How to Legally Employ and Pay Foreign Workers in Indonesia

Posted by Written by Cruisietta Kaylana Reading Time: 3 minutes
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Indonesia’s growing economy and its openness to foreign investment have made it an attractive destination for international businesses. Many of these companies rely on foreign professionals to manage operations, transfer technical expertise, or oversee regional expansion. However, employing foreign nationals in Indonesia is subject to a strict regulatory framework, and non-compliance can lead to serious legal consequences.

To hire foreign workers legally, companies must navigate a structured process that includes satisfying employer eligibility rules, securing work permits and stay visas, drafting compliant contracts, and meeting tax and social security obligations.

Regulatory authorities and the legal environment

Foreign employment in Indonesia is governed by several government bodies. The Ministry of Manpower (MoM) handles labor policies, including the issuance of work permits. Immigration matters, such as visas and stay permits, fall under the Directorate General of Immigration. Meanwhile, the Investment Coordinating Board (BKPM) is involved in licensing foreign-owned businesses, particularly PT PMAs. Local governments may also enforce workforce ratios and monitor compliance.

Businesses must coordinate with these institutions throughout the hiring process to avoid administrative delays or penalties.

Employer requirements for hiring foreign workers

Companies wishing to hire expatriates must first be properly established and licensed. Most foreign investors set up a PT PMA, which must meet minimum capital requirements and follow workforce localization rules. A common regulation is the 1:10 ratio, requiring one foreign worker for every ten Indonesian employees.

Additionally, certain sectors such as oil and gas, education, and construction may have industry-specific restrictions or approvals that influence the eligibility to employ foreign staff.

Work permit and visa application process

Hiring a foreign worker in Indonesia involves a structured, multi-step procedure that must be followed in a specific order. Below is a summary of the process:

Step 1: Submit the RPTKA

The employer submits the foreign worker utilization plan (RPTKA) to the Ministry of Manpower. This document explains why a foreign national is needed, outlines the proposed position, and ensures the employer has met workforce localization requirements. Approval must be obtained before proceeding further.

Step 2: Apply for the IMTA

Once the RPTKA is approved, the employer applies for the IMTA, which formally authorizes the foreigner to work in Indonesia. As part of this process, the employer must pay the Skill and Development Fund (DKPTKA).

Step 3: Obtain the VITAS

The employer then sponsors the foreign worker’s Limited Stay Visa (VITAS), which is issued through an Indonesian embassy or consulate abroad. This visa allows entry into Indonesia to work.

Step 4: Convert VITAS to ITAS

Upon arrival in Indonesia, the VITAS is converted into an ITAS (Limited Stay Permit), which serves as the worker’s legal stay and work permit during their employment. The ITAS is usually valid for 6 to 12 months and must be renewed as necessary.

Step 5: Fulfill Reporting and Sponsorship Duties

The employer must register the foreign worker with the relevant authorities, maintain up-to-date records, and report any changes in employment status. The employer also bears full responsibility for ensuring the worker’s legal stay during the contract period.

Employment contracts and labor law compliance

All foreign workers must be hired under a written, fixed-term employment contract that aligns with Indonesia’s labor regulations. These contracts must clearly state job duties, compensation, working hours, benefits, and termination terms.

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Foreign workers are subject to the same labor protections as Indonesian employees, including rules on working hours, overtime pay, leave entitlements, and severance. These terms must be outlined clearly in the employment contract to avoid future disputes and to pass any compliance audits.

Compensation, taxation, and social security

Compensation packages must comply with regional minimum wage standards and must be offered in Indonesian rupiah. Employers are required to withhold income tax (PPh 21) from foreign workers’ salaries and report payments to the tax office each month. If a foreign worker stays in Indonesia for more than 183 days in a 12-month period, they are considered a tax resident and taxed on their worldwide income.

Although not all foreign employees are eligible for BPJS (Indonesia’s national social security system), employers must either enroll them in BPJS or provide equivalent private insurance coverage. In some cases, employers may also be obligated to contribute to a repatriation fund to ensure the worker’s return to their home country upon contract completion.

Ongoing compliance obligations

Employers must regularly report their foreign manpower utilization to the Ministry of Manpower and demonstrate ongoing efforts to transfer knowledge to Indonesian staff. These reports help verify compliance with the localization policy and other workforce development goals. Accurate record-keeping is also critical, especially regarding contract terms, permit expirations, and payroll documentation.

Companies must also ensure workplace safety standards and staff training programs are implemented in line with national labor laws.

Legal risks and enforcement actions

Non-compliance with foreign manpower regulations can lead to substantial penalties. Violations such as hiring without a valid work permit or failing to maintain proper documentation may result in fines, deportation of the worker, or even suspension of the employer’s business operations. Inspections from the Ministry of Manpower or Immigration can occur without prior notice. While companies may appeal sanctions, this process is time-consuming and typically requires strong legal support. Proactive compliance remains the most effective strategy.

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