Doing Business With an Indonesia PEO/EOR

Indonesia, the Emerald of the Equator, is a country encompassing 17000 islands. Tourism is the biggest driver of economic growth in the country. The country has also made great strides in reducing poverty over the past decade. 

Indonesia has a growing consumer base with 145 million consumers. They also have a growing middle class that supports the commodity industry such as retail, shoes etc. In order to boost infrastructure, the country plans to spend $430 billion on infrastructure by 2024. 

One of the reasons you would want to partner with an Indonesian PEO is the country’s supportive business environment. Although Indonesia fares a paltry 73 in the ease of doing business, the government has aspired to improve Indonesia’s ratings to 60 in the World Bank's Ease of Doing Business Index. 

In line with this ambition, the government has improved its rankings in starting a business, registering property, obtaining credit, etc. The government has also planned to move its capital to counter overpopulation, natural disasters and people mobility. 

Partnering with an Indonesian PEO helps make inroads into the country and take advantage of business friendly policies and the populous market. Since domestic consumption is one of the main drivers of the economy, the archipelago appears highly favourable to do business.

Why use a Indonesia PEO

The proximity of Indonesia to India, China, Australia makes it one of the most attractive destinations to start a subsidiary. However, the country is highly protective of its employees. Labor unions have a strong say in the democratic process. Thus employers need to be wary of compliance, labor laws and collective bargaining agreements. This is where an Indonesian EOR or a PEO can help you. 

Employers of Record know the lay of the land and possess the expertise to help you navigate through complex labor laws in protectionist markets like Indonesia.  

Partnering with a Indoensian PEO can enable you to onboard talent in Indonesia, offering benefits, paying employees and terminating them as well. Particularly, in such as Indonesia, an Employer of Record or a PEO can facilitate risk-less and hasslefree termination of employees.

Indonesia PEO Costs

Usually, PEOs charge based on two pricing models - fixed and variable. A PEO based on the fixed pricing model charges a transparent fee ranging between $200 - $1000 per employee per month.

Multiplier is one such PEO solution. Our costs for our Indonesia PEO are fixed. The final cost depends on the complexity of employment laws of the employee’s jurisdiction.

Our prices are designed to ensure that you get the most out of your employee spending. 

When employers employ talent through our PEO, they receive HR support, benefits management, and a live dashboard to track their global workforce’s payroll and expenses in real-time.

How to Hire in Indonesia

Talent is abundant in Indonesia. Apart from housing one of the youngest employee markets, Indonesia’s high literacy levels with seven universities featuring in the top 300 universities in Asia. Such infrastructure has made it a hot bed of tech and business talent. 

So before going on a hiring spree to recruit the best tech savvy minds and business wizards, any employer must understand the labor laws and the nuances of creating an employer contract. One must know policies on social security, payroll and benefits. 

You can choose Multiplier to automate creating employment contracts. Our SaaS based solution enables you to create employment contracts for employees and freelancers in their local language. 

However, if you feel managing with compliance all by yourself is best for your business, then here are a few things you must consider while hiring from the Philippines.

Employment contracts

Employers offer two types of employment contracts: fixed term and indefinite term employment contracts.

Fixed term contracts are issued for employees who are hired for a specific job. These contacts do not span for more than 2 years. They need not contain any probationary period. These contracts must be provided in writing and in Indonesian language.

Employees offered an indefinite term employment contract are full-time employees. They usually include a probationary period of 3 months. 

Employment contracts contain the following details: 

  • ~The name, age, address and gender of the employee
  • ~The name, address and business type of the employing company
  • ~The job title or type of work the employee is being hired to do
  • ~The place of work
  • ~The salary and how it will be paid
  • ~The conditions of employment and the employee's obligations and rights
  • ~The start date of the employment and the place and date the agreement was made

A carefully crafted contract that sets out the terms of employment is necessary to avoid confusion, increase trust and avoid employment pains. With Multipier’s Indonesian PEO and EOR solutions you can offload generating employment contracts to us.

Taxation

Indonesia follows a progressive tax system. This means that tax rates increase as the salary of the employee increases.

Band Annual Income Rate
Tax Free Up to Rp54,000,000 0%
Band I Up to Rp50,000,000 5%
Band II Rp50,000,000 to Rp250,000,000 15%
Band III Rp250,000,000 to Rp500,000,000 25%
Band IV Above Rp500,000,000 30%

Note: The tax slabs vary with respect to the region. Employees from the highly industrialized regions of Jakarta, income taxation commences with salaries greater than one million Rupiah (IDR) per calendar month, at a rate of 10%, which slides progressively to 40%

Salary

Due to the presence of strong labor laws, it is important to follow salary reforms while employing talent in Indonesia. Partnering with an Indonesian Employer of Record can help you employ and pay talent compliantly. 

As per the legislation of GR 36/2021, the minimum wage is set based on the following conditions: 

  • ~Purchasing power parity;
  • ~Manpower absorption levels; and
  • ~Median wage variables
  • ~Per capita consumption of households 
  • ~Economic growth 
  • ~Inflation

Thus, Indonesia has increased the average minimum wage of each province by 1.09 percent for 2022. Click here to view the monthly minimum wage rates for each province.

Working hours

As per the Indonesian Labour Law Act 13 of 2003, employees can be tasked to work for:

  1.  7 hours per day and 40 hours per week for 6 working days 

Or 

  1. 8 hours per day and 40 hours per week for five working days in a week

Overtime pay

An employee is entitled to overtime pay if they work for more than 7 hours a day or on weekends or public holidays.

Overtime work is paid at 1.5 times the normal hourly rate for the first hour and twice the normal rate for every two hours from thereon.

Health benefits & Leaves

Employers contribute about 4% for health insurance while employees contribute 1%.

Pension contributions

People older than 56 years of age are eligible to receive a pension.

Employees need to have contributed to the pension fund for up to 180 months.

From March 1, 2021, the employer contributes 2% up to IDR 175.092.

1% is borne by the employee up to a maximum of IDR 87,546.

Public holidays

Employees are entitled to 15 public holidays every year. Employees are also entitled to overtime pay if they are expected to work on a holiday.

Sick leaves

Indonesians are entitled to an unlimited number of sick paid leaves.

They are paid in the following manner:

Number of months Pay entitlement
<4 months

Second 4 months

Subsequent months

100% of their wages

50% of their wages

25% of their wages prior to termination of employment

Maternity leave

An employee is entitled to a paid maternity leave of 1.5 months prior to and after the birth of a child. 

Menstruation leaves

Female employees who suffer from severe pain during their menstrual period are not required to come to work on the 1st and second days of menstruation.

Paternity leave

Employees are entitled to paid paternity leave of 2 days from work.

Marriage leave

Indonesia's labor laws entitled employees to 3 days of paid leave for their marriage and 2 days of paid leave to marry off their own sons and daughters.

Termination

Employees in Indonesia can be terminated for the following reasons:

  1. Redundancies
  2. Failure to comply with employee code of conduct
  3. Violation of employment contract

When terminating employment, employers must get the requisite permission from the Industrial Relation Court (IRC). Without the permission of the IRC, the employment contract cannot be ended even with mutual consent. 

Severance package

Employers are required to, by law, provide severance pay when dismissed. Employers are required to offer one month’s pay for every year up to nine years.

Why Multiplier

With Multiplier’s PEO/EOR solution, treading into a new market is as seamless as confidently ice-skating. 

Without the hassle of setting up a foreign branch or subsidiary, we can help you onboard your preferred candidate, handle HR issues and payroll, and ensure compliance with local laws. 

Once you have chosen your desired talent, start generating and customizing employment contracts for them in a few clicks and manage the workforce from a single platform. You can also pay thousands of employees in Indonesian Rupaiya with a single click. 

Hire and expand into Indonesia using the #1 SaaS-based PEO service. Contact us to grow your business today.

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