Hire employees in Indonesia using an Employer of Record

You've been interviewing for weeks. Finally found the right person in Indonesia. Now you need to actually hire them legally. This is where most companies hit a wall.

Indonesia's employment laws are strict, and the penalties for getting it wrong aren't small. Misclassify an employee as a contractor? You're looking at back taxes, social security contributions, and potential fines. Miss mandatory benefits like the 13th-month salary or religious holiday allowance? Employees can claim back payments plus interest.

Here's the reality: you've got three ways to hire in Indonesia, and each comes with trade-offs.

Option 1: Set up your own entity

• Cost: $15k-35k upfront, $8k-15k annual maintenance
• Timeline: 4-6 months minimum
• Complexity: PT PMA registration, tax ID, payroll system, labor ministry compliance
• Makes sense when: Hiring 15+ people long-term, permanent market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: Misclassification penalties, back social security payments, labor disputes
• Makes sense when: Short projects (< 6 months), specialized consulting work
• Note: Hire with Columbus also handles contractor agreements and payments

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: None - we handle everything
• Makes sense when: 1-20 employees, testing markets, multi-country teams

If you're hiring 1-5 people, the math is clear. Entity setup costs more than 4-5 years of EOR fees ($179/month = $2,148/year per employee). An EOR like Hire with Columbus handles employment contracts, payroll processing, tax compliance, mandatory benefits, and keeps you updated on Indonesia's frequently changing labor laws.

Ready to hire in Indonesia without the legal headaches? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to bring someone onboard in Indonesia. Here's how the costs and risks compare.

Most companies think they need to set up a local entity to hire in Indonesia. That's one option, but it's expensive and slow. You can also work with contractors, but misclassification penalties are steep. Or you can use an employer of record like Hire with Columbus to hire employees without the entity setup.

How can you hire in Indonesia?

Setting up your own entity makes sense if you're planning to hire 20+ people and commit to Indonesia long-term. You'll pay $15,000-25,000 upfront for incorporation, plus ongoing accounting, legal, and HR infrastructure costs. The process takes 4-6 months minimum.

Hiring contractors seems fast and cheap, but Indonesia's labor laws are strict about misclassification. If someone works like an employee (set hours, using your equipment, integrated into your team), they legally are an employee. Penalties include back taxes, social security contributions, and fines up to $10,000 per misclassified worker.

Using an employer of record lets you hire actual employees in 2-3 days without setting up an entity. Hire with Columbus becomes the legal employer, handles all compliance, and you manage the day-to-day work. At $179/month per employee, five employees cost $895/month versus $25,000+ for entity setup.

Employment contract types in Indonesia

Once you've decided how to hire, you need to pick the right contract type. Indonesia recognizes several employment arrangements, each with specific rules.

Permanent employment contracts (PKWT Tidak Terbatas) are your go-to for core team members. These indefinite contracts provide job security and full benefits. There's no probation period limit, but most companies use 3 months. Permanent employees get full severance protection and can only be terminated for cause or economic reasons.

Fixed-term contracts (PKWT) work for temporary projects or seasonal work, but they're heavily regulated. Maximum duration is 2 years with one possible 1-year extension. After 3 years total, the contract automatically converts to permanent. You can't use fixed-term contracts for permanent business functions.

Part-time employment is allowed but rarely used. Part-time employees get prorated benefits and must work less than 7 hours per day or 35 hours per week. They receive the same hourly wage and legal protections as full-time employees.

Outsourcing arrangements let you hire through Indonesian staffing companies for non-core functions like security, catering, or cleaning. The outsourcing company remains the legal employer, but you can't use this for your main business activities.

Most international companies hiring in Indonesia use permanent contracts through an EOR. You get the employment relationship you want without the legal complexity. Hire with Columbus handles all contract drafting, ensures compliance with Indonesian labor law, and manages any contract modifications or terminations according to local requirements.

The choice is usually straightforward: permanent contracts for long-term hires, fixed-term only when you genuinely need temporary coverage. Skip the contractor route unless you're hiring for truly independent project work with clear deliverables and timelines.

How does payroll and taxation work?

Your €60,000 employee in Indonesia actually costs €78,600 per year once you add employer contributions. The 31% markup comes from mandatory social security contributions, healthcare premiums, and employment insurance that hit every payroll cycle.

Here's what makes Indonesian payroll tricky: you're dealing with progressive income tax brackets, multiple employer contribution categories, and strict monthly payment deadlines. Miss a payroll filing deadline and penalties start at 2% of the tax owed per month, plus interest.

Income tax brackets

Indonesian employees pay progressive income tax on their annual salary. The rates increased slightly in 2025 as part of tax reform:

The good news? Employees get a standard deduction of IDR 54,000,000 (€3,375) annually, which reduces their taxable income. Your €60k employee pays about €8,100 in income tax after deductions.

Social security contributions

Indonesia's BPJS system covers healthcare and employment insurance. Both employer and employee contribute, but employers carry the heavier load:

Healthcare contributions are capped at IDR 12,000,000 (€750) annual salary. Employment insurance caps at IDR 143,000,000 (€8,938) annually. For your €60k employee, you're paying about €2,220 in healthcare contributions and €2,220 in employment insurance as the employer.

Payment schedule and bonuses

Indonesian employees expect monthly salary payments by the 10th of each month. That's not a suggestion - it's legally required under the 2025 Labor Law amendments.

You'll also need to budget for mandatory bonuses:

• 13th month bonus: One month's salary paid before Eid al-Fitr (religious allowance)
• Annual performance bonus: Minimum 1 month's salary if company profits exceed targets
• Holiday allowance (THR): Required before major religious holidays

These bonuses add roughly 2-3 months of extra salary costs annually. Your €60k employee costs an additional €10k-€15k just in mandatory bonuses.

Total employment cost breakdown

Here's what a €60,000 annual salary actually costs you in Indonesia:

• Base salary: €60,000
• Employer healthcare contributions: €2,220
• Employer employment insurance: €2,220
• Pension contributions: €1,200
• 13th month bonus: €5,000
• Holiday allowance: €5,000
• Performance bonus (minimum): €5,000
• Total annual cost: €80,640

That's a 34% markup on the base salary. Most companies budget wrong and get surprised by these mandatory costs.

Payroll cycle and deadlines

Indonesian payroll runs on strict monthly cycles with zero flexibility on deadlines:

• Salary payment: By 10th of each month
• Tax withholding remittance: By 10th of following month
• Social security contributions: By 15th of following month
• Annual tax reconciliation: By March 31st

Miss any deadline and penalties compound quickly. Late salary payments trigger 5% monthly penalties plus potential labor disputes. Late tax remittances cost 2% per month plus 2% annual interest.

The tax office doesn't send reminders. You're expected to know the schedule and file on time.

Common payroll mistakes

Most international companies mess up Indonesian payroll in predictable ways:

Wrong contribution calculations: Using gross salary instead of capped amounts for BPJS contributions. This overpayment doesn't get refunded easily.

Missing bonus accruals: Not budgeting monthly for the 13th month bonus and holiday allowances. These hit your cash flow hard when due.

Incorrect tax withholding: Forgetting the standard deduction or miscalculating progressive brackets. Employees get angry when year-end reconciliation shows they overpaid.

Late filings: Indonesian deadlines are firm. "We didn't know" isn't accepted as an excuse, and penalties add up fast.

Currency conversion errors: Using wrong exchange rates for USD contracts paid in IDR. The tax office uses Bank Indonesia rates, not your bank's rates.

Setting up compliant payroll

Running Indonesian payroll yourself means partnering with a local accounting firm (€800-1,200 monthly), buying payroll software (€300-500 monthly), and hiring someone who understands Indonesian tax law (€40k+ annually).

You'll also need to register with multiple government agencies, set up bank accounts for tax remittances, and stay current on frequent regulation changes.

With Hire with Columbus, you get compliant Indonesian payroll for $179/month per employee. We handle all tax calculations, social security contributions, bonus accruals, and government filings. Your employees get paid on time, taxes get filed correctly, and you avoid the €2,000-10,000 penalties that hit most companies their first year.

The math is simple: our EOR service costs less than hiring one part-time payroll person, and you eliminate compliance risk entirely.

What benefits and leave are required?

Indonesia requires 13th and 14th month salary payments on top of regular wages – you'll pay salary 14 times a year, not 12. That's just the start of your benefit obligations.

Beyond these bonus payments, three benefits are mandatory: BPJS health insurance, pension contributions (JHT), and workplace accident insurance (JKK). Skip any of these and you're looking at fines starting at IDR 1 million (about $65) per employee, plus potential criminal liability for the company director.

Annual vacation

Indonesian employees get 12 days minimum annual leave after completing one year of service. These days accrue monthly at one day per month during the first year.

Here's what catches most companies off guard: unused vacation days must be paid out when employment ends. There's no "use it or lose it" policy allowed under Indonesian law.

Employees can carry over unused days to the following year, but you'll need clear policies about maximum accumulation. Most companies cap carryover at 6-12 days to avoid massive payouts during termination.

Sick leave

Employees get unlimited paid sick leave, but your payment obligations change based on duration:

• Days 1-3: You pay 100% of salary
• Days 4-30: You pay 75% of salary
• Days 31-90: You pay 50% of salary
• Beyond 90 days: BPJS health insurance covers payments

Doctor's certificates are required from day 4 onwards. For the first three days, a simple written notification usually suffices, though your employment contract can specify stricter requirements.

Parental leave

Maternity leave: 3 months (90 days) at 100% pay. This can be split as 45 days before birth and 45 days after, or taken entirely after birth.

Paternity leave: 2 days at 100% pay. Yes, just two days – Indonesia's paternity leave is quite limited compared to other countries.

There's no shared parental leave system. The maternity leave belongs to the mother and can't be transferred to the father.

Public holidays 2025

Indonesia has 16 national public holidays in 2025. Pay double time if employees work these days, or give compensatory time off.

Regional holidays may apply depending on your office location. Jakarta has additional holidays that other provinces don't observe.

Mandatory benefits breakdown

Here's what you're paying beyond salary:

The accident insurance rate depends on your industry risk level. Office work typically falls at the lower end (0.24%), while manufacturing or construction hits the higher rates.

Religious allowance (THR)

You'll pay Tunjangan Hari Raya (THR) – a religious holiday allowance equal to one month's salary. This is paid before major religious holidays (typically before Eid al-Fitr for Muslim employees).

All employees get THR regardless of religion, though the timing might vary. Employees who've worked less than 12 months receive prorated amounts.

Optional competitive benefits

Beyond legal minimums, competitive packages in Indonesia often include:

• Private health insurance (beyond BPJS)
• Transportation allowances (common in Jakarta due to traffic)
• Meal allowances or subsidized cafeterias
• Mobile phone and internet allowances
• Life insurance beyond the mandatory minimums
• Performance bonuses (13th month is mandatory, but many add 14th or 15th month bonuses)

Common benefit mistakes

Mistake 1: Treating the 13th month bonus as optional. It's legally required and must equal one month's salary.

Mistake 2: Not registering employees for BPJS within 30 days of hire. Late registration triggers penalties and you're still liable for any medical costs incurred.

Mistake 3: Miscalculating overtime rates during holidays. Holiday work requires 200% pay (double time), not the standard 150% overtime rate.

Mistake 4: Assuming you can cap sick leave. Indonesian law provides unlimited sick leave with the payment schedule above.

Mistake 5: Not paying out accrued vacation days during termination. This creates immediate liability and potential labor disputes.

Administering these benefits correctly requires local HR expertise (IDR 800 million+ annual salary), benefits software (IDR 15 million/month), legal review (IDR 50 million/year), and carries risk of errors worth millions in potential fines.

Hire with Columbus handles all benefit administration, BPJS registration, THR calculations, and compliance monitoring for $179/month per employee. We ensure your employees get their full entitlements while you avoid the administrative complexity and compliance risks.

What are the compliance requirements?

Written contracts are mandatory in Indonesia. Verbal agreements don't count and expose you to claims for unpaid benefits, overtime, and severance. The employment contract must be signed within 30 days of the employee's start date or you face penalties of up to IDR 100 million (about $6,500).

Employment contract requirements

Every employment contract in Indonesia must be written in Indonesian (Bahasa Indonesia). If you want an English version, you'll need both languages, but the Indonesian version takes precedence in any legal dispute.

Your contract must include these mandatory clauses or it's considered invalid:

• Employee's full name, address, and ID number
• Job title, description, and workplace location
• Salary amount and payment schedule
• Working hours and rest periods
• Contract duration (if fixed-term)
• Probation period details
• Termination conditions and notice periods

The contract needs to be registered with the local Manpower Office (Disnaker) within 7 days of signing. Skip this step and you're looking at fines of IDR 50-100 million per violation.

Probation periods

Probation periods in Indonesia max out at 3 months for all employees. You can't extend it, and you can't have multiple probation periods for the same role.

During probation, either party can terminate with 7 days' written notice. After probation ends, full employment protection kicks in, including longer notice periods and severance requirements.

Here's the catch: if you don't clearly specify the probation period in the contract, it's automatically considered invalid. The employee gets full employment rights from day one.

Working time regulations

Standard working hours are 8 hours per day, 40 hours per week. You can structure this as 5 days of 8 hours or 6 days of 7 hours maximum.

Overtime kicks in after these limits and must be paid at:

• 1.5x regular hourly rate for first hour of overtime
• 2x regular hourly rate for subsequent hours
• 2x regular hourly rate for work on rest days
• 3x regular hourly rate for work on public holidays

Employees must get at least 30 minutes rest after 4 continuous hours of work. You're required to keep detailed records of all working hours and overtime payments.

Notice periods

Notice periods depend on how long the employee has worked for you:

Notice must be given in writing. You can pay in lieu of notice, but you still need to follow the proper termination process.

Termination process

You can't just fire someone in Indonesia without following the process. For terminations with cause, you need:

1. Written warning system (usually 3 warnings over 6 months)
2. Opportunity for employee to respond
3. Internal investigation and documentation
4. Consultation with employee representatives or union (if applicable)

For terminations without cause (redundancy, restructuring), you need approval from the Industrial Relations Court or agreement from a tripartite institution. This process typically takes 30-60 days.

Immediate termination is only allowed for serious misconduct like theft, fraud, or criminal activity. Even then, you need solid documentation and evidence.

Severance pay

Severance pay is mandatory for most terminations, even resignations in some cases. Here's what you owe:

The "salary" includes base salary plus fixed allowances. Rights compensation covers unused leave and other benefits.

Data protection

Indonesia follows its own Personal Data Protection Law (PDP Law), which mirrors GDPR in many ways. You need explicit consent to collect, process, and store employee personal data.

Key requirements include:

• Written consent for data collection and processing
• Clear privacy policies in Indonesian
• Data breach notification within 72 hours
• Employee rights to access, correct, and delete their data
• Local data storage requirements for certain sensitive data

Violations can result in fines up to IDR 50 billion (about $3.3 million) or 4% of annual revenue, whichever is higher.

Common compliance mistakes

Most companies mess up these areas:

Invalid employment contracts: Missing mandatory clauses or using only English versions. Result: Contract void, back payments owed, fines up to IDR 100 million.

Wrong termination process: Skipping warnings, consultation, or court approval. Result: Reinstatement orders, double severance payments, legal fees averaging IDR 200-500 million.

Improper overtime calculations: Using wrong rates or not paying overtime at all. Result: Back payments with interest, fines up to IDR 200 million, potential criminal charges.

Missing work permits: Hiring foreign employees without proper permits. Result: IDR 500 million to 1 billion fines, deportation, company blacklisting.

Penalties for violations

Indonesia doesn't mess around with employment law violations. Here are the specific penalties you're facing:

• Invalid employment contract: IDR 50-100 million fine plus contract deemed void
• Improper termination: 2x severance payment plus legal fees (typically IDR 200-500 million)
• Unpaid overtime: Back payments with 2% monthly interest plus IDR 100-200 million fine
• Missing work permits: IDR 500 million to 1 billion fine plus potential business license suspension
• Data protection violations: Up to IDR 50 billion or 4% of annual revenue
• Unregistered contracts: IDR 50-100 million per violation

The Industrial Relations Court can also order reinstatement, meaning you're stuck paying the employee's full salary from termination date until they're reinstated.

Hire with Columbus ensures every contract and termination follows Indonesian law exactly. We handle all the registration requirements, maintain compliant contracts in Indonesian, and manage the complex termination processes so you don't face these penalties. At $179/month per employee, it's a lot cheaper than a single compliance violation.

What has changed recently?

Indonesia rolled out some major employment law changes in 2025 that'll affect how you hire and manage employees. The government's been busy updating regulations to balance worker protections with business flexibility.

The biggest shift is the new minimum wage calculation system that took effect in January 2025. Instead of provinces setting their own rates arbitrarily, there's now a standardized formula based on local cost of living and economic indicators. This means more predictable wage increases, but also higher costs in major cities like Jakarta and Surabaya.

Updated minimum wage rates

Here are the 2025 minimum wage rates for key Indonesian cities:

These rates increased by an average of 8.5% from 2024, which is higher than the typical 3-5% annual bumps companies were used to.

New overtime regulations

Indonesia simplified its overtime rules in March 2025, but "simplified" is relative here. The new system caps overtime at 4 hours per day and 18 hours per week, down from the previous 3 hours daily limit but with more weekly flexibility.

Overtime rates remain at 1.5x regular pay for the first hour and 2x for subsequent hours on weekdays. Weekend and holiday overtime is now a flat 2x rate, which is actually easier to calculate than the old tiered system.

Digital nomad visa program

Indonesia launched its official digital nomad visa (B211A) in February 2025, which affects how you classify remote workers. If your employees work from Indonesia for more than 60 days per year, they might need this visa instead of regular tourist permits.

The visa costs $130 and lasts 12 months, but holders can't work for Indonesian companies directly. This creates a compliance gap if you have remote employees who occasionally work from Indonesia - you'll need clear policies about visa requirements and tax implications.

Updated severance calculations

The Job Creation Law amendments that took effect in April 2025 changed severance pay calculations. The good news is that maximum severance is now capped at 25 months of salary, down from the previous uncapped system that could stretch to 32 months.

Here's the new severance structure:

The calculation is more straightforward now, but you're still looking at substantial costs for terminations. An employee with 8 years of service earning $800/month would cost you roughly $7,200 in severance payments.

Healthcare contribution changes

Indonesia's BPJS healthcare system updated its contribution rates in June 2025. Employer contributions increased from 4% to 4.5% of gross salary, while employee contributions stayed at 1%. The maximum monthly contribution is now capped at IDR 540,000 ($36) per employee.

The system also expanded mental health coverage, which sounds great but comes with additional administrative requirements. Employers need to report mental health-related sick leave separately starting in October 2025.

New contract requirements

Labor contracts must now include specific clauses about remote work arrangements, data protection responsibilities, and termination procedures. The Ministry of Manpower issued standardized contract templates in August 2025 that aren't mandatory but are heavily recommended.

If you don't use the standard templates, your contracts need to address these new requirements anyway. Missing clauses can delay termination processes or create legal vulnerabilities during labor disputes.

When you work with an EOR like Hire with Columbus, we handle all these regulatory updates automatically. Our legal team updated all Indonesian employment contracts in September 2025 to ensure compliance with the new requirements, and we manage the BPJS contribution changes through our payroll system. You get the benefit of staying current with Indonesian employment law without having to track every regulatory change yourself.