employer of record services indonesia

Why do You Need An Employer of Record Service in Indonesia?

  • InCorp Editorial Team
  • 22 September 2023
  • 10 minute reading time

The number of foreign companies engaging with Employer of Record (EoR) service providers in Indonesia has steadily increased. And this is largely due to Indonesia’s large working-age population and lower wage rates compared to its neighboring countries. EoR services are especially helpful in 2 use cases:

  1. When a foreign company is testing the Indonesia market (before officially establishing a presence).
  2. When a company expands its distributed workforce to meet its growing global demands or global expansion.

In this article, we attempt to explain an EoR service and why is the most effective legal solution for foreign companies planning to hire in Indonesia.

What Is An Employer of Records (EoR)?

An Employer of Record is an appointed company legally responsible for managing all or some of a company’s employees. This includes the full process from recruitment to payroll and work permits. Employees hired under an EoR service become employees of the EoR service provider. However, EoR service providers do not have supervisory functions. This means your company is the decision-maker on compensation, job title, the scope of work, projects, and termination.

In summary, EoR service is an outsourced service that manages the complexities and administration of Indonesia’s labor law and regulations.  Companies planning to penetrate new markets or when looking to expand their workforce cost-efficiently find EoR most useful.

The number of foreign companies engaging with Employer of Record (EoR) service providers in Indonesia has steadily increased. This is mainly due to Indonesia’s large working-age population and lower wage rates than its neighboring countries. 

An Employer of Record (EOR) is a strategic business solution that simplifies and streamlines the complex processes associated with employing and managing a workforce, particularly in foreign jurisdictions. 

This article explains an EoR service and why it is the most effective legal solution for foreign companies planning to hire in Indonesia.

What Does an Employer of Record Do?

An Employer of Record is an appointed company legally responsible for managing all or some of a company’s employees. This includes the entire process from recruitment to payroll and work permits. Employees hired under an EoR service become employees of the EoR service provider. 

This strategic partnership allows businesses to concentrate on their core activities while delegating essential administrative responsibilities to a specialized third-party entity. The multifaceted functions of an EOR can be summarized as follows:

1. Employment Onboarding and Compliance

EORs handle the intricate process of hiring and onboarding employees. This involves drafting employment contracts, ensuring compliance with local labor laws, and managing necessary documentation. By adhering to legal requirements, EORs provide a solid foundation for a mutually beneficial employer-employee relationship.

2. Payroll and Benefits Administration

EORs manage payroll, including accurate salary calculations, tax deductions, and timely payments. They also administer employee benefits such as health insurance, retirement plans, and other perks, guaranteeing that employees receive their entitled compensation and privileges.

3. Legal and Regulatory Adherence

Staying up-to-date with constantly evolving labor laws and regulations is a core function of an EOR. This includes managing statutory benefits, ensuring workplace safety, and handling employment-related legal matters. By doing so, EORs shield companies from legal risks and potential liabilities.

4. Taxation and Reporting

EORs are responsible for accurate tax withholdings and filings for employers and employees. This intricate task demands a deep understanding of local tax codes and regulations to prevent any discrepancies that might arise.

5. Termination and Offboarding

When an employment relationship ends, an EOR handles the termination process in compliance with relevant laws. This includes processing final payments, managing exit interviews, and ensuring a smooth transition for the departing employee and the employer.

6. Flexibility and Scalability 

EOR services offer unparalleled flexibility, enabling businesses to adjust their workforce size to meet changing demands swiftly. This agility allows for growth without the constraints of traditional employment models.

7 Global Expansion Support

For companies looking to expand into new markets, EORs provide an efficient avenue for establishing a local presence. EORs offer insights into countries’ specific labor regulations and business practices, simplifying expansion.

8. Risk Mitigation

Outsourcing employment-related responsibilities can minimize legal, financial, and operational risks. EORs possess the expertise to navigate intricate labor landscapes, ensuring clients remain compliant and insulated from potential legal complications.

Read more: 3 Most Important Benefits of Using Employer of Record in Indonesia 

The Difference Between EOR and PEO

Distinguishing between an Employer of Record (EOR) and a Professional Employer Organization (PEO) reveals two distinct strategies in workforce administration. While they share certain similarities, their purposes diverge to accommodate varying business needs. 

What to Look for in Employer of Record Services?

Why do You Need An Employer of Record Service in Indonesia?

Selecting the right Employer of Record (EOR) services is a critical decision that can significantly influence a company’s success in managing its workforce. When seeking an EOR partner, several vital considerations should guide your evaluation to ensure a seamless and compliant employment experience. Here are the crucial factors to look for:

1. Global Expertise

The EOR must have an in-depth grasp of local labor laws and regulations. Ensure they can handle all legal aspects of employment, from onboarding to termination, to protect your company from potential risks.

2. Compliance Knowledge 

The EOR must have an in-depth grasp of local labor laws and regulations. Ensure they can handle all legal aspects of employment, from onboarding to termination, to protect your company from potential risks.

3. Industry Experience

Look for an EOR with a track record of serving your industry, for example, employer of record service payroll. Different sectors have unique employment requirements, and an EOR with industry-specific expertise can better cater to your needs.

4. Technology and Transparency 

A robust digital platform that provides real-time insights into payroll, benefits, and compliance can streamline your experience. Transparency in reporting and processes fosters trust and clarity.

5. Scalability

As your business grows, your workforce needs may change. A flexible EOR should be able to accommodate both the expansion and reduction of your employee base without complications.

6. Payroll Accuracy

Accurate and timely payroll processing is crucial for employee satisfaction and regulatory compliance. Ensure the EOR’s payroll procedures are reliable and aligned with local tax codes.

7. Benefits Administration

Employee benefits play a significant role in job satisfaction. An EOR that efficiently manages benefits administration, including health plans and retirement options, can enhance your employees’ experience.

8. Support Services

Consider the level of support the EOR offers. A dedicated team that promptly addresses queries and concerns can significantly improve your overall experience.

9. Reputation and References

Research the EOR’s reputation in the industry. Seek references from current or past clients to gain insights into their service quality, reliability, and commitment to compliance.

10. Local Presence

Having a local presence in each jurisdiction is beneficial if your operations are in multiple countries. This ensures that the EOR understands the local market intricacies and can cater to your specific needs.

Selecting the right Employer for Record services requires a comprehensive assessment of your company’s needs and goals. By prioritizing these considerations, you can establish a partnership that simplifies workforce management and ensures compliance, growth, and employee satisfaction.

Read more: How Can Employer of Record in Indonesia Help Your Company Achieve Its Goal

The Benefits of Employer of Record Services

Employer of Record (EOR) services have emerged as a transformative solution for businesses seeking to navigate the complexities of workforce management while focusing on core objectives. Adopting EOR services brings various benefits, contributing to operational efficiency, compliance, and growth.

1. Global Expansion Made Effortless

EOR services offer an expedited route for companies expanding their operations into new markets. By leveraging the expertise of EORs, businesses can sidestep the intricate web of local labor laws, regulations, and administrative requirements that vary from country to country. This accelerates establishing a global presence and minimizes the risks associated with compliance gaps.

2. Streamlined Compliance

Navigating the ever-evolving landscape of employment laws, regulations, and tax codes demands dedicated attention. EORs specialize in maintaining up-to-date knowledge of these complexities, ensuring that businesses remain compliant with local and international mandates. This mitigates the potential legal and financial risks that arise from non-compliance.

3. Administrative Efficiency

Outsourcing employment-related administrative tasks to EORs liberates internal resources, allowing businesses to concentrate on their core competencies. EORs manage the intricacies of payroll processing, benefits administration, tax withholdings, and more. This streamlined approach reduces administrative burdens and enhances overall operational efficiency.

4. Speed and Agility

EOR services allow businesses to scale their workforce up or down rapidly. In a dynamic business landscape, this agility is a strategic advantage, enabling companies to respond swiftly to changing market demands without the constraints of traditional employment models.

5. Risk Mitigation

By partnering with EORs, companies transfer certain risks associated with employment to experts who are well-versed in handling them. EORs understand the legal complexities and potential pitfalls, making them adept at minimizing legal, financial, and operational risks that could otherwise hinder growth.

In a landscape where businesses increasingly operate across borders and face intricate labor regulations, Employer of Record services provide a beacon of efficiency, compliance, and growth. By entrusting employment-related responsibilities to EORs, companies empower themselves to focus on innovation, expansion, and core competencies.

Why Use Employer of Record (EoR) Service Providers in Indonesia?

The approach to setting up a company differs from country to country. Foreign investors and companies setting up a company in Indonesia must note 3 key factors.

  1. Setting up a foreign-owned company can be quick only if you have all the correct documentation.
  2. Based on Indonesia’s Positive Investment List, your company’s business sector must be fully open for foreign investments.
  3. An Indonesian citizen must hold a human resources position in Indonesia.

Considering the cost, time, and resources required to manage the processes mentioned above, the benefits of an EoR service become evident for companies who need to hire from Indonesia’s labor force.

Complying with Indonesian Labor Law and Regulations

An employer of record (EoR) service provider in Indonesia complies with the country’s federal, state, and local employment laws. As Labor and immigration policies in Indonesia are undergoing reforms, corporate compliance can become a massive obstacle. 

EoR enables a company to transfer all employment laws, responsibilities, and duties to an EoR service provider to mitigate legal violations.

Outsourcing HR Duties for Your Business

In Indonesia, only its citizens are eligible to work in human resources, locally-based employees must have their payroll issued by a company registered in Indonesia, and the ‘remote payroll’ practice – salary remitted by a company’s home country, is not permitted in Indonesia. 

Therefore, all aspects of human resource management are undertaken by an EoR service provider. Here’s Full Employer of Record (EoR) services from InCorp Indonesia:

Read more: How Can Employer of Record in Indonesia Help Your Company Achieve Its Goal

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InCorp Indonesia as Your Employer of Record Provider 

The recent regulation reforms to improve Indonesia’s investment climate are fast-changing, making it difficult for some new entrants to keep abreast. As a market-entry consulting firm, InCorp brings to our clients over a decade of business in Indonesia. EoR is one of many business process outsourcing services we can advise and execute.

If you want to streamline your business operations in Indonesia, fill in the form below with a brief description of your inquiry, and one of our consultants will contact you shortly. 

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

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Disclaimer: The information is provided by PT. Cekindo Business International (“InCorp Indonesia/ we”) for general purpose only and we make no representations or warranties of any kind.

We do not act as an authorized government or non-government provider for official documents and services, which is issued by the Government of the Republic of Indonesia or its appointed officials.

We do not promote any official government document or services of the Government of the Republic of Indonesia, including but not limited to, business identifiers, health and welfare assistance programs and benefits, unclaimed tax rebate, electronic travel visa and authorization, passports in this website.

Frequent Asked Questions

According to the Indonesia’s Manpower Law employers can hire the Indonesian talents either under a temporary or a permanent contract.

  • Prohibit any form of discrimination and provide equal opportunity for Indonesians and expatriates
  • Increase the competence of the workers by giving or encouraging job training
  • Follow the procedures of termination (Terminating an employee in Indonesia can be a long, tedious, and expensive process.)
  • Observe the working hours, holidays, and overtime regulations
  • Give mandatory employee benefits including social security and health insurance
  • Withhold only the right amount of income tax on behalf of the employees
  • Follow the wages and other benefits outlined by the law
  • Process the work permits for foreign employees

You will need to have a company that meets your home country’s requirements and agree to a 2-month salary deposit for a fixed-term employment contract.

You will need your employee’s personal documents (KTP, KK, BPJS cards) as well as employee benefits information such as salary and other benefits.

A comparable service to EoR is Professional Employer Organization (PEO). EoR’s and PEO’s are similar in that they both assist with outsourcing human resources services, but differ in legal responsibilities. While a PEO may also assist you in recruitment, your company will still hold employee contracts. This means your company will still bear all legal liabilities when hiring but a PEO takes on your employees and are responsible for anything HR-related. In contrast, an EoR is the legal employer of those your company hires, meaning they hold employment contracts - EoR’s put your business and employees on their payroll.