Hiring guide in Indonesia

What should I know about hiring in Indonesia?

Legal framework

Types of employment contracts

Employment contracts in Indonesia can be divided into two main categories – fixed-term and indefinite-term contracts, each governed by specific regulations under the Indonesian Labour Code. 

Fixed-term employment contracts are commonly used for temporary work arrangements, such as seasonal work, project-based employment, or specific tasks that are expected to be completed within a certain period. In order to be legally binding, fixed-term contracts must be in writing.

Indefinite-term employment contracts are used for more permanent positions where the employment relationship is expected to continue without a defined end date. These contracts offer greater security and require employers to comply with some additional legal obligations, such as termination protections, notice periods, and severance payments.

Content of an employment contract

To be compliant with the Indonesian Labour Code, employment contracts must include specific elements that regulate the relationship between the employer and the employee. This includes provisions such as the identity of the parties, job description, salary, working hours, location of work, and contract duration for fixed-term contracts. 

Employment contracts in Indonesia must also adhere to the regional minimum wage standards, annual leave entitlements, mandatory employee benefits, and other essential elements.

 Download a free employment contract for Indonesia through Native Teams.

Oral, written or electronic employment contracts

Employment contracts in Indonesia can be established orally, in writing, or in electronic form, with each having specific legal implications under the Indonesian Labour Code. Although all the contract forms are legally binding, written contracts are preferred due to their legal clarity and enforceability. 

When it comes to fixed-term contracts, the law mandates their formation in a written form. If not formalised in writing, these contracts are deemed indefinite-term contracts. This provision protects Indonesian workers from being subjected to permanent work under the guise of a temporary arrangement. Indefinite-term contracts, on the other hand, can be oral and written, although the written form is preferred for better clarity and evidence. 

Finally, electronic contracts were introduced in Indonesia with the rise of digital and remote work environments. These contracts are legally recognised under Indonesian law, provided they meet certain criteria and are accessible to both parties.

Probationary period

According to Indonesian labour laws, a probation period is allowed only for indefinite-term contracts and can’t exceed three months.

During this period, the employer has the right to assess whether the employee meets the expectations and requirements of the role, while the employee has the opportunity to prove their capabilities and adapt to the new workplace. 

Employment contracts must state the duration and terms of the probationary period, and both parties must agree to these terms before the employment begins. 

During the probationary period, the employee is still subject to performance reviews and evaluations. They are also entitled to the same rights and benefits as regular employees, including salary, health insurance, and other statutory benefits.

Working hours

The standard workweek in Indonesia is 40 hours per week, distributed over either six days (seven hours per day) or five days (eight hours per day), depending on the agreement between the parties. These rules ensure that employees are not exposed to excessive working hours without proper compensation or rest. 

Overtime work is also permitted but must be limited to a maximum of three hours per day and 14 hours per week, excluding holidays and rest days. Also, employees who work overtime are entitled to additional compensation calculated following rates specified by law.

Night work

Night work in Indonesia is defined as work performed between 11 pm and 7 am. However, employers that require night work must comply with legal requirements regarding safety, compensation, and special protections for certain groups of employees.

Employment contracts that include night work must clearly define the expectations for night shifts, such as the start and end times, compensation, and provisions for rest and safety. Employees who work night shifts are entitled to additional compensation in addition to their regular wage, which often comes as a night work allowance.

Breaks and types of leaves

According to Indonesian labour law, breaks and leaves are protected rights for employees and must be addressed in their employment contracts. 

Starting from breaks, employees who work more than four consecutive hours are entitled to a minimum of 30 minutes of rest, which must be incorporated into the workday. Employers must also provide at least one day off per week, typically on Sunday, but highly depending on the nature of the work or sector. 

In addition to breaks, Indonesian labour law guarantees annual leave, sick leave, maternity leave, and other special leave provisions.

Annual leave

Annual leave in Indonesia is a statutory right that ensures that employees receive adequate rest, with specific terms outlined in their employment contracts. The annual leave in Indonesia guarantees a minimum of 12 days of paid leave each year after completing 12 months of continuous employment.

The labour law mandates that annual leave be provided in full, and employees can not exchange it for additional compensation or benefits. The only exception is when the employee agrees to carry over unused leave to the next year.

Individual employment contracts must define the process for requesting leave, including how far in advance leave must be requested, how much leave can be taken at once, and any company-specific policies that may limit leave during peak business periods.

Public holidays

During public holidays in Indonesia, employees are entitled to take time off without any loss of pay, and this entitlement must be clearly stated in the employment contract. For this purpose, the government of Indonesia declares a list of public holidays each year, including religious, national, and cultural observances.

Some of Indonesia’s most important public holidays are New Year’s Day, Chinese New Year, Good Friday, Eid al-Fitr, Labour Day, Independence Day, and Christmas Day.

Employers must also provide compensation for employees who work on public holidays, typically in overtime pay or compensatory time off.

Salary

The salary structure in Indonesia is governed by Law No. 13 of 2003 of Manpower, which establishes the minimum wage standards, salary payment methods, and other compensation-related matters in the employer-employee relationship.

The law mandates that all employees must receive a salary that meets or exceeds the regional minimum wage set annually by the government. The minimum wage is based on factors such as inflation, economic growth, and living costs in different regions.

To calculate the salary and taxes in Indonesia, click here.

Sick leave

Sick leave in Indonesia is a statutory right, ensuring that employees receive adequate time off for health recovery while maintaining income security. 

Employees are entitled to paid sick leave as long as they provide medical certification from a licensed doctor. The Indonesian labour law protects employees from dismissal during illness, provided that they follow proper reporting procedures. 

The length of sick leave and the amount of salary is based on the duration of the illness. For the first four months, the employee is entitled to their full salary. If the illness extends beyond this period, the employer may reduce the salary to 75% for the second four months, 50% for the third four months, and 25% thereafter until recovery or termination.

Parental leave

Parental leave in Indonesia is a legal right that ensures employees receive time off for childbirth and childcare while maintaining their employment and income security.

The Indonesian labour law provides specific entitlements for maternity leave for female employees and limited paternity leave for male employees. These provisions must be clearly outlined in the employment contract, including the payment terms, the procedure for requesting leave, and other similar conditions.

Paternity and maternity leave

Female employees in Indonesia are entitled to three months of paid maternity leave, typically divided into 1.5 months before the expected due date and 1.5 months after childbirth. During this period, employers must pay the full salary and ensure the right to return to the previous or equivalent position after the leave period ends. 

Paternity leave, while not as extensive, provides male employees with limited time off. Male employees in Indonesia are entitled to two days of paid paternity leave upon the birth of their child. Although the law provides for only two days, some employers may offer more generous paternity leave as part of their company policy, which is typically reflected in employment contracts.

Methods of employment termination

Employment termination in Indonesia can occur through various methods, including voluntary resignation by the employee, mutual agreement between the parties, dismissal by the employer, or contract expiration in the case of fixed-term employment.

When terminating an employee, employers must provide valid reasons for dismissal, follow due process, and pay severance or compensation when applicable. 

In the case of resignation or voluntary termination, the employee must provide notice following the employment contract terms and conditions.

Dismissal by the employer can occur for reasons like poor performance, misconduct, or redundancy and must be based on valid grounds as defined by law. 

Finally, while fixed-term contracts naturally expire at the end of the agreed term, early termination by either party requires compensation if the contract is terminated prematurely.

Ordinary dismissal by employer

Ordinary dismissal in Indonesia is initiated by the employer, typically for reasons like poor performance, misconduct, or redundancy. 

In the case of ordinary dismissal, the employer must provide adequate notice, justify the dismissal, issue written warnings, and pay severance or other compensation based on the employee’s length of service and reason for termination. 

Failure to follow these procedures can result in claims of wrongful termination, and the employer may be required to compensate the employee for damages.

Notice period and challenging the dismissal

Typically, the notice period in Indonesia is at least 30 days, although the duration may vary depending on the employment contract and the nature of the dismissal.

During the notice period, the employee is generally expected to continue fulfilling their duties unless the employer chooses to pay in lieu of notice, allowing the employee to leave immediately. Payment in lieu of notice must be calculated based on the employee’s salary and benefits to ensure that they are not financially disadvantaged by leaving early. 

If the employer fails to provide adequate notice or payment in lieu of notice, the dismissal may be considered unlawful, giving the employee the right to challenge the termination.

Rights and obligations of unemployed individuals

Upon unemployment for reasons like resignation, mutual agreement, or dismissal, individuals have rights related to severance pay, long service pay, and compensation for unused annual leave, depending on the nature of their termination. Severance and other termination benefits are contingent on whether the termination was voluntary or forced, as well as the length of service and terms of the employment contract. 

Unemployed individuals must register with the government’s employment service to access unemployment benefits. The benefits often include job search assistance, skill development programmes, and unemployment insurance for those who have lost their job involuntarily.

Severance pay

Severance pay in Indonesia is a mandatory entitlement for employees in cases of termination, with specific calculations and conditions outlined in the labour law and individual employment contracts. These regulations obligate employers to provide compensation to employees upon termination unless the dismissal is for gross misconduct. 

When it comes to calculating severance pay, the calculation is based on the employee’s salary and years of service. The Indonesian law differentiates between severance pay, long-service pay, and compensation for entitlements such as unused annual leave. 

The calculation of severance pay must be detailed in the employment contract, including additional compensation to which the employee may be entitled in the case of early termination of a fixed-term contract.

Employers must follow the severance payment guidelines, and failure to do so can result in legal claims from employees.

Prohibition of competition

In Indonesia, the prohibition of competition, or non-compete clause, is generally included in employment contracts. They aim to prevent employees from engaging in competitive business activities that could harm the employer’s interests.

Although there is no specific statutory regulation under the Indonesian Labour Code, these clauses are permitted under general contract law, specifically the Indonesian Civil Law – provided they are reasonable and not overly restrictive. 

Some employers may use non-compete clauses to protect their business interests, confidential information, and trade secrets. This typically limits employees from working for competitors or starting their own competing business after leaving the company. 

For a non-compete clause to be enforceable in Indonesia, it must be included in the employment contract and specific in terms of the duration, geographical scope, and activities restricted.

Remote working policy

Remote working arrangements in Indonesia have gained increased attention, especially with technological advancements and the global shift towards flexible work environments.

While there is no specific law dedicated solely to remote working, the general provisions of the Manpower Law apply to all work arrangements, including remote work. This law ensures that employees working remotely are entitled to the same rights and protections as those working on-site, including provisions like minimum wage, working hours, overtime pay, health insurance, and social security.

Employment contracts for remote workers must also define aspects like working hours, performance expectations, communication protocols, and the use of company equipment.

Intellectual property rights

Intellectual property rights in Indonesia govern the ownership, use, and transfer of intellectual property created during employment. Within the employee-employer relationship, intellectual property ownership depends on the employment contract terms and the nature of the work performed. 

The general principle in Indonesia is that intellectual property created by an employee belongs to the employer, provided that the work was commissioned or related to the employee’s job responsibilities. This applies to properties like inventions, designs, and software. 

However, if the intellectual property is created outside the scope of the employee’s job duties and uses the employee’s own resources, the rights may belong to the employee.

To avoid potential disputes and ensure that both parties understand their rights and obligations, it’s important to clearly define the allocation of intellectual property rights in the employment contract.

Employee data privacy

Employee data privacy laws in Indonesia protect employees’ personal information from unauthorised access, misuse, or disclosure. Employees must handle employee data carefully and ensure that personal data is collected for legitimate purposes and processed transparently and securely. 

Employers typically collect data like employees’ identification information, salary details, health records, and other sensitive information. Under the PDP Law, employers are primarily responsible for ensuring compliance with data protection principles when handling their employees’ information. Employers must also inform their employees about the types of personal data collected and obtain consent when necessary, particularly for sensitive data like health or financial records.

Responsibilities within remote work arrangements

In Indonesia, the responsibilities within remote work arrangements are primarily regulated by the employment contract, which should reflect the provisions in the Indonesian Labour Code. 

As remote work in Indonesia becomes more common, it’s important for both parties to clearly define their respective responsibilities to maintain productivity, ensure compliance, and protect rights. 

Employers are responsible for setting clear expectations regarding work hours, deliverables, and communication protocols and providing necessary tools for performing tasks remotely. At the same time, employees must meet performance standards, maintain confidentiality, and ensure their work environment is conducive to completing their duties.

Health and safety at home

Health and safety regulations for remote work in Indonesia define the rights and responsibilities of employees and employers under the labour code, mostly focusing on creating a safe and legally compliant home-work environment. 

According to the Indonesian labour law, employers must ensure a safe and healthy work environment for all their employees, regardless of their location. This includes taking measures to prevent workplace accidents, ensuring the well-being of employees, providing the necessary resources for a remote office, and keeping compliance with safety standards. 

While employees have the right to work in safe conditions, they are also responsible for maintaining safety measures within their home workspace.

What are the advantages of hiring employees from Indonesia vs other countries?

Compared to other worldwide countries, 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.

Why use Native Teams for hiring in Indonesia?

Native Teams lets you employ team members ‘like a local’ meaning you get all the benefits of a global team, wherever you are based. Here are the reasons why you should use Native Teams for hiring:

• No paperwork: We will handle all the necessary paperwork for you.
• Save on taxes: We help you handle your taxes.
• No company set up: You can expand your business using our company entitles.
• Online onboarding: We’re here to ensure your onboarding process is trouble-free.
• No accounting: We will handle all of your accounting needs, including invoicing, payroll, and more.
• Increase your profit: We assist you in growing your business and maximizing your profits.
• Compliance expertise: we can assist your company in navigating the regulatory environments and ensure you meet all relevant requirements.
• Local support: We can assist you in understanding and complying with the relevant local laws.