hiring in Indonesia

Hiring Local or Expatriates in Indonesia? Things to Know

  • InCorp Editorial Team
  • 10 June 2014
  • 3 minute reading time

Hiring in Indonesia, whether locals or expatriates, comes with certain regulations that every business is required to comply with.

In Indonesia, labour and employment are regulated by the Ministry of Manpower. The regulations protects all employees. An employee is defined as any person working in return for a salary or compensation in another form.

Hiring Regulations in Indonesia

When it comes to payroll, your company has to use the minimum wages (UMR) set by local government as the lowest salary benchmark.  For example, in Jakarta, the UMR is IDR 4,276,249 (2020). The UMR is calculated as a take home pay which already includes basic salary, fixed and non-fixed allowances.

In addition to the salary, your company has to provide THR and enroll employees into Jamsostek (worker social security).  THR is an allowance paid prior to the celebration of major religious events such as Christmas and Id al Fitr. The minimum THR regulated by Ministry is one time take home pay.

indonesia-healthcare-insuranceBy enrolling your employees in Jamsostek, you are basically providing them with insurance for accidents (JKK), old age security (JHT), death benefits (JKM) and health insurance (JPK).

The premium contribution is 3.7% by company and 2% by employee. This has to be done on a monthly basis by the 15th. The administrative sanction for failing to enroll in Jamsostek is withdrawal of the company license.

Please keep in mind that it’s obligatory only for company with more than 10 employees. However, companies that provide better company health insurance to employees cannot choose the health care program (JPK)  under Jamsostek.

For tax purposes, your company is required to withhold Article 21/26 income tax on a monthly basis from the salary and other compensation payable to your employees. The filing of DGT is due on the 20th each month. Generally, for this purposes, a company’s books must be maintained in accordance with the prevailing accounting standard unless the tax law stipulates otherwise. By default, the books have to be in Rupiah, composed and stored in Indonesia.

For tax income, there’s a differentiation between residents with NPWP (tax identity number) and non NPWP. With NPWP, your employees can enjoy the tier system, which starts from 5% and goes to a maximum of 30%, where the highest is applied to income above IDR 500 million.

If your employee doesn’t have NPWP, it means they are subject to a surcharge of 20% in addition to the standard withholding tax. As an individual, they will have to file an annual income tax return (form 1770) which is basically a summary of their assets and liabilities. It should be done before end of March.

Cekindo provides assistance to its clients in a full range of operations processes such as Payroll Processing and Outsourcing, Accounting and Tax Reporting, Visa and Working Permits, Recruitment and HR Establishment.

Feel free to contact us for a free quotation on receiving business assistance in Indonesia. Our legal team is ready to assist you.

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.

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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

Cost reduction, hiring time reduction, hire quality are among the most noteworthy benefits your company can enjoy.

Even though building an internal recruitment team sounds appeal, later on you will learn how overwhelming the recruitment and human resources tasks really are. Interview, payroll, tax and these are just some. Not to mention, an internal recruitment team needs to keep up with the latest changes in regulations that may happen regularly.