 12 working days of paid leave after 12 months of continuous service. A contract or company regulation may give more.
Is an employment contract in English valid?
A fixed-term agreement must be in Indonesian. Bilingual contracts are common; when the two texts differ, the Indonesian one prevails.
Do foreign employees get THR and BPJS?
The THR regulation applies to employees without a nationality condition, and the BPJS law requires enrolment of foreign nationals who have worked in Indonesia for at least six months. The fixed-term compensation payment, however, does not apply to foreign employees.
What does an employee cost on top of the salary?
At least the employer's BPJS contributions, about 10% of the salary up to the wage caps, plus THR once a year. The BPJS calculator gives the exact monthly figure.