Indonesia has one of the biggest populations in Asia. It is home to more than 260 million people as of 2016. A good percentage is a young, talented, and dynamic workforce.
In spite of this, sometimes companies need to hire foreign workers. Perhaps it’s to augment their team or to fill in the skills gap. Whether you’re an employee planning to work here or an employer wishing to hire an expatriate, you need to know about HR and recruitment in Indonesia.
What Governs HR and Recruitment in Indonesia?
The Labour or Manpower Law of 2003 governs both the recruitment and human resource management of any Indonesian-based organisation. It outlines the rights and responsibilities of both the employers and the employees. Here are some of the key facts:
Definition of Labour and Workers
The law defines manpower as individuals necessary to perform a job before, during, and after the work. A worker, on the other hand, is called pekerja while the job is tenaga kerja. He or she receives a remuneration such as wages for the services rendered.
This definition is important when getting the right visa. A person who holds a business visa cannot apply for employment in the country because it prohibits receiving compensation.
Duties of an Employer or an Entrepreneur
While the employers have the right to demand accurate and timely service from the workers, they also need to observe their duties faithfully. There are so many of them that this post won’t cover all of them. Rather, we will highlight a few:
o Prohibit any form of discrimination and provide equal opportunity for Indonesians and expatriates
o Increase the competence of the workers by giving or encouraging job training
o Follow the procedures of termination (Terminating an employee in Indonesia can be a long, tedious, and expensive process.)
o Observe the working hours, holidays, and overtime regulations
o Give the mandatory employee benefits including social security and health insurance
o Withhold only the right amount of income tax on behalf of the employees
o Follow the wages and other benefits outlined by the law
o Process the work permits of foreign employees
But certain regulations do not apply to foreign workers, and the law does not expressly establish such differences. Organisations thus have to refer to other laws. These include the Regulation No. 35 issued in 2015 by the Ministry of Manpower and Transmigration. It outlines the utilisation of the expatriate workers. The Decision No.40 in 2012 by the same ministry determines the positions that the foreign employees cannot hold.
UPDATED in July 2018
The Ministry of Manpower issued a new regulation regarding procedures and sanctions for employers who fail to register their employees to BPJS (Social Insurance Administration Organization).
The violations, to which administrative sanctions in the form of certain public-service access restrictions apply, are as follows:
- Employer fails to register employees to the BPJS program;
- Employer fails to report and pay social security contributions;
- Employer fails to submit a report on the change of membership data of any of its employees;
- Employer fails to engage its employees in the Old Age Insurance Program.
In case, the employer does not comply with the requirements, the process of administrative sanctions consists of:
- two warning letters sent within an interval of two weeks
- restrictions to access certain public services
Types of Employment in Indonesia
In Indonesia, local employees can work either in a definite or an indefinite period. The definite-period arrangement means the contract can end at a specific date or condition. According to the law, this is allowed only when the work is seasonal in nature. It may also be applied when the job is temporary or during the development phase of a product. The contract should specify the date or the situation in which it can be considered complete.
Employers can extend such contract once. The duration can be up to 2 years and the job cannot be completed within the agreement’s period. But there must be an interlude of a month between the implementation of the new contract and the old agreement.
Expatriate workers, however, usually find themselves in an interesting position. Because of their work permit, they are actually under the definite period, but the employer cannot immediately extend or renew the contract. Foreign nationals have to renew their work permits, which are valid for only one year.
There are also full-time employees who are entitled to the full benefits mentioned by the law. Local part-time and fixed-term workers also enjoy the same rights and benefits.
It’s also possible for a company to hire an agency or outsource workers. But the law permits this only in certain sectors. These include security, transportation, catering, and cleaning.
Requirements for Hiring an Employee
This just serves as an overview of the requirements companies have to fulfil to get someone on-board:
Social Security – The country has a universal healthcare system as regulated by the BPJS Law (No. 24) passed in 2011. Employers have to provide health and employment security. The health security covers foreign workers and residents. The employment security is broader since it also includes the pension fund, accident, and death benefits.
Both the employer and the employee contribute to most of these funds through deductions in the payroll. You can refer to the table below for guidance:
||2% employer, 1% employee
||3.7% employer, 2% employee
||0.24% to 1.74%
||4% employer, 1% employee
Employment Contract – There are two ways to create an enforceable agreement with an employee: oral or writing. The former applies only if the employee is under an indefinite-period arrangement.
For your protection, it’s always best to have everything in writing. If you’re hiring foreign workers, you cannot do it orally. For those hired in a fixed term or definite period, the contract should be in Indonesian. If it also has an English translation, the local interpretation prevails during disputes.
The contract should specify the line of business, employer’s personal information, place of work, position, wages, and the rights and obligations of the parties.
When Can You Hire a Foreign Worker?
Indonesia works hard to provide employment to its locals. In other words, hiring locals is and will always remain a priority.
For this reason, companies may hire foreign workers if:
- An Indonesian cannot perform the job
- The job offered to the foreign worker is allowed by law
- The company also hires one Indonesian for every one foreign worker
Let us talk more about the second point. Foreign workers cannot work in the following sectors:
- Supply chain management
- Human resources
- Quality inspection and control
- Environment affairs
- Health and safety
Further, to be granted a work permit, the expatriate should possess the following:
- Five years of professional experience that relates to the position offered or a competence certificate
- Education that matches or suits the position
- Life and health insurance proof during the employee’s stay in Indonesia
In Indonesia, there are three sectors that can determine the minimum wage: the province, the regency (which is within the province), and the business sector. For the past few years, unions have strengthened their bargaining power. The country doesn’t have a national minimum wage.
This means wages can vary significantly among regions and industries. But the goal remains the same: ensure such wage can cover the basic needs of the employees. Currently, the wages have increased by about 8.71 per cent.
But who are these workers? These are people who work on a full-time basis for at least 40 hours a week and whose service is less than one year. The industry should also be regulated or monitored by the government. Employees who work for more than a year receive wages stipulated by their contracts or agreements.
A special formula is used to determine the minimum wage for the year. Overall, sectoral-based wages cannot go below the province’s while the regency’s cannot be higher than that of the province. For companies that offer bonuses and allowances, the basic wage should be at least 75 per cent of the total compensation.
Need Help with Recruitment in Indonesia? Call Cekindo!
Cekindo offers complete back-end support for both local and foreign organisations that want to hire the right people for the right job. We can assist you in all stages of the recruitment in Indonesia. We will also be there to make sure you can run your business with greater comfort and ease by taking the reins of HR management.
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