Guide to Hiring Employees for Your Company in Indonesia

Guide to Hiring Staff in IndonesiaThe recruitment of employees for any Indonesia company is an important task which is governed by employment regulations. In Indonesia, it is governed by the Labour or Manpower Law of 2003 which oversees human resources (HR) and recruitment management while providing an outline to the rights of both employer and employee. This article provides Guide to Hiring Staff in Indonesia.

 

Legal Definitions for Indonesian Employees

Important definitions from the Labour Law is as follows:

  • Worker (pekerja)/labourer (buruh): A person who works for a wage or other forms of remuneration.
  • Employer (pemberi kerja): Refers to individuals, entrepreneurs, legal entities, or other bodies that employ manpower by paying them wages or other forms of remuneration.

 

It is important to note that the Labour Law only applies to Indonesian citizen employees, whether they are employed by foreign or Indonesian entities.

Foreign nationals working in Indonesia tend to have their employment relationship regulated by the terms agreed in the employment contract. These contracts are also governed by the principles of freedom of contract as provided under the Indonesian Civil Code (“ICC”), unless stipulated otherwise.

Therefore, the requirements of Indonesian Labour Law will only apply to a foreign employee where this has been agreed by both parties in the employment contract.

 

Types of Employment

All written employment agreements with Indonesian citizens are required to be in the Indonesian language (Bahasa Indonesia). If agreements are bilingual, the Bahasa Indonesia version will prevail.

Employment contracts are divided into two types:

  1. Indefinite period of employment

    Full-time employees tend to fall under this category and are entitled to different types of benefits under the Labour Law requirements.

  2. Defined (fixed-term) period of employment

    An employment contract for a fixed term may only be used where the work is a one-off project and temporary in nature, seasonal work, or related to a new product or activity that is still in the experimental phase. The contract must stipulate the conditions when the work engagement would be considered completed. Once these conditions have been fulfilled and the work is completed, the contract will be terminated by operation of law.

    If work cannot be completed in the defined time period due to extenuating circumstances, the employment may be renewed once for up to two years after an interlude of 30 days between expiry of the original contract and commencement of the renewal.

 

Key Employee Rights

As regulated by the Social Security Organizing Agency (Badan Penyelenggara Jaminan Sosial) (“BPJS”) Law (No. 24), employers have to provide health security, which covers foreign workers, and also employment security. This includes contributing to an employee’s pension fund and providing for benefits on the event of an accident or death.

Contributions to these funds are usually taken through deductions in the payroll:

Type Rate Payment
Pension 3% 2% by employer,
1% by employee
Old age 5.7% 3.7% by employer,
2% by employee
Accident 0.24% to 1.74% By employer
Death 0.3% By employer
Health 5% 4% by employer,
1% by employee

 

Type of Leaves for Employee

  1. Annual Leave

    Annual leave is given to employee who has worked for 12 (twelve) months continuously. This annual leave must be at least 12 (twelve) working days. However, companies can set a leave of absence above this number if there is indeed an adjustment to their position or workload. Several companies in Indonesia are also known to give time off even though the employee has not worked for a year. During the annual leave period, the employee is entitled to a full salary.

  2. Sick Leave

    Employees who are unable to work due to any sickness are allowed to take sick leave according to the number of days recommended by the doctor. Ideally, female employees who are unable to work due to menstruation are also allowed to take sick leave on the first and second day. Details of sick leaves entitlements are according to the terms stated in a Work Agreement entered into between employer and employee.

  3. Big Leave

    Employees who have worked for 6 (six) years continuously at the same company are entitled to long break of 1 (one) month each on the seventh and eighth years of service, but with the provisions that the employee is no longer entitled to his annual leaves within the 2 (two) years. This entitlement applies for any subsequent multiples of 6 (six) years’ work period.

  4. Maternity Leave

    Female employees obtain the right to rest for 1.5 (one and a half) months before and 1.5 (one and a half) months after giving birth according to the calculation of the obstetrician or midwife. However, companies and employees can negotiate about giving maternity leave and breastfeeding leave, for a period of about 3 (three) months. If the woman experiences a miscarriage, she is entitled to 1.5 (one and a half) months of leave.

  5. Collective Leave

    Collective leave is generally determined by the Government ahead of religious holidays or national holidays. According to the rules, if employees take leaves that coincide with collective leave, their annual leave taken will not be credited back and will still be considered as have been taken.

  6. Important Leave

    For important reasons, employees are entitled to the following important leaves:

    • Marriage leave: 3 days
    • Marriage of his/her child: 2 days
    • Circumcision of his/her child: 2 days
    • Baptizm of his/her child: 2 days
    • Wife giving birth or miscarriage: 2 days
    • Compasionate leaves if Husband / wife, parents / in-laws or children or son-in-law passed away: 2 days
    • Compasionate leaves if other family member in one house passed away: 1 day

 

Religious holiday allowance (“THR“) is non-wage income that must be paid by employers to workers/labourers or their families ahead of religious holidays. THR must be paid no later than seven days before the religious holiday.

Based on the Regulation of Manpower No. 6/2016, employees who are entitled to THR are employees who have worked for at least one month in a company. They are entitled to THR with proportional calculation.

Example: Workers/labourers who have worked 12 (twelve) months continuously or more, are given 1 (one) month of wages.

Companies who are late in paying THR to workers are subject to a fine of 5% (five percent) of the total THR that must be paid, from the end of the Employer’s obligation to pay (seven days before the religious holiday). The imposition of these fines does not eliminate the obligation of employers to continue paying THR to workers/labourers.

 

Hiring Foreigners

To hire expatriates or foreign employee every company need to submit permission letter and obtain approval from the Ministry of Manpower and Transmigration.

Additionally, local Indonesian employees have a priority to employment and companies may hire foreign workers if:

  • A local employee cannot perform the job.
  • The job offered to the foreign worker is legal.
  • One Indonesian is hired for every one foreign worker.

 

Foreign workers are also not allowed to work in the following sectors:

  • Legal
  • Supply chain management
  • Human resources
  • Quality inspection and control
  • Environment affairs
  • Health and safety

 

The Decree of the Minister of Manpower and Transmigration of the Republic of Indonesia Number 40 of 2012, more specifically mentions what positions are prohibited from being occupied by foreign workers in Indonesia.

There are various categories of work permits required for foreign workers depending on the urgency and type of jobs:

  • General: The most common work permit, holders of this permit can request for an extension after 5 years.
  • Temporary: This is issued for a maximum period of 6 months and cannot be extended.
  • Emergency: This is issued for emergency work situations for a maximum period of 1 month and cannot be extended.

 

The work permit will also vary for expatriates.

 

Employee’s Duties and Responsibilities

Employers have a long list of duties and responsibilities as stipulated by labour laws and also as mentioned on their working agreement between the employee and the company.

Here are some examples:

  • Prohibiting any form of discrimination and provide equal opportunity.
  • Following the proper procedures of termination (terminating an employee in Indonesia can be tedious and expensive).
  • Observing the working hours, holidays, and overtime regulations.
  • Ensuring proper remuneration to employees in a timely manner.

 

Sanctions

Employers are also legally required to register their employees to the national social security programmed under the BPJS (Social Insurance Administration Organization). The programme covers workplace accidents, death, retirement, pension, and medical expenses.

If an employer:

  • fails to register their employees;
  • fails to report and pay social security contributions;
  • fails to submit a report on the change of membership data of an employee; and
  • fails to enter an employee in the Old Age Insurance Program;

they will be sent two warning letters, receive various penalties and be restricted from access to certain public services.

Guide to Hiring Staff in Indonesia