Human Resources and Payroll

Indonesia boasts a 137 million strong workforce, accounting for 50 percent of the total population – ranking behind only China, India, and the USA.

Add to its large working population providing potential employers with several talent options, and a young workforce with a median age of 28 - the competitive cost of living and minimum wages make Indonesia an ideal choice for business.

However, Indonesia’s recently promulgated Job Creation law, aimed at reforming the labor landscape in Indonesia, has amended several labor requirements significantly. Changes include a formula for calculating the minimum wage, eliminating sectoral minimum wages, introducing provisions for hourly wages (for the first time), and income support for workers made redundant. A new procedure for the disbursal of severance payments has also been established.

A firm understanding of Indonesia’s laws and regulations related to human resources and payroll management is essential for foreign investors who want to establish or are already running foreign-invested entities in the country.

In this section, we discuss:

  • Indonesia’s labor laws;
  • Hiring employees;
  • Business visas and employment permits;
  • Minimum wages;
  • Terminating employees;
  • Social insurance; and
  • Public holidays and leave allowances.

Employment and labor laws in Indonesia

The main sources of employment and labor laws in Indonesia are:

  • Labor Law of 2003 on Manpower as amended by Law No. 11 of 2020 on Job Creation and recently revoked by Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation;
  • Law No. 21 of 2000 on Labor Union; and
  • Law No. 2 of 2004 on Industrial Relations Dispute Settlement.

In general, an employer must fulfill the following rights for employees:

  • Receive the minimum wage, this varies depending on sector and province;
  • Receive social security, which includes pension, healthcare, life insurance, accident insurance, and old age benefits;
  • Receive religious holiday allowance (1 month’s salary - subject to the period of employment);
  • Receive statutory absence or payment when the employee does not take annual leave; and
  • Receive payment for overtime.

Indonesia’s new Job Creation Law, or the Omnibus law, has also made changes to fixed-term contracts in order to better organize the labor pool in Indonesia that foreign companies must understand when hiring in Indonesia.

Hiring employees in Indonesia

All employment in Indonesia must be through a contract, which may either be indefinite term or fixed term contracts. The contract must specify the obligations of the employers and employees – such as compensation, benefits, termination clauses, severance, and more.

While hiring foreign workers in Indonesia has been simplified under the job creation law, businesses can only hire foreign workers under certain criteria. Companies need to check whether the sector they operate in is allowed to hire foreign workers.  

Regulation No. 8 of 2021 (MOM Reg 8/2021) on the Employment of Foreign Workers issued by Indonesia’s Ministry of Manpower provides detailed requirements for businesses to fulfill in order to hire foreign workers.


Tapping into ASEAN’s Vibrant Talent Pool: Hiring in Singapore, Vietnam, and Indonesia

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For a local company to employ a foreign worker, they must prepare a Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing (RPTKA)) — a document that details the specific work, position, and length of employment the foreign employee will undertake in Indonesia. The RPTKA now also serves as the basis for the MOM to grant visas and stay permits.

Business visas and employment permits

There are several visas foreign visitors can apply for depending on their purpose of visit. This includes:

  • Single entry business visas;
  • Multiple entry business visas;
  • Work visa (IMTA);
  • Limited stay visa (VITAS);
  • Permanent stay visa (KITAP);
  • Social visit visas; and
  • Second home visa.

The Indonesia business visa is provided to foreigners who wish to attend meetings, and conferences, sign a contract, or engage in any other business-related activity in Indonesia. These visas, however, do not entitle you to work for an Indonesian employer.

Further, to better define the permitted position for expatriates in Indonesia, Indonesia’s Ministry of Labor issued Regulation No. 228 of 2019 (Reg 228, 2019). The new regulation widens the number of positions open to expatriate workers, consolidates the list of positions into one, and simplifies the approval process for foreigners and their employers. Other changes have also been made to the immigration laws under the new Omnibus Law.

Minimum wages in Indonesia

In Indonesia, the minimum wage applies to all workers with less than one year of working in the company. After one year, the employee is eligible to be paid in accordance with the scale of wages in the particular company, if they wish to do so.

The local government will determine the minimum wage based on economic and employment conditions. These comprise of the following variables:

  • Purchasing power parity;
  • Manpower absorption levels; and
  • Median wage variables (the margin between 50 percent of the highest wages and 50 percent from the lowest 50 percent of the lowest wages from employees in the same position).

These variables are assessed based on existing data from the last three years. In addition, the wage council will also take into account economic growth or provision rate inflation, as well as the per capita consumption of working household members. If the provincial, regional, or city minimum wage is currently higher than the sectoral minimum wage, then businesses will have to apply the provincial, regional, or city minimum wage.

Did You Know?
Under Government Regulation 37 of 2021 (GR 37/2021), the government has introduced a new unemployment benefit program Job Loss Security Program (JLS), — the first of its kind in the country.

As the minimum wage for each province differs, foreign investors should seek the help of registered local advisors to help understand how changes will affect their operations.

Terminating employees

Indonesia’s Omnibus Law has made significant changes to the country’s employment laws, most notably on employee termination.

Prior to the changes in the Omnibus Law, employers had no right to unilaterally terminate employment in any circumstance, unless the termination was agreed upon by both parties through negotiations. The employer would then be able to obtain approval for the termination from the labor courts and the employee was entitled to up to six months’ salary.

Under the latest changes, the employer can now notify the employee in writing, setting out the reasons for termination, and the termination payments and entitlements at least 14 business days before the date of termination.

Payroll in Indonesia

When handling payroll in Indonesia, employers must adhere to strict guidelines. Employers must withhold tax payments and social security contributions from each pay cycle to ensure payroll compliance.

Social insurance in Indonesia

The government has made it mandatory for all Indonesian citizens and expatriates to participate in the social security programs. Expat employees must also enroll their families in the programs.

Indonesia’s social security programs are run by two organizations – the Social Security Administrator for Health (BPJS Kesehatan) for healthcare and the Social Security Administrator for Employment (BPJS Ketenagakerjaan) for socio-economic protection.

The government launched its ambitious universal healthcare and pension programs in 2014. Since its inception, the healthcare program has become the biggest in the world with more than 185 million participants. Registered Indonesians and expatriates are eligible for free health services ranging from dental care to medicines to physiotherapy. Further, patients are also eligible for free emergency and chronic care, in addition to organ transplants.

Below is a list of social security contributions and rates:

Types of Social Security


(as a % of regular monthly salary/wages)



Borne by employer

Borne by employee


Health Security



Up to a maximum monthly salary of IDR 12 million.

An employee’s monthly salary includes wages plus all fixed employment benefits.

Work Accident Security (Jaminan Kecelakaan Kerja or “JKK”)

  • lowest risk: 0.24%
  • low risk: 0.54% medium risk: 0.89%
  • high risk: 1.27%
  • highest risk: 1.74%

Employees do not make payments to JKK

No maximum monthly salary applies.

Death Security (Jaminan Kematian or “JKM”)


Employees do not make payments to JKM

No maximum monthly salary applies.

Old Age Security (Jaminan Hari Tua or “JHT”)



No maximum monthly salary applies.

Pension Security (Jaminan Pension or “JP’)



Up to a maximum monthly salary of IDR 9,559,600.

The retirement / pension age is 58.

An expatriate is not eligible for pension security.

Individual Income Tax in Indonesia

An individual’s income is subject to 5% to 35% of progressive income tax rates.

Expatriate workers need to know that personal income tax (PIT) in Indonesia is determined through a self-assessment scheme.

The country has adopted a worldwide income taxation system, meaning that individuals considered Indonesian tax residents must pay tax to the government on the income they earned in Indonesia, and also on income they earned from abroad, unless there is an applicable double tax agreement.

Non-resident taxpayers will only be liable to pay PIT for income they earn in Indonesia unless the country in which they are a tax resident has an applicable tax treaty with Indonesia. In these cases, the taxpayer might not pay any tax in Indonesia or pay a reduced amount.

Did You Know
Effective fiscal year 2022, the lowest tax bracket cap for individual income tax will be increased from IDR 50 million to IDR 60 million and a new 35% tax bracket will be added for individuals earning more than IDR 5 billion annually.

Given these tax treatments, it is important for expatriate workers to understand their tax liabilities in Indonesia. It is advisable to use the services of registered local tax advisors to help determine which tax law regime will be applicable along with any exemptions that may be brought.

Public holidays

Indonesia’s government entitles its citizens to some public holidays. In addition to official public holidays, the government also provides joint leaves (collective leave days).

Further, Indonesia’s Ministry of Manpower issued M/6/HK.04/IV/2021 on the implementation of the payment of the religious holiday allowance (Tunjangan Hari Raya – THR) no later than one week before the start of the religious holiday.

The THR is a yearly bonus given to employees at least one week before the start of the religious holiday observed by the employee (based on the employee’s religion), equivalent to one month’s salary (based on the period of employment).

Further, the Manpower Law entitles all employees to 12 days of annual leave per year and establishes the guidelines for maternity leave, paternity leave, as well as sick leave.


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