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Hiring Foreign Workers vs Locals in Indonesia

Hiring Foreign Workers vs Locals in Indonesia Review by tenissa.tjahjono on 18. 2. 2019 Company Registration in Indonesia, Market Research in Indonesia, Work Permit in Indonesia, Product Registration in Indonesia, Local Partner Selection in Indonesia, Trade Mission in Indonesia, Company Formation in Indonesia, Company Establishment in Indonesia, Company Set Up in Indonesia, Payroll Outsourcing in Indonesia, Tax Reporting in Indonesia, Medical Product Registration in Indonesia, Medical Device Registration in Indonesia, Cosmetic Registration in Indonesia, Food Supplement Registration in Indonesia.
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Nowadays, Indonesia has become well known as one of the largest economy and emerging markets in the world. It has also transformed into a destination with increasingly attractive options for locals to work in a different city, and for foreigners to work in a different country.

As a company that expands and requires more talents and labours, an employer has two options when it comes to staffing their operations in Indonesia:

  • Hire foreigners with specialised skills.
  • Recruit a local resident to fill the demand.

With that being said, hiring in Indonesia must adapt to the country’s human resource regulations and labour laws. Noticeably, employers will have to face legal repercussions if they violate these laws.

As an employer in Indonesia, here in this article is what you need to know about the hiring of foreign workers or locals in Indonesia.

Hiring Foreign Workers in Indonesia

When companies expand into the international scene, one of the critical components of success is the employee’s knowledge. Therefore, by hiring foreign workers, a company will be able to gain more know-how that is currently lacking. This foreign hire will usually carry a deep understanding of particular skills, products, systems, and policies.

Just like every other country in the world, foreign employees must comply with the latest immigration laws in Indonesia.

As of September 2018, these laws include the Presidential Regulation Number 20 Year 2018 concerning Foreign Worker (TKA) that took effect on June 29, 2018 (PP20), and the Regulation of Ministry of Manpower Number 10 Year 2018 concerning Procedure on Usage of Foreign Worker that took effect on July 11, 2018 (RM10). Both of these regulations are complex, and there might be some changes from time to time.

You are advised to get in touch with Cekindo’s consultants to know more details.

Employers Who Are Eligible

The regulations from the Ministry of Manpower in Indonesia states that only the following organisations or institution can employ foreign workers:

  • Foreign legal entities registered in Indonesia
  • Foreign countries’ representatives, international organisations, international agencies, government agencies
  • Foreign company representative offices, foreign trade representative offices, and foreign news agencies incorporated in Indonesia
  • Limited liability companies (PT – Perseroan Terbatas) and foundations
  • Educational, social, cultural and religious institutions
  • Sports, entertainment, and arts event organisers

Requirements for Employers to Hire Foreign Workers

Employers are required to proceed with the following steps in order to employ foreign workers:

  • An Expat Placement Plan or Foreign Manpower Utilisation Plan (RPTKA – Rencana Penggunaan Tenaga Kerja Asing) approved by the Ministry of Manpower or appointed officials
  • Submission of US$100 per month as a compensation for the Use of Foreign Manpower (DKP-TKA) for each position held by a foreign worker (this does not apply to certain institutions and organisation, please contact Cekindo to find out more)
  • Registration of insurance programs for foreign workers. Insurance programs must be under insurance companies registered in Indonesia
  • Appointment of Tenaga Kerja Pendamping (Indonesian Companion Employees) to transfer the skills and technology from the foreign workers
  • Provision of training to the Tenaga Kerja Pendamping

Expat Placement Plan (RPTKA) and Exemption of RPTKA

Currently, it is not compulsory for employers to obtain RPTKA for certain positions held by foreigners and pay the compensation fund:

  • Shareholders who are the Board of Commissioners
  • Shareholders who are the Board of Directors
  • Officials from the Government of Indonesia decided by the Minister’s resolution
  • Diplomatic officials of foreign representative offices
  • International bodies with foreign employment
  • Other social, educational and religious entities, but applicable only case-by-case based on the respective Ministry’s decision

This exemption has made employing foreign workers much easier and more convenient for companies in Indonesia.

Taxes for Foreign Workers

Foreign workers are considered as individual taxpayers when they reside in Indonesia for more than 183 days within a consecutive 12 months. Hence, foreign taxpayers are required to register for NPWP (Taxpayer Identification Number) at the tax service office.

The progressive tax rates for a foreign resident individual taxpayer in Indonesia based on the yearly earnings:

  • IDR 1-50 million: 5%
  • IDR 50 – 250 million: 15%
  • IDR 250 – 500 million: 25%
  • Over IDR 500 million: 30%

Work Visa Requirement for Foreign Workers in Indonesia

The President of Indonesia signed the Presidential Regulation No. 20/2018 to simplify foreign worker’s permit as well as their work visa. The implementation of this new regulation ensures a more efficient and faster process for companies.

A foreign worker is eligible for a work visa from one month to 2 years, and this visa is extendable and must be sponsored by his/her employer based on the foreigner’s position and market sector.

However, foreigners are not allowed to obtain a work permit and work in the following sectors:

  • Quality Control and Inspection
  • Legal Entity
  • Human Resource
  • Health, Safety, and Environment Affairs
  • Supply Chain Management

The different work permits are urgent or emergency work permit (1-month validity), temporary work permit (2-6 months), and long term work permit (7 to 12 months).

Just like not registering as a taxpayer in Indonesia, foreigners not securing a work permit are said to break the Indonesian Law – and a subject to a considerable fine of IDR 500 million or/and 5 years of imprisonment.

Cekindo always encourages companies in Indonesia to consult an agency for the most updated immigration law.

Hiring Local Workers in Indonesia

It is no secret that local talents are now increasing substantially due to Indonesia’s large population and exploding young demographics. There is potential to be explored in domestic workers, and thus raise a company’s profits with the right recruitment strategy.

To reap the benefits, it is crucial for companies to hire Indonesian nationals who are familiar with local customs, ways of doing businesses, conventions, as well as local cultures.

Besides, hiring local workers in Indonesia helps international companies to penetrate the Indonesian market more efficiently.

Due Diligence in the Hiring Process

The process of hiring new local employees can be time-consuming and expensive – given that the local talent market is vast and companies are expected to receive a lot of applications just from the locals alone. And making a bad hiring decision will cost your company even more.

It is important for companies to do their due diligence towards hiring the right local talents. Here are some of the basis for a company’s due diligence:

  • credential checks
  • personal background checks
  • reference checks
  • interview

These checks are significantly more important for professional positions in order to verify the factual information on the resume. Always keep a due diligence checklist to ensure successful hiring.

Recruitment Outsourcing

When there are so many applicants for several positions, the whole recruitment process can be time-consuming. When the person in charge of hiring is too pressed for time or lack of experience, the hiring decision can sometimes be taken lightly.

In a worse scenario, this could even mean neglecting an employee’s usual job that might be important to increase the company’s bottom line.

By outsourcing your recruitment process to a reliable consultant, a company can have its focus on the core business activities, improve the quality of hires, reduce costs, keep up with the recruitment needs and demands, and reduce turnover rate.

These benefits can be so significant in a country like Indonesia with immense local labour and talent pool, vast job and business opportunities.

For any information regarding recruitment, due diligence, tax or work permits in Indonesia, Cekindo is entirely at your service. Contact us now and get the latest information with a free quotation on your business. We will help you to decide whether hiring foreign workers or local talents will comply with your business strategies.