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Indonesian Currency

Indonesian Rupiah (IDR)

The Capital of Indonesia

Jakarta

Time Zone in Indonesia

GMT+7

Important Facts About the Country of Indonesia

Languages Spoken in Indonesia

While Bahasa Indonesia serves as the national language of Indonesia, the diverse array of ethnic backgrounds in the country results in numerous languages being spoken.

Laws and customs in Indonesia

The foundation of the Indonesian government and its legal system is the Constitution of Indonesia (Undang-Undang Dasar 1945), which establishes both the governance structure and the common law framework.

Culture Observations in Indonesia

Indonesia, the world’s largest archipelago, consists of approximately 17,500 islands. Geographically positioned between two continents, Asia and Australia, and surrounded by the Pacific Ocean and the Indian Ocean, Indonesia holds a unique location. With a population of 273.5 million, it ranks as the fourth most populous country globally, following China, India, and the USA. Indonesia boasts over 300 ethnic groups, with 95% having indigenous Indonesian roots. The largest ethnic group, the Javanese, constitutes 41% of the total population. Predominantly, about 88% of Indonesians adhere to Islam, while minority religions include Christianity, Hinduism, Buddhism, and Taoism.

Indonesian Human Resources at a Glance

Employment Law Protections in Indonesia

The legal foundation for employment in Indonesia is established by Law No. 13/2003, dated 25 March 2003, regarding labor (the Labor Law), which has been amended by Law No. 11/2020, dated 2 November 2020, regarding Job Creation (the Job Creation Law). These regulations govern the employment relationship for both local Indonesians and foreign workers in Indonesia. Contracting out any terms of the employment legislation is not permissible, yet numerous contracts may not adhere to these regulations.

Employment Contracts in Indonesia

Employment contracts in Indonesia can be established for either a definite or indefinite period. For fixed-term employment contracts, written agreements are mandatory and must be in the Indonesian language, using the Latin alphabet (some Indonesian dialects do not use the Latin alphabet) as per Article 57 of the Labor Law. In cases of differences in interpretation between the Indonesian version and a foreign language version, the Indonesian version takes precedence. Employment contracts of an indefinite term can be either oral or in writing, according to Article 51 of the Labor Law. However, in practice, it is advisable for employment agreements to be documented in writing.

Indonesia's Contract Terms

Employees working under both definite and indefinite contracts are entitled to the same statutory employment rights. The Labor Law specifically outlines the legal duration for a definite-term employment agreement.

As per the new Government Regulation, GR No. 35 2021, fixed-term employment agreements are limited to a maximum duration of five years, including any extensions.

The normal retirement age (NRA), initially set at age 56, was raised to age 57 in 2019. Subsequently, it will incrementally increase by an additional year every three years until reaching the age of 65 in 2043.

Work Rules in Indonesia

Companies employing ten or more individuals are required to renew and resubmit their work rules every two years, seeking government approval. However, even companies with just one employee often choose to uphold registered rules.

For the formulation of company regulations, employers must submit an application and secure consent from two employee representatives who have thoroughly reviewed, agreed to, and endorsed the rules and regulations.

Severance Pay in Indonesia
Severance payments in Indonesia differ depending on whether an employee is categorized as a definite-term employee or an indefinite-term employee.

In the case of indefinite-term employees, mandatory severance payments include:

  • 1.Severance pay
  • Service pay
  • Compensation (covering remaining annual leave, repatriation expenses, and other compensation specified in the employment contract)
Severance Pay (Service Period) Severance Pay (Monthly Salary) Service Pay (Service Period) Service Pay (Monthly Salary)
<1 year 1 3-6 years 2
1-2 years 2 6-9 years 3
2-3 years 3 9-12 years 4
3-4 years 4 12-15 years 5
4-5 years 5 15-18 years 6
5-6 years 6 18-21 years 7
6-7 years 7 21-24 years 8
7-8 years 8 >24 years 10
>8 years 9

There is a multiplier of 0.5x, 0.75x, 1.0x, 1.75x or 2x to the severance pay depending on the reason for termination In addition to service pay, according to service period and compensation:

Grounds of Termination Severance Calculation
Company merger & acquisition activities, company changing/reducing business activities or closure/bankruptcy 0.5-1x severance pay, 1x service pay and compensation
Employees’ voluntary resignation In addition to d compensation, another component of separation pay (or “Uang Pisah”) for employees on indefinite-term contracts who resign is required by law. The employee’s tenure must be 5 years or more. The calculation is regulated by the employment agreement, company regulation, or collective labor agreement.
Employees’ prolonged illness (>12 months) due to work accident, retirement, death 1.75-2x severance pay, 1x service pay and compensation

In the case of definite-term employees:

Upon the conclusion of the employment contract, definite-term employees are eligible for a compensation payment. If the employer terminates the employment agreement of a definite-term employee before its scheduled expiration, the employer must remunerate the employee’s salary until the contractual period is fulfilled.

Service Period Compensation
<1 month None
>1 month but <12 month (Service period/12) x (1 month salary + fixed allowance)
12 month 1 month salary + fixed allowance
> 12 month (Service period/12) x (1 month salary + fixed allowance)
Indonesia's Guidelines Regarding Probation Period

Article 60 of the Labor Law specifies that indefinite contracts may incorporate a probationary period, which cannot exceed three months. However, definite contracts are not permitted to include a probationary period.

Paid Leave

After completing one year of uninterrupted service, every employee is entitled to enjoy 12 working days of paid vacation annually.

Termination

The fundamental principle of Indonesian labor law emphasizes the prevention of employee dismissal, and in certain cases, it is expressly prohibited. Generally, the termination of employment requires approval from the Labor Court unless the termination is mutually agreed upon or not contested by the employee.

According to the Labor Law, as amended by the Job Creation Law, and GR 35/2021, employers have the authority to terminate employment through a written notice providing reasons. This allows the employee the opportunity to object, negotiate, and initiate legal proceedings in the Labor Court if they believe the dismissal is unjust. The termination announcement, in the form of a Letter of Termination, must be delivered to the affected employee at least 14 working days before the effective date of termination.

In the event that the employee agrees to a voluntary mutual termination agreement (MTA) following the written notice, the acceptance or rejection of termination becomes irrelevant, as the execution of the MTA depends on the employee’s response.

Additionally, employers are obligated to report employee terminations to the local Manpower Office, and the recent implementation of Letter No. 4/2022 reinforces the submission of standard documentation. This includes the termination notice, a non-rejection of termination letter from the employee, and a standard application form. Upon submission, the Manpower Office will issue a standard receipt.

Termination of employees is not uncommon in other sectors as well.

Rules Regarding Bonus and 13th Month Pay in Indonesia

The Religious Holiday Allowance (THR) for Employees (MOM No. 6) mandates that every employer must grant THR to employees with a minimum of one month of service, irrespective of their permanent or temporary employment status.

Employees who have completed a continuous 12-month tenure are entitled to a THR equivalent to at least one month’s salary. In practice, employers have the flexibility to offer contractual or discretionary bonuses to their employees.

Indonesian Laws Regarding Overtime

Overtime pay is mandatory, except in instances where an employee’s role, responsibilities, or tasks categorize them as a “thinker, planner, implementer, or controller” whose working hours cannot be confined to regular working hours.

Indonesia's Requirements Regarding Notice Periods

According to Article 36 of GR 35/2021, the requirement for written notice is outlined in the form of a notification letter. This notification must be properly delivered to the employer no later than 14 working days before the intended effective date of termination. Nevertheless, it is advisable to provide a 30-day notice in practical terms.

Other Standard Items

Beyond statutory benefits, there are limited additional options available. Common allowances, such as those for transportation, meals, and communications, are often provided, and it’s important to note that these allowances are subject to taxation. For expatriates, net arrangements are frequently employed.

Statutory Costs

The employer’s contribution to health insurance and social security falls within the range of 10.24% to 11.24%, encompassing both public health insurance and social security.

Employers are required to remit the monthly contribution to the specified banks by the 10th of the subsequent month at the latest.

Tax and Social Security Information for Employers in Indonesia

Personal Income Tax in Indonesia

Both resident and foreign employees are subject to taxation on their income earned in Indonesia, encompassing other remuneration acquired during their stay, such as bonuses and religious holiday allowances.

The Indonesian segment of the salary is subject to tax withholding, a responsibility borne by the employer.

A non-resident employee is an individual not residing in Indonesia, present in the country for less than 183 days in any 12-month period. This category also applies to an entity without domicile in Indonesia, not engaged in business or activities through a permanent establishment. Non-resident employees typically face a 20% withholding tax on their gross income sourced from Indonesia, as stipulated by Law No. 13 of 2003 on Manpower (Labor Law).

Benefits-in-Kind (BIKs) reimbursements are taxable for the employee, and the obligation to withhold income tax for BIKs is applicable. Examples include mobile phone bills, meals during business trips, and medical insurance premiums.

Personal Income Tax Rates and Deductions

Non-resident individuals are subjected to a 20% withholding tax on their gross income from Indonesia, unless otherwise specified by a double taxation treaty.

Tax-resident individuals in Indonesia are subject to the following income tax rates:

  • Up to IDR 60 million: 5%
  • From IDR 60 million up to IDR 250 million: 15%
  • From IDR 250 million up to IDR 500 million: 25%
  • From IDR 500 million up to IDR 5 billion: 30%
  • Over IDR 5 billion: 35%

Deductions can be applied for dependents, spouses, and children. Additionally, foreign nationals may have the opportunity to claim certain expenses covered by the employer, such as accommodation or vehicles, depending on how the employer has categorized these payments. It’s essential to note that items like healthcare costs are classified as income.

PIT: Employer Requirements

Income tax is deducted on a monthly basis. Employers are required to furnish employees with an annual tax slip (Form 1721 A1) by the year’s end. Employees must submit their annual individual tax returns by no later than March 31 of the subsequent year.

Social Security in Indonesia – BPJS

There are two types of national insurance:

Public health insurance, known as ‘BPJS Kesehatan,’ and the social security program, ‘BPJS Ketenagakerjaan,’ encompass work-related injury insurance (JKK), non-work-related accidental death insurance (JKM), old-age benefits (JHT), and the pension plan (JP).

  Contribution Employer Employee
Workers Accident Benefit % of monthly salary 0.24% – depending on business classification 0%
JSHK – Worker Accident Insurance % of monthly salary 0.24% 0%
Death/Life Insurance Benefit % of monthly salary 0.3% 0%
Old Age Benefit % of monthly salary 3.7% 2%
Pension Benefit % of monthly salary (salary cap IDR 9,559,600) 2%, max IDR 191,192 1%, max IDR 95,596
BPJS Health/BPJS Kesehatan % of monthly salary (salary cap IDR 12,000,000) 4% 1%
*The above table serves as a broad guideline. Actual rates charged by GoGlobal will differ.

Individual participation in these schemes is mandatory for all residents of Indonesia, including expats on ITAS/P. Expat employees who are working at least six months, as well as their dependent family members, must be registered by their employer. In general, private insurance is necessary in Indonesia.

There is no Unemployment Insurance Scheme that is mandatory for employers or employees to pay.

Important Information for Indonesian Employees

Salary Payment

In general, salary payments are processed monthly, usually around the 25th day of the month, through bank transfers. It is a requirement that salary payments be made in Indonesian Rupiah, although international payments are also deemed acceptable.

Payslip

The issuance of payslips can take the form of a hard copy or a soft copy (PDF) delivered via email, depending on the company’s preference. Typically, for blue-collar positions, a hard copy on carbonized paper is commonly used. On the other hand, white-collar employees often receive a soft copy in PDF format via email. Some companies may also provide access to the company’s HRIS portal for employees to retrieve their payslips.

Holiday Allowance

Employees working a five-day week enjoy Saturdays and Sundays off, while those working six days a week are entitled to Sundays off. Indonesian public holidays are officially designated by Joint Ministerial Decree, typically issued annually by the Minister of Manpower in collaboration with the Minister for Religious Affairs and the Minister for the Utilization of State’s Apparatus.

Public holidays in Indonesia are often tied to religious observances, and their specific dates vary each year due to differing religious calendars, such as the lunar cycle. The total number of public holidays usually amounts to 16, including several “cuti bersama” holidays. The concept of “cuti bersama” involves additional joint holidays, often provided on a Monday or Friday, to create extended holiday weekends.

Introduced by the Indonesian Government to boost domestic tourism, the “cuti bersama” program encourages employers to grant an extra day off (usually on a Monday or Friday) when a public holiday falls on a Thursday, creating a four-day weekend. According to Article 85 of Act 13 of 2003, Indonesian Manpower/Labor Law, workers are not obligated to work on public holidays. However, if work is necessary on public holidays, employers are responsible for compensating workers with overtime payments.

Annual Leave

After completing 12 consecutive months of work, an employee is entitled to a minimum of 12 days of annual leave, accumulating at a rate of one day per month from the start of employment. Employers have the discretion to grant additional leave beyond this minimum.

Employees often prefer to take vacation leave during the Lebaran holiday period. While the standard practice is to utilize the full holiday entitlement in a single segment, employers may agree to allow the holiday to be taken in separate periods, provided that at least six working days are taken consecutively.

During the probation period, employees are generally not permitted to take annual leave, and any absence during this period is considered unpaid leave.

The carry-over of leave is subject to company policies. For instance, a leave balance can be carried forward until March 31 of the following year. If an employee fails to take their leave entitlement within six months of earning it, the annual leave may be forfeited.

Employees who have served under the same employer for six consecutive years may be eligible for a leave of at least two months in the seventh and eighth years of employment.

Sick Leave

Employees have the right to both paid sick leave and extended paid sick leave, subject to certain conditions. Paid sick leave is granted when an illness or injury is substantiated by a medical certificate or statement.

Long-term paid medical leave is also available if recommended in writing by a doctor and extends beyond one year. In case of severe illness leading to the prolonged absence of a permanent employee, the employer is obligated to pay a monthly salary as follows:

  • For the initial four months of absence, the employee is entitled to 100% of their wages.
  • During the subsequent four months of absence, they are eligible for 75% of their wages.
  • For the following four months, the employee is entitled to 50% of their wages.
  • From the fourth set of four months onward, they are entitled to 25% of their wages until the employment is terminated.
Maternity & Parental Leave

Female employees are granted three months of paid maternity leave by their employer, with a requirement that half of this duration is taken before the anticipated childbirth and the remaining half after. In cases where an obstetrician or midwife recommends an extension, the maternity leave period can be prolonged.

Male workers, on the other hand, are entitled to two days of paid paternity leave if their spouse gives birth or experiences a miscarriage.

Other Leaves

Employees are entitled to take short periods of paid leave for various personal reasons, including:

  • Three days of leave for their own marriage.
  • Two days of leave for the marriage of their child.
  • Two days of leave for the circumcision of their child.
  • Two days of leave for the baptism of their child.
  • Two days of leave for the unfortunate event of their child’s death.

Indonesian labor laws do not explicitly address carers’ rights, but employers may grant unpaid leave for emergency care needs related to dependents, spouses, or close family members.

Female employees experiencing menstrual pain can take paid leave for the first and second days of their cycle.

Muslim employees have the statutory right to a three-month paid leave to fulfill the Haj pilgrimage to Mecca. This leave can be taken once during the employee’s lifetime.

THR Mandatory Allowance

Employers in Indonesia are mandated to provide an annual non-wage income or bonus, known as ‘tunjangan hari raya’ or THR Mandatory Allowance, to employees with one or more years of service. This bonus must be disbursed at least seven days before their respective religious holidays, such as Eid al-Fitr (for Muslims), Christmas Day (for Christians), Day of Silence (for Hindus), Waisak (for Buddhists), and Chinese New Year (for Confucianists). Indonesian law makes this payment compulsory and requires it to be made according to the employee’s religion.

The bonus is set at a minimum of one month’s pay. Alternatively, the employer and employee can agree on a specific payment date.

For employees with a minimum of 12 months of service, the THR amount is one monthly salary (basic salary + other fixed allowances). For those with more than one month of service but less than 12 months, the THR amount is prorated (months of service/12 x 1 monthly salary).

Indonesian society values religious diversity and operates as a collectivist community. THR is crucial during these periods, as it enables families to afford the expenses associated with their cultural, traditional, and communal celebrations. Indonesian law (Regulation 6/2016) stipulates that permanent and temporary employees (including freelance employees after an amendment) are eligible for THR.

Even if an employee has only worked for one month, they are entitled to receive the THR payment, and eligibility is not contingent on employee performance. In cases of termination or resignation submitted 30 days before the Religious Day, employees under indefinite contracts are still entitled to receive THR Mandatory Allowance (Article 7 MoM No. 6 Year 2016).

Benefits to the Employee in Indonesia

Overtime Rates

An employee is limited to a maximum of 40 hours per week, which can be scheduled in either of the following arrangements:

  • Seven hours a day, six days a week.
  • Eight hours a day, five days a week.

In most cases, employers requiring employees to work beyond regular hours must provide overtime wages unless the employee’s role falls under the category of a “thinker, planner, implementer, or controller.” Typically, executives or managerial employees whose working hours are not confined to the standard schedule fall into this category. While these employees are not entitled to overtime wages, they receive a higher salary than ordinary employees. Overtime work is restricted to a maximum of four hours per day and 18 hours per week. The overtime pay rate per hour is calculated as 1/173 of the monthly wage, plus fixed allowances (if any).

Pension Benefits

The following sets out the benefits to be received under the old age benefit (JHT) and pension plan (JP) components of the social security program (‘BPJS Ketenagakerjaan’).

Event Old Age Insurance Benefit (JHT) Pension Benefit (JP)
Termination Full lump sum None
Still employed and has contributed for 10 years or more Can apply to receive 30% of total fund for home purchase or 10% of total fund for other necessities in preparation of retirement None
Retirement* and has contributed for less than 15 years full lump sum Full lump sum
Retirement* and has contributed for 15 years or more Full lump sum Monthly pension
Permanent disability Full lump sum Monthly pension
Death Full lump sum 50% of monthly pension for widow/widower, child (max. 2 until 23 yeras old) or parent (max.1)
Permanent departure from Indonesia Full lump sum Full lump sum**

* The retirement age is established at 58 years old, with a planned incremental increase of one year every three years until reaching the maximum retirement age of 65 years.

** While not explicitly outlined in the regulation, expatriates are anticipated to have the option to receive both old age and pension benefits as a lump sum upon their permanent departure from Indonesia.

Other Benefits

An employer has the option to offer extra perks to an employee, such as a pension plan administered by a private financial institution. Additionally, employers can extend comprehensive supplementary health insurance coverage for both the employee and their family (spouse and up to three children). This coverage may encompass various aspects, including in-patient care, out-patient care, dental care, vision, and maternity care.

Rules Regarding Visas and Foreign Workers in Indonesia

General Information

Foreign workers and expatriates are required to hold valid working visas, work passes, and employment passes before commencing employment in Indonesia.

Note: The Ministry of Manpower & Transmigration Decree, No. 228 of 2019 outlines the job positions that are prohibited for foreign workers.

Types of Visa

Limited stay visas:

To be eligible to work in Indonesia, a foreign national must acquire a limited stay visa (Visa Tinggal Terbatas or VITAS). The VITAS has a minimum validity period of one month and a maximum validity period of one year, with the option to renew it up to five times for a total of 12 months.

The process for obtaining visa approval mirrors that of obtaining permits. Typically, acquiring a VITAS takes approximately one month.

Application Process

Procedure for obtaining approval of a VITAS:

To initiate the visa application process, the employer must apply through the Ministry of Manpower and Transmigration’s online system (https://kemnaker.go.id/), seeking approval for its Expatriate Manpower Utilization Plan (RPTKA). The RPTKA serves as the master document detailing individual work permits for foreign employees, outlining information on their number, functions, and employment periods. Processing RPTKA approval typically takes about 7 working days upon receiving the complete set of documents.

After obtaining the RPTKA, the employer must secure a separate permit to employ an expatriate (IMTA) from the Minister of Manpower and Transmigration. The application for IMTA must be submitted through the Ministry’s online system, and the IMTA is valid for one year.

In certain regions, additional permits may be required for foreign nationals working in Indonesia.

The employer is obligated to contribute an annual fee of US$1,200 to the Compensation Fund for the Utilization of Expatriate (Dana Kompensasi Penggunaan Tenaga Kerja Asing – DKP-TKA).

Following the issuance of both the RPTKA and IMTA, the employer can proceed to submit a VITAS application to the Immigration Office. The VITAS application is initiated automatically after the DKP-TKA payment of USD 1,200 has been made. The VITAS Government billing code will be sent to the employer’s email. With the implementation of the E-Visa, foreign nationals can enter Indonesia directly without the need to collect the visa at the Indonesian Embassy abroad.

The overall time frame for processing these required permits is approximately two to three months.

Upon the foreign worker’s entry into Indonesia, the limited stay permit will be automatically sent to the employer’s email in PDF format. Any changes in the passport address or immigration status must be reported to the immigration office where the KITAS is registered.

Filings when foreign nationals start work:

No official filings are required when foreign nationals commence work in Indonesia, except for subsequent extensions of the work permit and stay permit, which are generally valid for 12 months.

Things to note:

The DKP-TKA payment code is valid for only 5 calendar days after the invoice is issued.
The Biometric Process commences after the submission of the ITAS (Limited Stay Permit) application. The Immigration office will notify the schedule. If the foreign national has not arrived in Indonesia, the ITAS application can be processed before their arrival, and the foreign national will complete the Biometric Process at the respective airport.
After ITAS is issued, the foreign national must apply for STM (police report) & SKTT (residence certification). These documents are essential when the company seeks to extend an employee’s KITAS and to prevent any immigration checks.

Public Holidays Recognized by Indonesia in 2024

  Occasion Date
1 New Year’s Day January 1
2 Isra Mi’raj February 8
3 Chinese New Year February 9 – 10
4 President Election Day February 14
5 Bali Hindu New Year March 11 – 12
6 Good Friday March 29
7 Easter Day March 31
8 Hari Raya Idul Fitri (Lebaran Holiday) April 8 – 15
9 Labour Day May 1
10 Ascension Day of Jesus Christ May 9 – 10
11 Vesak Day May 23 – 24
12 Pancasila Day June 1
13 Adul Adha and joint holidays June 17 – 18
14 Islamic New Year July 7
15 Independence Day August 17
16 Prophet Muhammad’s Birthday September 16
17 Christmas Holiday December 25 – 26

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