Indonesia is well-known for its spicy food, but that's not all that's heating up-the economy is too. The country has one of the fastest-growing economies in Southeast Asia, a young and skilled workforce, and a thriving business culture.
For companies looking to expand it's a great choice, but once you start digging into the details of hiring someone there, things can get complicated fast. Global companies can hire and do business in Indonesia, but the laws must be followed every step of the way.
Hiring steps
Before you bring someone on board, you need to choose the right legal pathway for hiring. Each option has pros and cons.
- Set up a local entity. Establishing a PT PMA (foreign-owned company) gives you direct control but comes with heavy upfront investment and reporting requirements.
- Engage contractors. Independent contractors are fine for short-term or project-based work. But if the relationship looks like traditional employment, you risk fines and retroactive obligations.
- Work with an Employer of Record (EOR). An Employer of Record lets you hire quickly without creating a legal entity. The EOR is the legal employer, handling compliance and payroll, while you manage the employee's day-to-day work.
For more details, check out: Global Expansion 101 Pt. 4: Recruitment & Hiring Research.
Hiring prerequisites
To hire employees legally, you'll need:
- Business registration with the Ministry of Law and Human Rights.
- Tax ID (NPWP) for both your company and your employees.
- Work permits and stay permits (IMTA and KITAS) for foreign employees.
Processing these steps can take weeks, so build in buffer time before making offers.
For a complete visa walkthrough, read our guide: How to Obtain a KITAS Work Visa in Indonesia.
Indonesian employment contracts
Every employment contract must be written in Indonesian and meet required legal minimums. Skipping this step puts you at risk of disputes down the road.
Contracts must cover:
- Job title and description
- Term (fixed or indefinite)
- Salary and benefits, including the 13th-month holiday allowance (THR)
- Enrollment in BPJS Ketenagakerjaan and BPJS Kesehatan
You'll also want to include probationary periods, confidentiality terms, or non-compete clauses where relevant. Simple, clear language keeps everyone aligned from the start.
Labor laws and compliance
Indonesia's labor laws are detailed and strictly enforced. Here are the big ones you need to know:
- Minimum wage. Set regionally and adjusted annually. Jakarta's 2025 minimum wage is IDR 5,067,381 (US$330), according to the Jakarta Manpower Office.
- Working hours. 40 hours per week across 5-6 days.
- Annual leave. 12 days minimum, plus public holidays.
- Termination. Severance obligations are among the highest in Asia-up to 32 months of salary depending on tenure.
Plan carefully to avoid surprises later.
Running payroll in Indonesia
Payroll in Indonesia requires registering with multiple authorities, staying current on contributions, and paying taxes correctly every month.
Registration and social security (BPJS) contributions
Employers must register with:
- BPJS Ketenagakerjaan (employment benefits)
- BPJS Kesehatan (healthcare)
Employer contributions usually add another 3%-5% of an employee's monthly salary.
Calculating taxes and withholdings
Income tax rates are progressive, from 5% up to 35%. You're responsible for calculating, withholding, and remitting these taxes every month. For example, an employee earning IDR 15 million (US$980) a month pays tax across multiple brackets after deductions.
Payment methods and cycles
Bank transfers are the norm. Payroll runs monthly, with salaries usually paid at month-end. The 13th-month THR bonus is mandatory and paid before Eid al-Fitr.
Paying independent contractors and foreign employees
It's easy to blur the line between contractors and employees, but that's where risks creep in.
- Treating a contractor like an employee can trigger fines and backdated benefits.
- Hiring foreign employees without valid work and stay permits can lead to penalties for both employer and worker.
Make sure roles and documentation match the actual work relationship.
Cost management
Employer costs don't stop at base salary. Budget for:
- BPJS contributions
- Income tax withholdings
- THR (mandatory annual bonus)
- Allowances for transport, meals, or housing
ASEAN Briefing estimates employers should expect to add 15%-20% on top of base wages to cover mandatory contributions and benefits.
Payroll mistakes, like missing BPJS payments, can lead to fines or even suspension of operations. A regular review process protects you.
You'll need to keep up with:
- Frequent regulation updates.
- Complex tax categories depending on employee status.
- Holiday calendars that shift every year.
The Ministry of Manpower publishes updates, but many companies also run monthly payroll audits to stay compliant.
Utilizing support from Employer of Record providers
Hiring in Indonesia can feel like navigating a maze. That's where an employer of record (EOR) comes in. An EOR becomes the legal employer on paper, handling contracts, payroll, contributions, and compliance. You still direct the employee's work, but the EOR shields you from misclassification risks and regulatory headaches.
To understand why EOR services matter globally, read: Global Employment & EOR Services: Why Use Them?
How Pebl can help
Hiring and paying employees in Indonesia can be complex, but with the right roadmap, it's absolutely doable.
Pebl makes hiring in Indonesia easy.
With our comprehensive employer of record services, we act as the legal employer for your talent in Indonesia handling visa sponsorship, onboarding, payroll, benefits and compensation, and all the other HR headaches. You just have to sit back and do what you do best-run your business without worrying about six hundred different local labor laws.
Whether you're hiring your first employee in Jakarta or scaling across multiple regions, Pebl gives you the tools and expertise to grow globally with confidence.
Contact us when you're ready to learn more.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided "as is," and no representations are made that the content is error-free.
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