Learn about labor and talent compliance norms in Indonesia the with this quick guide.
Indonesia is the largest economy in Southeast Asia. It is also one of the world’s most populous countries, ranking at 4th place. This has led to the country being one of the world’s biggest consumer markets (in terms of population size) and being one of the largest in terms of purchasing power parity.
Jakarta, Bandung, Central Java (Surabaya, Semarang, Yogyakarta)
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The vast labor market in Indonesia gives businesses a lot of opportunities for expanding in the country. However, when onboarding employees from Indonesia, it is vital to gain familiarity with the country’s employment regulations. The following sections will guide you through the labor process in the country.
Employment contracts use the Indonesian language using Latin alphabets. Dual language contracts can be prepared but one must be written in the Indonesian Language.
Salaries are one way companies recognize and reward their employees for working hard. Salaries may include both monetary benefits like pay rates, bonuses or profit sharing agreements as well as non-monetary rewards such as health care plans with no deductibles that come straight out of your paycheck every month.
The general components of remuneration in Indonesia include the following:
A resident individual in Indonesia is taxed worldwide, although double taxation agreements (DTAs) might apply. However, Indonesian citizens living overseas due to work requirements for more than 183 days during a 12-month period are also subject to income tax abroad.
Non-resident individuals earning an income in Indonesia are taxed at 20% by withholding of taxes by the employer.
The personal income tax rates in Indonesia for resident individuals are progressive up to 35%.
The resident income taxes are as below
The social security benefits in Indonesia consist of
The employer and employee contributions to each of the funds is as below
The statutory benefits provided to employees in Indonesia include
Employers commonly provide fringe benefits that do not form a part of an employee’s compensation. Fringe benefits are provided to an employee in addition to their regular salary.
Most commonly provided fringe benefits provided to employees in Indonesia are
Exempt benefits in Indonesia include
The best way for an employer to show their appreciation of hard work and dedication is through long-term benefits. Employees will often be rewarded with company specific goals, such as stock options or other forms of equity ownership that provide incentives over time horizons greater than one year when they achieve certain performance milestones within the business unit/organization where employed.
The most commonly provided long-term incentive in Indonesia is a performance bonus.
If an employer wants to terminate its employees, it has to obtain approval from the Industrial Relations Court (IRC) by filing a lawsuit, or if they signed a Mutual Termination Agreement, then the Mutual Termination Agreement should be registered with the IRC.
The Labor Law prohibits an employer from dismissing an employee for the following reasons:
Probationary employees are given up to 30 days of notice period. On the other hand, employees after probation are given up to 3 months.
Depending on the reasons for employment termination, employers need to pay standard severance, long service pay, compensation pay, and/or separation pay.
