GUIDE TO EMPLOYMENT IN INDONESIA

1. Search for employees

Independently:

• Vacancies on specialized Internet platforms (JobStreet, LinkedIn, etc.);

• Ads in social networks, newspapers, or corporate websites.

• Job fairs and university programs.

Through Agencies: Recruitment agencies help you find suitable and qualified personnel. The cost of agency services depends on the level of the position and can vary from 10% to 30% of the employee's annual salary.

2. Evaluation and selection of candidates

• Interviews: Conduct structured interviews to assess your professional skills and fit in with the corporate culture.

• Testing: If necessary, use professional tests to evaluate competencies.

• Referral Review: Contact your previous employers to confirm your candidate's experience and reputation.

3. Employment contracts

After selecting a suitable candidate, it is necessary to conclude an employment contract, which can be:

• PKWT (Perjanjian Kerja Waktu Tertentu) – a contract for a certain period of time. Such a contract can be concluded for project work (no more than 21 days a month and no more than 3 months), seasonal positions, or for a probationary period. The validity period is limited to the possibility of renewal for a maximum of 5 years. You can't use the trial period.

• PKWTT (Perjanjian Kerja Waktu Tidak Tertentu) – an indefinite employment contract. It assumes a long-term employment relationship and requires providing justification for dismissal.

-       You can use the trial period in Indonesia lasts up to 3 months officially. In practice, it can take up to 6 months. The term is determined by the employer depending on the complexity of the position and the level of skills required to perform the work. The probationary period must be clearly specified in the employment contract. If it is not specified, the employee is considered to be employed full-time immediately after signing the contract. During the probationary period, an employee has the same rights as any other employee, including the right to timely payment of labor. However, during the probationary period, the employer has the right to terminate the contract with the employee without compensation if the employee does not meet the requirements of the position. It is also possible not to apply for BPJS during the trial period.

The contract must be concluded in writing and include information about job responsibilities, salary, working hours, conditions of dismissal, as well as details on social and medical contributions.

4. Employee registration

The employer is required to register all employees in the social insurance system BPJS Ketenagakerjaan (includes pension and occupational accident insurance) and BPJS Kesehatan (health insurance). Registration is mandatory for all employees, including temporary and permanent employees, and is a formal sign that the employee is officially employed.

5. Employment opportunities for foreign employees

 This is acomplex procedure that involves obtaining a lot of documents and meeting quotas with the ability to hold only certain positions:

• Employment contract: Foreign employees must have a written employment contract with their employer. The term of the employment contract is usually limited to the validity of their work visa and can vary from 6 to 12 months with the possibility of extension.

• RPTKA: This document is part of the procedure for obtaining a work permit for foreigners. This is a confirmation that the company reasonably needs a foreign specialist and their position.

• IMTA: A work permit issued by an employer through the Ministry of Labor Resources of Indonesia.

• WORKINGKITAS: A temporary residence permit for foreign workers, granting the right to work in Indonesia.

• BPJS (Health and Social Insurance) will also need to register in this system.

• Local employees: Employers are required to employ Indonesian citizens in the company for the employment of foreigners.

• Training of local employees: Foreign specialists should transfer their knowledge to local employees as part of a professional training program.

6. Working hours and vacations

Standard working hours: 40 hours per week. This is usually 8 hours a day from Monday to Friday.

• Recycling: Working hours exceeding 40 hours per week are considered recycling and are paid at an increased rate (usually 1.5 times the rate for the first 2 hours of processing and 2 times the rate for subsequent hours). The employer must notify the employee about the need for processing in advance.

• Breaks: Employees are given a lunch break of at least 1 hour after 4 hours of work.

• Leave: All employees are entitled to a minimum of 12 working days of paid leave per year, after one full year of employment. The employee must notify the employer of their intention to take a vacation at least 7 days before it starts.

Additional types of vacations:

• Sick leave: Employees are entitled to paid sick leave, which is usually 12 days per year.

• Maternityleave: Women are entitled to 3 months of maternity leave (1.5 months before delivery and 1.5 months after delivery).

• Parentalleave: After giving birth, a woman is entitled to 2 months of paid leave to care for a newborn.

• Family leave: Employees can take time off for important family reasons, but this is not always paid leave and depends on the employer's policy.

Indonesia also provides paid rest days on national holidays, but the number of such holidays may vary.

7. Issue of employment record (if applicable)

• In Indonesia, an employee can be issued a Surat Keputusan Pengangkatan Karyawan (employment document), which confirms their status as an employee of the company. This document is similar to a work record or a notice of appointment.

8. Salary and additional payments

• Remuneration: The employer is obliged to pay the employee the minimum wageestablished by the regional authorities. Payment is made monthly, or according to the established procedure prescribed in the employment contract.

• 13th salary: Mandatory payment, usually before the Eid al-Fitri holiday. This payment is known as THR (Tunjangan Hari Raya) and is equal to one month's salary for employees who have worked for more than 12 months.

• Regional allowances: Depending on the region, additional compensation may apply to cover the cost of living.

• Foreign workers, as well as local ones, are entitled to the 13th salary (THR) and other types of payments, such as vacation and regional compensation.

• General rules and procedures apply to foreigners.

9. Taxes and Reporting

• Income Tax (PPh21): Deducted monthly from an employee's salary by the employer. Tax rates are progressive and range from 0% to 34% depending on income.

• Foreign workers who live in Indonesia for more than 183 days a year are considered tax residents and must pay income taxes under the same rules as Indonesians.

• If they are tax non-residents, then their income is withheld at the rate of 20% on the basis of international agreements for the avoidance of double taxation.

• The company must include in the quarterly LKPM report LKPM information about registered employees and compliance with social security and labor protection measures.

10. Dismissal

• If one of the parties terminates the employment relationship before the expiration of the term specified in the contract for a certain period (PKWT) (unilateral dismissal), the employer is obliged to pay compensation, the amount of which is calculated on the basis of the period worked by the employee under the contract. (Article 17 of Government Decree No. 35/2021). However, it should be noted that an employee who terminates the contract before the PKWT expires is also required to pay compensation to the company in the amount of salary for the remaining term of the PKWT contract.

• At the employer's initiative: The dismissal must comply with labor legislation and the employer must justify the reason for the dismissal (for example, staff reduction, disciplinary violations). No later than 7 working days prior to dismissal, if the dismissal occurs during the probationary period, or no later than 14 working days prior to dismissal, if the dismissal is not related to non-completion of the probationary period.

• At the initiative of the employee: The employee is required to submit a letter of resignation in writing. Submitted 30 days before the expected departure date. And work days before the date of dismissal, but if both parties agree, the employee can leave the company ahead of schedule.

• The notice of dismissal must be submitted in writing and contain the purpose and reasons for dismissal, compensation for dismissal, as well as other rights of the employee arising in connection with the dismissal. (Explanation to Article 37, paragraph 3 of Government Decree No. 35/2021)

• Compensation: Payment for unused vacation, but in case of dismissal at the initiative of the employer, additional compensation such as severance pay and payment for long service (if appropriate) is provided.

• Foreigners can be dismissed in accordance with their contract. However, employers must notify the migration services, as dismissal affects the status of the work visa and stay in the country. In case of dismissal, the foreigner must leave Indonesia, unless he receives a new KITAS or extends the visa on other grounds.

Notice of dismissal is not required from the employer in the following cases: (Article 151A of the Labor Law and article 52, paragraph 3 of Government Decree No. 35/2021)

• The employee is dismissed at his own request;

• The employment relationship is terminated in accordance with the terms of the PKWT (fixed-term employment contract).

• Reaching retirement age in accordance with the employment contract, company rules (PP) or collective agreement (PKB);

• Employee's death;

• The employee commits a serious violation that requires immediate dismissal, as stipulated in the employment contract, company rules (PP) or collective agreement (PKB).

11. Compensation amounts

- Severance pay (Pesangon), depending on the length of service:

• Less than 1 year: 1 monthly salary

• 1 ≤ Work experience < 2 years: 2 monthly salaries

• 2 ≤ Work experience < 3 years: 3 monthly salaries

• 3 ≤ Work experience < 4 years: 4 monthly salaries

• 4 ≤ Work experience < 5 years: 5 monthly salaries

• 5 ≤ Work experience < 6 years: 6 monthly salaries

• 6 ≤ Work experience < 7 years: 7 monthly salaries

• 7 ≤ Work experience < 8 years: 8 monthly salaries

• 8 years or more: 9 monthly salaries

- Superannuation Award (Uang Penghargaan Masa Kerja):

• 3 ≤ Work experience < 6 years: 2 monthly salaries

• 6 ≤ Work experience < 9 years: 3 monthly salaries

• 9 ≤ Work experience < 12 years: 4 monthly salaries

• 12 ≤ Work experience < 15 years: 5 monthly salaries

• 15 ≤ Work experience < 18 years: 6 monthly salaries

• 18 ≤ Work experience < 21 years: 7 monthly salaries

• 21 ≤ Work experience < 24 years: 8 monthly salaries

• 24 years or more: 10 monthly salaries

- Compensation at the end or termination of PKWT is paid to the employee and calculated using the formula: "Number of months worked" is multiplied by "basic salary" and divided by "12".

- Compensation for unused rights (Uang Pengganti Hak):

• Unused annual leave that has not yet expired.

• Expenses for the return of the employee and his family to the place where the employee was hired.

• Other rights set out in the employment contract (PK), company rules (PP), or collective agreement (PKB).

Grounds for dismissal (PHK) and compensation amounts:

For registration of employment contracts and registration of your employees, please contact us!

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