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Hiring employees in Indonesia can be complex, particularly if you are unfamiliar with local regulations and practices. Before initiating the recruitment process, it is essential for employers to have a good understanding of the employment landscape.
Firstly, Indonesia’s employment laws govern various aspects, such as employment contracts, wages, benefits, and termination procedures. Compliance with these laws is crucial to avoid legal issues and ensure a smooth employment process. Additionally, understanding the nuances of payroll processing and tax obligations is essential to meet regulatory requirements.
Indonesia has a unique business culture influenced by its diverse population and historical background. Respect for hierarchy, interpersonal relationships, and local customs plays a significant role in business interactions. Employers should navigate these cultural norms carefully to foster effective working relationships and enhance business success.
Indonesia presents a compelling case for finding remote employees due to several key factors. Firstly, Indonesia boasts a large and diverse talent pool across various industries, including technology, customer service, and digital marketing. This diversity allows companies to tap into a wide range of skills and expertise tailored to meet specific business needs.
Moreover, Indonesia’s growing economy and youthful population contribute to a dynamic workforce eager to engage in remote work opportunities. Many Indonesians are fluent in English and possess strong communication skills, facilitating effective collaboration with international clients and teams.
From a business perspective, Indonesia offers a favourable time zone for collaboration with clients in Asia-Pacific regions, making it convenient for companies to provide continuous customer support or conduct real-time meetings across different time zones.
Lastly, Indonesia’s progressive regulatory environment supports remote work arrangements, offering flexibility in employment practices and facilitating smoother operations for businesses embracing remote work trends.
Native Teams’ Employer of Record services help you hire and pay your team through an owned infrastructure in Indonesia. We handle everything from legal employment to ensuring your team is paid and managed compliantly and with care, without any third parties involved.
Hire your first Indonesian employee with Native Teams.
Before hiring individuals from Indonesia, it’s important to get familiar with the following labour regulations:
Employment relationships in Indonesia are primarily governed by Law No. 13 of 2003 on Manpower (the Manpower Law) and its amendments under the Omnibus Law on Job Creation (Law No. 11 of 2020). These laws establish the main rules for employment contracts and the rights and obligations of employers and employees.
Employment contracts must set out essential terms such as the type of work, salary, working hours, and place of employment. Employers must also comply with their statutory obligations, including paying wages, observing working time requirements, providing annual leave and social security, and following any applicable collective labour agreements or company regulations.
Employment contracts in Indonesia are divided into two main types: fixed-term contracts (PKWT) and indefinite-term contracts (PKWTT). Both are regulated by the Manpower Law and its subsequent amendments, including the Omnibus Law on Job Creation.
Fixed-term contracts (PKWT) are intended for work that is temporary in nature, including seasonal work, project-based employment, or specific tasks expected to be completed within a defined period. They can only be used for work that meets the criteria under Article 59 of the Manpower Law and must be concluded in writing. If a PKWT is not formalised in writing or is used for a permanent role, it may be treated as an indefinite-term contract.
Indefinite-term contracts (PKWTT) are used for permanent positions where there is no predetermined end date. These contracts provide greater employment security and are subject to additional requirements relating to termination protections, notice periods, and severance payments.
Employers and employees must agree on the terms of employment, which typically cover key details such as the job description, salary, working hours, and benefits.
Employment contracts in Indonesia can be written or oral. However, written contracts are strongly recommended to help prevent disputes, and fixed-term contracts (PKWT) must be concluded in writing to be valid. If a fixed-term contract is not formalised in writing, it may be converted into an indefinite-term contract (PKWTT).
An employment contract should include essential terms such as:
The contract must also comply with applicable regional minimum wage requirements, annual leave entitlements, and mandatory employee benefits, including social security contributions through BPJS (Badan Penyelenggara Jaminan Sosial).
Failure to include essential terms may result in legal penalties or a court modifying or invalidating parts of the agreement. A fixed-term contract may also be converted into an indefinite-term contract if the required formalities are not followed or if it is used for a role that should be indefinite.
Where applicable, employment contracts must also comply with collective labour agreements or company regulations, helping ensure consistent employment terms across the workforce.
Download a free employment contract for Indonesia through Native Teams.
Employment contracts in Indonesia can be oral, written, or electronic, although written contracts are generally preferred because they provide greater clarity and are easier to enforce. Regardless of the format, the terms must comply with statutory requirements relating to matters such as wages, working conditions, and termination.
Fixed-term contracts (PKWT) must be concluded in writing. If a fixed-term arrangement is not formalised in writing, it is automatically treated as an indefinite-term contract (PKWTT). This requirement helps prevent permanent roles from being treated as temporary employment.
Indefinite-term contracts (PKWTT) can be agreed orally, although this may create uncertainty and make disputes more difficult to resolve.
Electronic employment contracts are also legally recognised, provided they meet the applicable requirements and are accessible to both parties.
In all cases, the employer and employee must mutually agree to the contract terms, which cannot conflict with Indonesian labour law or any applicable collective agreements.
Working hours in Indonesia are governed by Law No. 13 of 2003 on Manpower. The standard working week is 40 hours, which can be arranged as:
The applicable schedule depends on the agreement between the employer and employee. Employment contracts should clearly set out the expected working hours, rest periods, and conditions under which overtime may be required.
Overtime is permitted but is limited to a maximum of three hours per day and 14 hours per week, excluding public holidays and rest days. Employees who work overtime are entitled to additional compensation at the rate prescribed by law.
Employers must also observe public holidays and provide employees with at least one rest day per week. Failure to comply with working time requirements may result in legal sanctions and compensation claims.
For employees working under more flexible arrangements, such as shift or remote work, the employment contract should specify how their working hours are organised and compensated.
In Indonesia, night work is defined as work performed between 11:00 PM and 7:00 AM. Under the Manpower Law, employers requiring employees to work during these hours must comply with specific requirements relating to safety, compensation, and employee protection.
Female employees are subject to additional protections under Article 76 of the Manpower Law. Women may only work between 11:00 PM and 7:00 AM where certain conditions are met, including appropriate safety and transport measures.
Employment contracts involving night work should clearly specify:
Employees working night shifts are entitled to additional compensation beyond their regular wage, often provided as a night work allowance. Any hours worked beyond the standard shift must also be compensated in accordance with applicable overtime requirements.
Under Indonesian labour law, employees are entitled to statutory rest periods and different types of leave.
Employees who work for more than four consecutive hours are entitled to a minimum 30-minute rest break during the working day. Employers must also provide at least one rest day per week, typically on Sunday, although alternative arrangements may apply depending on the nature of the work or sector.
Indonesian labour law also provides for several types of leave, including:
Applicable leave entitlements should be clearly addressed in the employment contract.
Employees in Indonesia are entitled to a minimum of 12 days of paid annual leave after completing 12 months of continuous employment. Annual leave allows employees to take time away from work for rest and recuperation without loss of income.
Employers are required to provide this entitlement and should clearly set out annual leave provisions in the employment contract.
Employees cannot generally give up their annual leave entitlement in exchange for additional compensation or benefits. However, unused leave may be carried over to the following year where the employee agrees to this arrangement.
Employment contracts should also specify the process for taking annual leave, including:
Any contractual leave policies must remain consistent with statutory requirements.
Salary in Indonesia is governed by the Manpower Law, which regulates minimum wages, payment methods, and other aspects of employee compensation.
Employees must receive at least the applicable regional minimum wage (Upah Minimum Provinsi or UMP), which is set annually by the government. Minimum wage levels vary by region and are determined based on factors such as inflation, economic growth, and the local cost of living.
Employment contracts should clearly specify the employee’s compensation, including:
Salary must be paid according to a regular, agreed schedule, typically monthly, and employers cannot make unlawful deductions from employees’ wages.
The employment contract should also clarify whether the agreed salary includes overtime pay or whether overtime compensation is calculated separately in accordance with labour law. Any arrangements concerning salary reviews and potential increases should also be clearly stated to ensure transparency around compensation and progression.
To calculate the salary and taxes in Indonesia, click here.
Employees in Indonesia are entitled to paid sick leave when they are unable to work due to illness. To qualify, employees must provide a medical certificate from a licensed doctor confirming their incapacity to work and follow the required reporting procedures.
Sick leave is separate from annual leave and other forms of paid leave. Employees are also protected from dismissal during periods of illness, provided the applicable requirements are met.
The amount of salary payable during sick leave depends on the length of the employee’s illness:
Employers must comply with these salary requirements, and the employment contract should clearly set out the terms and procedures for taking sick leave.
Employees in Indonesia are entitled to parental leave following the birth of a child, with different provisions applying to maternity and paternity leave.
Maternity leave provides female employees with three months of paid leave, typically divided into:
During maternity leave, employees are entitled to their full salary. The employment contract should clearly set out the leave entitlement, payment terms, procedure for requesting leave, and the employee’s right to return to their previous or an equivalent position after the leave period.
Paternity leave provides male employees with two days of paid leave following the birth of their child. Employers may offer more generous paternity leave through their own company policies, in which case the additional entitlement should be reflected in the employment contract.
Employment in Indonesia can be terminated in several ways, including resignation by the employee, mutual agreement, dismissal by the employer, or expiry of a fixed-term contract (PKWT).
Resignation occurs when an employee voluntarily ends the employment relationship. The employee must provide notice in accordance with the notice period specified in the employment contract.
Mutual termination occurs when the employer and employee agree to end the employment relationship on mutually accepted terms.
Dismissal by the employer may take place for reasons such as poor performance, misconduct, or redundancy. Employers must have valid grounds for dismissal, follow the required legal procedures, and provide severance or other compensation where applicable.
Fixed-term contracts (PKWT) generally end automatically when the agreed term expires. If either the employer or employee terminates the contract before its agreed end date, compensation may be required.
Employment contracts should clearly define the circumstances and procedures for termination. Failure to follow the applicable requirements may expose the employer to claims for wrongful termination.
Ordinary dismissal in Indonesia refers to termination initiated by the employer, typically for reasons such as poor performance, misconduct, or redundancy. Employers must have a valid reason for dismissal and follow the required legal procedures to protect employees from unjust or arbitrary termination.
Depending on the circumstances, employers may be required to:
Employment contracts should clearly define the circumstances under which dismissal may occur and the rights and responsibilities of both parties.
Employers must be able to justify the dismissal and demonstrate that the appropriate process was followed. Failure to comply with these requirements may result in a wrongful termination claim and an obligation to compensate the employee for damages.
In Indonesia, employers are generally required to provide employees with a notice period before termination. The notice period is typically at least 30 days, although the specific duration may vary depending on the employment contract or the circumstances of the dismissal.
The applicable notice period should be clearly stated in the employment contract, and both the employer and employee are expected to comply with it. In certain circumstances, such as gross misconduct, immediate dismissal without notice may apply.
During the notice period, employees generally continue performing their usual duties. Alternatively, the employer may provide payment in lieu of notice, allowing the employee to leave immediately. This payment should reflect the employee’s salary and benefits so that they are not financially disadvantaged.
The employment contract should specify whether payment in lieu of notice is available and how it will be calculated. If an employer fails to provide the required notice or payment in lieu, the dismissal may be considered unlawful, and the employee may have grounds to challenge the termination.
In Indonesia, unemployment may result from resignation, mutual agreement, or dismissal. Depending on the circumstances of termination, unemployed individuals may be entitled to certain payments and support.
Termination-related entitlements may include:
The applicable entitlement depends on factors such as whether the termination was voluntary or involuntary, the employee’s length of service, and the terms of the employment contract.
Unemployed individuals must register with the government’s employment service to access unemployment benefits. Support may include job search assistance, skills development programmes, and, in certain cases, unemployment insurance, particularly for individuals who have lost their jobs involuntarily.
Following termination, employees must also comply with any applicable procedures under their employment contract and labour law. This may include returning company property and complying with non-compete provisions, where applicable. Employment contracts may also specify termination entitlements and the timelines for payment of outstanding amounts.
In Indonesia, employees are generally entitled to severance pay upon termination, except where dismissal is due to gross misconduct. Severance provides financial support to employees following involuntary termination.
The amount payable typically depends on the employee’s salary, length of service, and reason for termination. Termination entitlements may include:
Severance pay may apply in cases such as redundancy, restructuring, or other terminations unrelated to employee misconduct.
Employment contracts should clearly specify when severance applies and how it is calculated. For fixed-term contracts (PKWT), the contract should also address any additional compensation that may become payable if the employment is terminated before the agreed end date.
Employers must provide the applicable severance and other termination payments in accordance with legal requirements. Failure to do so may result in claims from the employee.
In Indonesia, probationary periods are permitted only for employees hired under indefinite-term contracts (PKWTT) and cannot exceed three months. They allow employers to assess an employee’s performance and suitability for the role while giving the employee time to adapt to the workplace.
The duration and terms of the probationary period must be clearly stated in the employment contract and agreed by both parties before employment begins.
During probation, employees are entitled to the same rights and benefits as regular employees, including salary, health insurance, and other statutory benefits.
The main difference concerns termination. Employers may terminate employment more easily during the probationary period if the employee does not meet the required performance standards, without the severance pay or notice requirements that apply to regular employees.
Intellectual property (IP) rights in Indonesia are governed by Law No. 28 of 2014 on Copyright, Law No. 13 of 2016 on Patents, and other applicable IP legislation. These laws regulate the ownership, use, and transfer of intellectual property created during employment.
IP ownership within an employment relationship largely depends on the terms of the employment contract and the nature of the employee’s work. Employers commonly include specific IP clauses to establish ownership of intellectual property created by employees while performing their duties.
As a general principle, intellectual property created by an employee in the course of their employment duties belongs to the employer where the work was commissioned or relates to the employee’s job responsibilities. This may include:
However, where intellectual property is created outside the scope of the employee’s duties and using their own resources, the rights may belong to the employee.
Employment contracts should clearly define how intellectual property rights are allocated to help prevent disputes and ensure both parties understand their rights and obligations regarding IP developed during employment.
Employee data privacy in Indonesia is governed by Law No. 27 of 2022 on Personal Data Protection (PDP Law), alongside relevant provisions of Indonesian labour law. Employers must protect employees’ personal information against unauthorised access, misuse, or disclosure and ensure that it is collected and processed for legitimate purposes in a transparent and secure manner.
Employee data may include:
Under the PDP Law, employers are considered data controllers and are responsible for complying with applicable data protection requirements when handling employee information.
Employment contracts should clearly define the scope and purpose of data collection, how personal information will be used, and employees’ rights to access, correct, or delete their data. Employers must also inform employees about the types of personal data being collected and obtain consent where required, particularly when processing sensitive information such as health or financial records.
Failure to comply with applicable data protection requirements may result in administrative penalties or legal claims from employees.
In Indonesia, non-compete clauses may be included in employment contracts to restrict employees from engaging in business activities that compete with their employer during or after employment.
Although non-compete clauses are not specifically regulated by the Indonesian Labour Code, they are permitted under general contract law, particularly the Indonesian Civil Code, provided they are reasonable and not overly restrictive. Employers may use these clauses to protect legitimate business interests, including confidential information and trade secrets, by restricting an employee from working for competitors or establishing a competing business after leaving the company.
For a non-compete clause to be enforceable, it should clearly define:
The restrictions should balance the employer’s legitimate business interests with the employee’s right to work. Clearly defined and reasonable non-compete provisions are more likely to be upheld, while overly broad or indefinite restrictions are less likely to be enforced.
The employment contract should therefore clearly set out the applicable non-compete restrictions and ensure that both parties understand and agree to them.
There is no specific law dedicated solely to remote working in Indonesia. Instead, remote working arrangements are governed by the general provisions of the Manpower Law (Law No. 13 of 2003) and the terms agreed between the employer and employee.
Remote employees are entitled to the same employment rights and protections as employees working on-site, including those relating to:
Employment contracts should clearly define the terms of remote work, including working hours, performance expectations, communication protocols, and the use of company equipment.
Employers should also address employee safety, data privacy, and work-life balance when establishing remote working arrangements. As there is no dedicated remote working legislation, clear contractual terms are particularly important to prevent misunderstandings and disputes.
The responsibilities of employers and employees in a remote work arrangement should be clearly defined in the employment contract and reflect the requirements of the Indonesian Manpower Law.
Employers are responsible for:
Employees are responsible for:
The employment contract may also specify how frequently employees should communicate with supervisors and which platforms should be used for work-related communication. Both employers and employees must comply with their respective contractual obligations throughout the remote working arrangement.
Health and safety requirements in Indonesia apply to employees working remotely as well as those working in traditional workplaces. Under Law No. 13 of 2003 concerning Manpower and subsequent regulations, employers are responsible for providing a safe and healthy working environment regardless of where employees perform their work.
Remote work is formally recognised by the Ministry of Manpower through Circular No. M/3/HK.04/III/2020, with health and safety protections applying to employees working from home.
Employers are responsible for:
Employees also have a responsibility to maintain appropriate safety measures within their home workspace.
Failure to comply with applicable health and safety requirements may expose employers to legal liability and sanctions under labour law.
Compared to other countries worldwide, hiring in Indonesia can bring a lot of advantages and open up many opportunities for global employers.
Firstly, Indonesia has a growing pool of young and highly skilled professionals in IT, engineering, customer support, and creative industries. In addition to being an attractive source of talent, labour costs in Indonesia tend to be lower, which allows businesses to optimise their expenses without compromising on quality.
English proficiency in Indonesia is improving, especially among young and educated professionals, which can positively influence communication within global teams. Indonesian employees also have strong work ethics and cultural adaptability, making it easier to integrate them into international teams.
Native Teams helps you employ and pay your team in Indonesia directly through owned entities and infrastructure.
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