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Hiring in Indonesia
When negotiating terms of an employment contract and offer letter with a local employee in Indonesia, it may be useful to consider the following standard benefits.
Employment contracts in Indonesia
Employment agreements in Indonesia must be written in Bahasa Indonesia, the official language of Indonesia, and may be bilingual. In the event of any inconsistency in the bilingual versions of the employment agreements, the Bahasa Indonesia version will prevail.
Employment contracts in Indonesia can either be fixed-term or for an unspecified period of time. Fixed-term contracts are given for defined time periods or until the completion of a certain job. Fixed-term contracts can be offered for a maximum of 5 years.
It’s best practice to put a strong employment contract in place in Indonesia which clearly states the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Indonesia should always state the salary and any compensation amounts in Indonesia rupiah (IDR) rather than another currency.
Working hours in Indonesia
The standard Indonesia workweek is 40 hours, consisting of either approximately 7 hours a day for 6 days a week or 8 hours a day for 5 days a week.
If employers request extra hours during working days, they must pay 1.5 times the employees’ regular wages for the first hour and 2 times their regular wages for any hour after that. Wages should include fixed allowances. Maximum overtime allowed is 3 hours a day or 14 hours a week. Senior-level positions are excluded from overtime. There must be a written order from the employer and written consent for the employee for any overtime worked.
Holidays in Indonesia
Indonesia celebrates 15 public holidays for which employees are given the day off, including:
- New Year’s Day
- Lunar New Year
- Nyepi, Bali Hindu New Year
- Good Friday
- Labor Day
- Ascension Day of Jesus Christ
- Ascension Day of the Prophet Muhammad
- Buddhist Holy Day of Waisak
- Ascension Day
- Eid al-Fitr
- Independence Day
- Eid al-Adha
- Islamic New Year
- Birthday of the Prophet Muhammad
- Christmas Day
It should be noted as well that 87% of the population in Indonesia observe Islam as their religion and, as a result, Islamic holidays such as the Birthday of the Prophet Muhammed are widely celebrated across Indonesia.
Vacation days in Indonesia
Employees who have worked for 12 consecutive months are eligible for 12 days of paid annual leave.
Indonesia’s government declares Cuti Bersama which means “taking leave together.” This is also referred to as joint leave/holiday. Cuti Bersama was introduced by Indonesia’s government for the purpose of stimulating domestic tourism within the country and increasing the efficiency of public servants. For example, if a holiday falls on a Thursday, a “joint leave” program encourages the employer to give Friday off. The Cuti Bersama dates change each year and are dictated by the government.
Indonesia sick leave
The concept of a set number of sick days does not exist in Indonesia. If an employee has a prolonged absence due to sickness, their salary may be reduced based on the time they’ve been out. For the first 4 months, the employee is entitled to 100% of their pay. After the first 4 months, the employee’s pay is reduced to 75%, after the next 4 months it is reduced to 50%, and following the 4 months after that it is reduced to 25% until the employee is terminated. An employer may also terminate an employee who has been sick for 12 months. Sick pay is covered by the employer, not the government.
Maternity/paternity leave in Indonesia
Pregnant employees are entitled to take 3 months’ fully paid maternity leave, of which 1.5 months are taken prior to the birth and 1.5 months are taken post-natal.
Non-birthing employees are entitled to 2 days’ paid paternity leave.
Employees are entitled to paid family leave in Indonesia, under the following circumstances:
- Marriage of the employee’s child: 2 days’ paid leave
- Circumcision of the employee’s child: 2 days’ paid leave
- Baptism of the employee’s child: 2 days’ paid leave
- Death of a main family members (spouse, parents/in-law, child/in-law): 2 days’ paid leave
- Death of other family members who live at the same house: 1 day of paid leave
Although full salary is due to the employee for the above circumstances, the employer is not obligated to pay the allowances that are conditional on the attendance of the employee.
Health insurance in Indonesia
Indonesia has compulsory universal healthcare which is funded through payroll taxes and the general budget. Employers are required to enroll their employees in this system.
Bonuses
Employees are paid a mandatory 13th-month bonus in Indonesia, often referred to as THR (Tunjangan Hari Raya/Religious Holiday Allowance). THR is paid 7 days before the religious holiday, at the latest. It’s common practice to pay the THR on Muslim religious holidays, regardless of the employees’ religion. Employees who have worked for less than 12 months for their employer are entitled to a prorated bonus.
Termination/severance in Indonesia
Employment contracts for an unspecified period of time can include a probationary period of up to 3 months. Fixed-term contracts may not include a probationary period.
The standard notice period for both employer and employee is 30 days’ notice. Terminating an employee in Indonesia is difficult and generally, an employer must establish just cause to terminate an employment contract, which is a high threshold.
The law provides different formulas of severance pay based on the specific reason for dismissal. This includes events such as imprisonment, death, retirement, bankruptcy, etc.
- Standard severance pay: 1 month of wages for service of less than 1 year, plus an additional month of wages for every year of service, up to 9 months’ salary.
- Long service pay: Amounts to 2 months’ salary after the first 3 years of service, followed by an additional 1 month’s salary for every 3 years of service thereafter, up to a maximum of 10 months’ salary for 24 years of service.
Compensation pay must be paid to cover the following:
- Annual leave that has not expired or been taken
- Housing allowance and medical and healthcare allowance equivalent to 15% of the severance pay and/or reward for years of service pay
- Travel costs for employees and their family to the place where they were recruited
- Other benefits provided under the employment agreement, the company regulations, or an applicable Collective Bargaining Agreement (CBA)
- Other compensation amounts as determined by the Industrial Relations Court (this can include special arrangements between the employer and employee)
Extra gratia is an additional voluntary payment on top of statutory payment provided by the employer to the employee to ease the burden of separation.
Paying taxes in Indonesia
Indonesia has implemented a universal social security system to cover all employees and residents under a single healthcare system, and a single employment benefits system by 2029. The national social security covers 5 programs, including:
- Health insurance – 4% employer, 1% employee
- Occupational injuries – 0.24% to 1.74% employer
- Old age saving – 3.7% employer, 2% employee
- Pension benefits – 2% employer, 1% employee
- Death benefits – 0.3% employer
In addition to the above, employers who have employees who are citizens of Indonesia are required to contribute to the Job Loss Security program by contributing 0.46% of the employee’s wages to the program.
Residents of Indonesia are subject to the following rates of income tax:
- Up to IDR 60 million: 5%
- From IDR 60 million up to IDR 250 million: 15%
- From IDR 250 million up to IDR 500 million: 25%
- Over IDR 500 million up to IDR 5 billion: 30%
- Above IDR 5 billion: 35%
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