Foreign companies employing staff in Indonesia must comply with rules covering employment contracts, wages, working hours, social security, payroll tax, leave, foreign workers, and termination.
What Must Employers Get Right When Hiring Employees?
Employers generally hire employees under either permanent employment agreements (PKWTT) or fixed-term employment agreements (PKWT).
PKWTT employees may be subject to a probationary period of up to three months. Probation is not permitted for PKWT employees.
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PKWT agreements can only be used where the work meets the applicable requirements for fixed-term employment. Employers must also register PKWT agreements through the required manpower system within the applicable deadline.
Employment documentation should comply with Indonesian language requirements. Foreign companies using bilingual employment contracts should ensure that the Indonesian-language version accurately reflects the agreed employment terms.
What Must Be Included in Payroll and Employee Benefits?
Employees must be paid in accordance with the applicable minimum wage. The applicable minimum can depend on the employee’s location and the provincial or regency/city wage rules in force.
Employers must also pay eligible employees the religious holiday allowance (THR). Employees with at least 12 months of continuous service generally receive one month’s wages, while employees with at least one month but less than 12 months of continuous service receive a proportional amount. THR must generally be paid no later than seven days before the employee’s relevant religious holiday.
Eligible employees must be registered with BPJS Kesehatan for health coverage and BPJS Ketenagakerjaan for employment social security.
Employers must also calculate and withhold PPh 21 from taxable employee remuneration. The applicable monthly calculation depends on the employee’s circumstances and the current PPh 21 withholding rules.
What Working-Time and Leave Rules Apply?
The standard working week is generally 40 hours. This can be structured as eight hours per day over five working days or seven hours per day over six working days.
Work beyond the applicable normal hours may trigger overtime requirements, subject to the rules and exemptions that apply to the employee and position.
Employees can also have statutory rights to annual leave, maternity leave, miscarriage leave, paternity-related leave, sick leave, and other forms of permitted absence. These leave entitlements depend on the circumstances and type of leave involved.
What Changes When Employing Foreign Workers?
Unless an exemption applies, the employer generally needs an approved Foreign Worker Utilization Plan (RPTKA) before employing the foreign worker. The employer must also complete the immigration process appropriate to the individual’s position and activities in Indonesia.
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Certain foreign directors and commissioners who hold qualifying shares may fall within exemptions from the RPTKA requirement, depending on their circumstances.
Immigration status and tax residency should be assessed separately. A foreign employee can become an Indonesian tax resident by residing in Indonesia, being present in Indonesia for more than 183 days within a 12-month period, or being present in Indonesia during a tax year and having an intention to reside in Indonesia.
What Happens When Employment Ends?
For permanent employees, termination entitlements depend on factors including the employee’s length of service and the legal reason for termination. Depending on the circumstances, the termination package can include severance pay, long-service pay, and compensation for certain remaining rights.
Fixed-term employees operate under a different compensation framework. Eligible PKWT employees generally receive compensation based on their period of service rather than the severance calculation used for permanent employees.
Manage HR Compliance With MAP Resources Indonesia
MAP Resources Indonesia assists foreign-owned companies with employment contracts, payroll, BPJS, expatriate administration, and termination-related compliance. Contact MAP Resources Indonesia at info@mapresourcesindonesia.com.
