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Employment in Indonesia

Law No. 13 on Manpower of 2003 (the Labour Law) creates the legal framework for employment in Indonesia, and applies to both local Indonesians and foreigners employed in Indonesia. It is not possible do contract out any terms of the employment legislation, although practically many contracts does not comply. In the case of conflict between a contract and the law, the law overrides the terms of the contract. For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Indonesia.

Key points on employment in Indonesia

There are several key areas to be aware of within Indonesia’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

  1. Contracts

    In Indonesia, parties are usually free to negotiate and document their own employment contracts, so long as they contain key information such as employee names, the type of work and wage amount. The terms of employment (such as minimum regional wage and leave entitlements) may not less favourable than those prescribed by law.

  2. Probation Periods

    In Indonesia, employees under a definite term contract cannot be employed on a trial or probationary basis, although employees under indefinite term contracts may be employed on a probationary basis for a maximum period of up to three months.

  3. Termination Procedures

    Employment contracts are considered to have terminated if:

    • The employee dies
    • A fixed term contract expires
    • There is a court ruling, or decision of the institute responsible for settling industrial relations disputes, which ends the contract
    • There is a certain situation or incident as prescribed in the contract, enterprise’s rules and regulations, or enterprise’s collective work agreements that may effectively result in the termination of the employment.

     

    Outside of the probationary period, termination of an indefinite term employment contract requires bipartite negotiations and settlement – this can be achieved through conciliation, mediation or proceedings before the Industrial Relations Courts.

    If a fixed term contract terminates for a reason other than one of the above, the party terminating the contract is required to pay compensation to the other party. This compensation must be equivalent to the amount of wages the employee is entitled to receive from the point of termination to the date of contract expiration.

     

  4. Statutory Leave

    There are laws that regulate leave periods based on years of service and the type of leave requested, including:

    1. Annual Leave: all employees are entitled to 12 working days of paid leave each year after one year of continuous work
    1. Maternity Leave: Female employees are entitled to not less than 4 months of maternity leave.
    1. Sick Leave: Employees are entitled to both paid sick leave as well as extended paid sick leave. Workers who are ill and unable to perform their work are entitled to receive full pay for the first four months, then 75% for the next four months, and 50% for the following four months. From that point onwards, employees are entitled to 25% of their wages until termination of their employment contract.
  5. Pensions and Benefits

    In Indonesia, the employer is the prime provider of social welfare. Employers with more than 10 employees or paying a monthly salary exceedings IDR1,000,000 must register with the Jaminan Sosial Tenaga Kerja (Jamsostek), which is state-owned company provided the Worker’s Social Security Programme. There are requirements for both employee and employer contribution rates based on a percentage of salary.

    The categories of Welfare Contributions include:

    • Working accident protection: Employer contributes between 0.24-1.74% and employee does not contribute.
    • Death insurance: Employer contributes 0.3% and employee does not contribute.
    • Pension: Employer contributes 3.7% and employee contributes 2%.
    • Healthcare: Employer contributes 3% and employee does not contribute

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Indonesia. For companies which intend to employ their staff directly through their incorporated Indonesian entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Indonesia.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Indonesia.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Indonesia

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Indonesia

– the company needs help with tax, employment, immigration and payroll compliance in Indonesia

Shield GEO can contract directly with the company to employ and payroll their staff in Indonesia. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits. Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

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