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Employer of Record (EOR) Indonesia - Hire & Pay Employees & Contractors with a Global PEO

An Employer of Record (EOR) in Indonesia acts as the legal employer for workers, handling payroll, benefits, and other employment tasks on behalf of the actual employer. Also known as a Global PEO, it simplifies hiring without the need for entity setup.

Discover the key considerations and essential details you should be aware of before you hire your remote team in Indonesia.

On this page: Employment Contracts | Employees vs Independent Contractors | Minimum Wages | Working Hours | Payroll Cycle | Overtime Pay | Notice Period, Termination, and Severance Pay | 13th Month Salary | Social Security | Personal Income Tax | Leave Policy

Employment Contracts in Indonesia

Employment Categories in Indonesia encompass three main classifications as defined by the Manpower Law:

  • Permanent Employees: Permanent employees have certain privileges compared to other categories, including entitlement to severance pay upon termination. They are not restricted to specific job types or limited durations, unlike fixed-term contract (FTC) employees. Additionally, a probation period of up to three months can be included in their employment contract.
  • Fixed-Term Contract (FTC) Employees: According to Article 59 of the Manpower Law, FTCs can only be utilized for work that is one-off, temporary, estimated to be completed within a short period (up to five years), seasonal, related to a trial product or activity, or not of a permanent nature. FTCs do not include a probation period.
  • Foreign National Employees: Hiring foreign nationals in Indonesia requires obtaining a Foreign Worker Utilization Plan (RPTKA) approved by the Minister of Manpower. Foreign national employees are restricted to specific positions listed in the Minister of Manpower's Decree No. 228 of 2019 and can only be employed for a limited time. They are prohibited from engaging in HR-related roles.

Employment contracts in Indonesia play a pivotal role in delineating the rights and responsibilities of both employers and employees. Here's a comprehensive breakdown of key aspects:

Types of Employment Contracts:

  • Indefinite-term contract (PKWT): This type of contract doesn't specify an end date, providing employees with greater job security.
  • Fixed-term contract (PKWTT): With a specific end date, this contract is commonly used for temporary needs or probationary periods. The initial term is capped at 2 years, with possible renewals.

Mandatory Contract Contents:

  • Identification of parties and their addresses.
  • Contract start date and type (PKWT or PKWTT).
  • Job title and description.
  • Work location and schedule.
  • Base salary and comprehensive compensation details.
  • Overtime pay rates.
  • Benefits and allowances.
  • Leave entitlements.
  • Termination procedures and severance pay.
  • Notice period required for termination.
  • Probation period details if applicable.

Additional Recommended Clauses:

  • Confidentiality and non-compete agreements (within legal limitations).
  • Ownership of intellectual property rights.
  • Dispute resolution procedures.
  • Code of conduct or ethics.

Key Considerations:

In Indonesia, employment contracts should be written in Bahasa Indonesia. Both the employer and employee need to sign the contract and keep a copy. Verbal agreements aren't valid; a written contract is necessary. Failing to follow these rules can lead to fines for employers. Creating a clear and lawful employment contract is crucial for a strong relationship between employer and employee.

Employees vs Independent Contractors

Employees are bound by employment agreements complying with the Manpower Law, which outline work requirements, rights, and obligations for both parties. On the other hand, independent contractors are not considered employees but rather independent parties hired to provide specific services. They are typically paid upon completion of the contracted work and do not receive the same benefits or fall under the jurisdiction of the Manpower Law. Contracts for independent contractors must adhere to the Indonesian Civil Code (ICC), where payment is contingent upon satisfactory service or meeting specified performance criteria (Article 1601b, ICC).

Minimum Wages

As of February 6, 2024, the minimum wages in Indonesia differ by region. Jakarta has the highest minimum wage at IDR 5,067,381 per month, while Papua has the lowest at IDR 2,057,495 per month. The table below shows minimum wages in some major provinces and cities:


Minimum Wage (IDR/month)

Minimum Wage (USD/month)

























As of today, Tuesday, February 7, 2024 at 4:57 PST, the current exchange rate between IDR and USD is:

  • 1 USD = 15,625 IDR
  • 1 IDR = 0.000064 USD

These variations highlight economic differences across regions, impacting living costs and standards.

Working Hours

In Indonesia, the usual workweek comprises 40 hours. This can be organized in two ways: 7 hours per day for 6 working days (totaling 42 hours) or 8 hours per day for 5 working days (totaling 40 hours). However, there are exceptions. Certain businesses, like those with unique characteristics or involving flexible or location-independent work, may have weekly working hours below 40.

Overtime comes into play for work beyond the standard hours. The maximum allowed is 4 hours per day and 18 hours per week. Overtime requires the employee's agreement and comes with higher compensation rates.

Regarding rest days, many companies in Indonesia typically observe Friday and Saturday, although exceptions may exist in specific industries. Public holidays, of which Indonesia has various national and regional ones, often result in business closures or reduced operating hours.

Payroll Cycle

In Indonesia, the standard payroll cycle is monthly, and employees commonly receive their salaries on the last working day of the month. However, there are variations and essential considerations:

  • Frequency: While the monthly cycle is prevalent, some companies, particularly in specific industries or for certain positions, may choose bi-weekly or weekly pay cycles.
  • Payday: The designated payday is often outlined in the employment contract and might not precisely align with the last working day. Typically, it falls within the last week of the month.
  • Recordkeeping: Companies are required to keep payroll records for at least five years.

Overtime Pay

Overtime pay in Indonesia is governed by Law No. 13 of 2003 concerning Manpower, detailed by the Ministry of Manpower and Transmigration Regulation No. 102/MEN/VI/2004. The standard working week is 40 hours, which can be distributed over 6 days with 7 hours per day or 5 days with 8 hours per day. Any work exceeding these standard hours is considered overtime, with a maximum limit of 4 hours per day and 18 hours per week. Employee consent in writing is a prerequisite for overtime work.

Overtime rates are stipulated as 150% of the regular hourly rate for the first hour and 200% for subsequent hours. On rest days and public holidays, overtime pay is subject to a higher rate, either double or triple, contingent on the type of day and any prior agreements with the employee.

It's crucial to note that the calculation for overtime pay is based on the employee's monthly salary, inclusive of fixed allowances, rather than solely on the hourly rate. This regulatory framework ensures fair compensation for additional work beyond standard hours.

Probation Period

In Indonesia, probation periods are exclusive to indefinite-term employment contracts and are not applicable to fixed-term contracts. These probation periods come with specific regulations:

  • Length: The maximum allowable duration for a probation period is three months. It cannot be extended or repeated once concluded.
  • Communication: It is imperative to communicate the probation period clearly to the employee in writing during the hiring process. The agreement should explicitly outline the duration and any specific expectations or goals for the employee during this period.

Termination: During the probation period, both the employer and the employee have the right to terminate the employment with reduced notice periods:

  • Employer: The employer can terminate the employment with a notice period of 7 days without the necessity of providing a specific reason.
  • Employee: Similarly, the employee can terminate the employment with a notice period of 7 days.

These regulations ensure a transparent and standardized approach to the probationary phase of employment in Indonesia.

Notice Period, Termination, and Severance Pay

Termination of employment in Indonesia is regulated by Law No. 13 of 2003 concerning Manpower and several related regulations. Specifics can vary based on individual circumstances, so consulting with a legal or HR professional is recommended. However, here's a general overview:

Notice Period and Termination:

Both voluntary (resignation) and involuntary (employer-initiated) terminations involve notice periods. In the case of voluntary termination, employees under indefinite-term contracts need to provide a 30 days' written notice, fixed-term contract employees must offer a 14 days' written notice, and those in the probation period must provide a 7 days' written notice. For involuntary termination initiated by the employer, grounds may include serious misconduct, poor performance (with prior warnings), company closure or downsizing due to economic reasons or operational changes, and force majeure events.

Severance Pay:

Mandatory severance pay is applicable based on the reason for termination and length of service. It's calculated as one month's basic salary (including fixed allowances) per year of service, capped at nine months' pay. However, there's no severance pay for misconduct-related terminations or company closures without financial losses.

Additional Payments:

Depending on the situation, additional payments may include separation pay agreed upon in the employment contract or collective bargaining agreement, compensation for early termination of fixed-term contracts or FTC extensions, and unpaid wages and other benefits due to the employee at the time of termination.

13th Month Salary

In Indonesia, the "13th month salary" concept involves two obligatory bonuses tied to religious holidays. The Tunjangan Hari Raya (THR), or religious holiday allowance, is given before Eid al-Fitr or Christmas, depending on the employee's religion. It amounts to one month's base salary and fixed allowances, calculated from the average salary of the preceding three months. All full-time employees with at least one month of service are eligible.

The term "13th Month Salary'' lacks official recognition but is informally used. Some companies may choose to provide an extra bonus equivalent to one month's salary, independent of THR. This is discretionary and varies based on individual company policies or collective bargaining agreements. It's important to note that both THR and the optional 13th Month Salary are considered taxable income.

Employers are obligated to disburse THR at least one week before the religious holiday, and failure to comply can lead to fines. The specifics of the optional 13th Month Salary, if offered, vary among companies, including the timing of payment. In essence, Indonesia requires the payment of a 13th-month salary, typically granted before significant religious holidays.

Social Security in Indonesia


  • Jaminan Hari Tua (JHT): Old-age security program providing retirement benefits.
  • Jaminan Kesehatan Nasional (JKN): National health insurance program.
  • Jaminan Kematian (JKM): Death insurance program providing survivor benefits.
  • Jaminan Kecelakaan Kerja (JKK): Work accident insurance program offering compensation for work-related injuries and deaths.






2% of monthly salary
(capped at IDR 5 million)

3.5% of monthly salary
(capped at IDR 5 million)


4% of monthly salary
(capped at IDR 4 million)

4% of monthly salary
(capped at IDR 4 million)


0.3% of monthly salary
(capped at IDR 4 million)

0.3% of monthly salary
(capped at IDR 4 million)



Varies based on risk class
(0.24% - 1.74% of monthly payroll)

The caps on contributions mentioned undergo annual adjustments. If you're self-employed, you can choose to contribute voluntarily to certain programs. There are government subsidies for specific low-income groups. Additionally, some mandatory programs, like Jaminan Pensiun (pension insurance) in certain sectors, require employer contributions only.

Employers bear the responsibility of deducting taxes and social security contributions from employee salaries, submitting them to the relevant authorities by the 10th of the following month.

Personal Income Tax

In Indonesia, individual income is subject to progressive personal income tax (PIT). Here's a breakdown of the key points:

Tax Residents vs. Non-Residents:

  • Tax residents: Pay tax on worldwide income.
  • Non-residents: Pay tax only on Indonesian-sourced income.

Tax Rates:

  • Progressive structure: Tax rates range from 5% to 35%, depending on taxable income (IDR):

Taxable Income (IDR)

Tax Rate (%)

Up to 60 million


60 million to 250 million


250 million to 500 million


500 million to 5 billion


Above 5 billion


In Indonesia, individuals benefit from various deductions and allowances designed to alleviate the burden of taxable income. These include personal allowances, allowances for spouses and dependents, deductions for education and health insurance premiums, contributions to charitable causes, and allowances for employment-related expenses, capped at 5% of income.

When it comes to tax filing and payment, Indonesia follows a calendar year, commencing on January 1 and concluding on December 31. Taxpayers are obligated to submit their tax returns either online or at the tax office by March 31 of the subsequent year. The flexibility of paying taxes in installments throughout the year is provided, with the final settlement expected by the filing deadline.

It's essential to note a few additional considerations: non-residents are generally subject to a 20% final withholding tax on income sourced in Indonesia. Furthermore, the existence of double taxation treaties with other countries might influence the overall tax obligations. Lastly, every taxpayer is required to possess a Taxpayer Identification Number (NPWP).

Leave Entitlements

In Indonesia, leave entitlements are governed by Law No. 13 of 2003 concerning Manpower, with detailed specifications in Ministry of Manpower and Transmigration Regulation No. 102/MEN/VI/2004. Here's a comprehensive overview of the key types of leave and their entitlements:

Annual Leave:

Employees with at least 1 year of service are entitled to 12 paid days of annual leave per year, with a requirement to take at least 6 continuous days off annually. Unused leave expires 6 months after accrual. For long-tenured employees (6 consecutive years), an additional 1 month of paid leave is granted in the 7th and 8th years.

Sick Leave:

Paid sick leave is granted for up to 4 full months with a doctor's certification. The compensation varies over time: full pay for the first 4 months, 75% pay for the next 4 months, 50% pay after 8 months, and no pay beyond 12 months, although job security continues for up to 1 year. Unpaid sick leave of up to 2 calendar days per year is permissible without a doctor's note.

Religious Holidays:

THR (Tunjangan Hari Raya) provides one month's base salary and fixed monthly allowances, paid before Eid al-Fitr and Christmas (for non-Muslim employees). Some companies may offer an optional 13th Month Salary.

Maternity Leave:

Female employees are entitled to 3 months of paid leave (1.5 months pre-natal, 1.5 months post-natal) with a doctor's certificate.

Paternity Leave:

Male employees receive 2 days of paid leave for the birth of a child.

Other Personal Leave:

Up to 2 days for marriage, circumcision, baptism, and death of a close family member.

It's crucial to note that these are minimum requirements, and individual employment contracts or collective bargaining agreements may provide more favorable terms. Additionally, notice periods are mandatory before taking leave, depending on the type and duration, and failure to adhere to leave regulations can result in fines and penalties for employers.

Tunjangan Hari Raya (THR): Companies must also provide a religious holiday bonus called THR, equal to one month's base salary and fixed monthly allowance. For employees with less than a year of service, the THR is prorated.

Indonesia at a Glance








Time zone

UTC+07:00 (Western Indonesian Standard Time) — islands of Sumatra, Java, Madura, provinces of Bangka Belitung Islands, Riau Islands, West Kalimantan and Central Kalimantan

Total Time zones


Working hours per week


Working week

Monday–Friday (exception of Aceh)

Typical hours worked

8, many people work a 6-day week with 7-hour days.

Personal Tax filing deadline

The end of the third month after the calendar year end.

Financial Year

1st January to 31st December

Date format


Indonesian Rupiah (IDR)


the standard rate is 10%

In Indonesia, Employer of Record (EOR) services provide a streamlined approach for businesses expanding their global workforce. By managing local employment regulations, EOR services allow companies to focus on core operations, ensuring legal compliance and effective payroll management. Indonesia's dynamic market and economic opportunities make it an attractive destination for international businesses, and leveraging EOR services simplifies the complexities of the local labor market, optimizing time and resources for global expansion.

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