Guide to Hiring Employees in Indonesia

1. Finding Employees

• Job advertisements on specialized internet platforms (JobStreet, LinkedIn, etc.);
• Advertisements on social media, newspapers, or corporate websites;
• Job fairs and university programs.

2. Candidate Evaluation and Selection

• Interviews: Conduct structured interviews to assess professional skills and fit with corporate culture.
• Testing: Use professional tests to evaluate competencies if necessary.
• Reference checks: Contact previous employers to verify the candidate's experience and reputation.

3. Employment Contracts

• PKWT (Perjanjian Kerja Waktu Tertentu) – a fixed-term contract. This contract can be for project work (no more than 21 days a month and no more than 3 months), seasonal positions, or a probationary period. The duration is limited with an extension possibility up to a maximum of 5 years. A probationary period is not possible.
• PKWTT (Perjanjian Kerja Waktu Tidak Tertentu) – a permanent employment contract. It assumes long-term employment relations and requires justification for dismissal.

4. Employee Registration

5. Employment for Foreign Workers

• Employment contract: Foreign workers must have a written employment contract with the employer. The term is usually limited by the duration of their work visa and can range from 6 to 12 months with the possibility of extension.
• RPTKA: This document is part of the procedure for obtaining work permits for foreigners. It confirms that the company reasonably requires a foreign specialist and their position.
• IMTA: A work permit issued by the employer through the Indonesian Ministry of Manpower.
• WORKING KITAS: A temporary residence permit for foreign workers, allowing them to work in Indonesia.
• BPJS (health and social insurance) also needs to be registered in this system.
• Local employees: Employers are obliged to hire Indonesian citizens in the company for hiring foreigners.
• Training local staff: Foreign specialists must share their knowledge with local employees as part of the professional training program.

6. Working Hours and Leave

• Overtime: Working hours exceeding 40 hours a week are considered overtime and are paid at an increased rate (usually 1.5 times the rate for the first 2 hours of overtime and 2 times the rate for subsequent hours). Employers must inform employees about the need for overtime in advance.
• Breaks: Employees are entitled to a lunch break of no less than 1 hour after 4 hours of work.
• Vacation: All employees are entitled to a minimum of 12 working days' paid leave per year, after one full year of employment. The employee must inform the employer of their intention to take leave at least 7 days before it begins.

• Sick leave: Employees are entitled to paid sick leave, typically 12 days a year.
• Maternity leave: Women are entitled to 3 months of maternity leave (1.5 months before childbirth and 1.5 months after childbirth).
• Parental leave: After childbirth, a woman is entitled to 2 months of paid leave to care for the newborn.
• Family leave: Employees can take leave for important family circumstances, but this is not always paid and depends on the employer's policy.
• In Indonesia, paid rest days are also provided on national holidays, but the number of such holidays may vary.

7. Issuance of Employment Record Book (if applicable)

• In Indonesia, an employee may be issued a Surat Keputusan Pengangkatan Karyawan (document of appointment), confirming their status as an employee of the company. This document is similar to an employment record book or notice of appointment.

8. Salary and Additional Payments

• Wages: The employer is obliged to pay the employee the minimum wage set by regional authorities. Payments are made monthly or according to the established procedure described in the employment contract.
• 13th salary: Mandatory payment, usually before the Idul Fitri holiday. This payment is known as THR (Tunjangan Hari Raya) and equates to one month's salary for workers who have worked for more than 12 months.
• Regional allowances: Depending on the region, additional compensation may apply to cover living costs.
• Foreign workers, like locals, are entitled to the 13th salary (THR) and other payments, such as leave allowances and regional compensations.
• Foreigners are subject to the same rules and regulations.

9. Taxes and Reporting

• Income tax (PPh21): Withheld monthly from the employee's salary by the employer. Tax rates are progressive and vary from 0% to 34% depending on income.
• Foreign workers residing in Indonesia for more than 183 days a year are considered tax residents and must pay income taxes under the same rules as Indonesians.
• If they are tax non-residents, their income is taxed at a rate of 20% under international agreements to avoid double taxation.
• The company must include information about registered employees and compliance with social security and occupational safety in the quarterly LKPM report.

10. Termination

• In case one of the parties terminates the employment relationship before the expiration of the period established in the fixed-term contract (PKWT) (unilateral termination), the employer must pay compensation calculated based on the period worked according to the contract. (Article 17 of Government Regulation No. 35/2021). However, it should be noted that an employee terminating the contract before the PKWT period expires must also compensate the company in the amount of wages for the remaining period of the PKWT contract.

• Employer's initiative: Termination must comply with labor law, and the employer must justify the reason for dismissal (e.g., staff reduction, disciplinary violations). No later than 7 working days before dismissal if it occurs during the probationary period or no later than 14 working days before dismissal if it is not related to failing the probationary period.

• Employee's initiative: The employee must submit a resignation letter in writing, 30 days before the intended departure date. The employee must work until the termination date, but if both parties agree, the employee may leave the company earlier.

• A termination notice must be presented in writing and contain the purpose and reasons for dismissal, termination compensation, and other employee rights arising in connection with termination. (Explanation of Article 37, paragraph 3 of Government Regulation No. 35/2021)

• Compensation: Payment for unused leave, but in case of dismissal at the employer's initiative, additional compensation such as severance pay and long service payment (if applicable) is provided.

• Foreigners may be dismissed according to their contract. However, employers must notify the immigration authorities, as termination affects the status of the work visa and stay in the country. In case of termination, the foreigner must leave Indonesia unless they obtain a new KITAS or extend the visa on other grounds.

• No termination notice is required from the employer in the following cases: (Article 151A of the Labor Law and Article 52, paragraph 3 of Government Regulation No. 35/2021)

11. Severance Pay

Severance Pay (Pesangon), depends on the length of service:

• Less than 1 year: 1 month’s salary
• 1 ≤ Tenure < 2 years: 2 months’ salary
• 2 ≤ Tenure < 3 years: 3 months’ salary
• 3 ≤ Tenure < 4 years: 4 months’ salary
• 4 ≤ Tenure < 5 years: 5 months’ salary
• 5 ≤ Tenure < 6 years: 6 months’ salary
• 6 ≤ Tenure < 7 years: 7 months’ salary
• 7 ≤ Tenure < 8 years: 8 months’ salary
• 8 years and more: 9 months’ salary

Service Award (Uang Penghargaan Masa Kerja):

• 3 ≤ Tenure < 6 years: 2 months’ salary
• 6 ≤ Tenure < 9 years: 3 months’ salary
• 9 ≤ Tenure < 12 years: 4 months’ salary
• 12 ≤ Tenure < 15 years: 5 months’ salary
• 15 ≤ Tenure < 18 years: 6 months’ salary
• 18 ≤ Tenure < 21 years: 7 months’ salary
• 21 ≤ Tenure < 24 years: 8 months’ salary
• 24 years and more: 10 months’ salary

Compensation for Unused Rights (Uang Pengganti Hak):

• Unused annual leave that has not expired.
• Expenses for returning the employee and their family to the place where the employee was hired.
• Other rights established in the employment contract (PK), company rules (PP), or collective agreement (PKB).