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 human resources (HR) and recruitment in Indonesia.
The Labour or Manpower Law of 2003 governs both the HR and recruitment 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:
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.
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:
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.
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.
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:
|Pension||3%||2% employer, 1% employee|
|Old Age||5.7%||3.7% employer, 2% employee|
|Accident||0.24% to 1.74%||employer|
|Health||5%||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.
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:
Let us talk more about the second point. Foreign workers cannot work in the following sectors:
Further, to be granted a work permit, the expatriate should possess the following:
Related article: Hiring Foreign Workers vs Locals 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 percent.
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 percent of the total compensation.
Need more insight? You might want to read: Doing Business in Indonesia: Hiring or Outsourcing?
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.