Indonesia

While there are different ways of engaging talent in Indonesia, not all are legal or compliant. Below is an overview of the main options, along with the potential risks.

HQ country employment & payroll
What it is: While a person may physically work in Indonesia, employing and paying them directly through the company’s HQ entity abroad is not compliant. Indonesian labour law requires that foreign-workers in the country hold a valid work permit and visa and contract registered with the Ministry of Manpower.
Cons: This arrangement is not legally viable. Without an Indonesia-issued employment contract and visa, workers are not entitled to statutory benefits such as health insurance, leave, or end-of-service gratuity. It also exposes the employer to penalties and immigration issues.

Independent contractor agreements
What it is: A company may try to engage a worker as a contractor, paying them on an invoice basis.
Cons: This option is permitted in Indonesia but must reflect a genuinely independent relationship. Misclassification risks arise where contractors are treated as employees, potentially resulting in reclassification and associated liabilities. Employers risk fines, suspension of operations, rejection of new work permits, and employee claims for compensation. Courts may reclassify the individual as an employee, granting them full statutory rights, including leave, gratuity, and notice protections.

Direct local employer setup
What it is: The company sets up a legal entity in Indonesia and employs workers directly through fixed-term employment contracts (maximum of five years, renewable). Employers must provide medical insurance, register contracts with the Ministry, and payroll must be processed in compliance with local regulations.
Cons: This option is administratively heavy, time-consuming, and costly. Companies must comply with strict local requirements, including visa sponsorship, health insurance, and end-of-service gratuity. Non-compliance can result in fines, blocked work permits, or suspension of operations.

Partnering with an Employer of Record (EOR) or Professional Employer Organisation (PEO)
What it is: Employment is managed through a third-party provider acting as the legal employer in Indonesia. The Employer of Record ensures compliance with local employment laws, manages payroll in accordance with Indonesian regulations, handles tax and social security contributions, and provides mandatory benefits such as health insurance and statutory entitlements, while the employee performs their duties for the client company.
Cons: Costs may be higher than direct employment. Employees may also need education on how the EOR model works, since they expect to be employed directly by the company.

Generally, registering a company in Indonesia can take anywhere from a few days to a few weeks, depending on the complexity of the company structure and the completeness of the application.

However, the difficult part comes after the initial setup when payroll needs to be calculated and run every month, taxes filed, benefits extended, and changes in rules and regulations followed.

While many employers practice employing remote workers as independent contractors, it’s a bad practice. If an individual is giving their full and undivided attention to your company in Indonesia, treating them as an independent contractor is likely a breach of Indonesian employment laws and of those in your country.

Your company could be liable for fines on owed holiday pay, sick pay, social welfare payments, paternity benefits, maternity benefits, or other legal measures. Since the individuals you are working with do not receive the benefits of local employment laws and protections that are often afforded to people working full-time hours.

When you hire employees in Indonesia, you have certain obligations as an employer. HR compliance is about ensuring your policies and procedures respect all applicable laws and regulations regarding employment and work practices.

Complying with local employment law in Indonesia is fundamental for the correct running of your business, not only because these laws are in place to protect employees and guarantee their rights are safeguarded, but also to minimise your risk of liabilities as an employer. Being compliant means respecting and following all local labour laws, sick leave and illness benefits, annual leave, minimum wage, tax credits, and working hours regulations.

As with every other country, there are certain costs associated with employing a worker in Indonesia that come on top of the gross salary you are offering.

It means that Boundless is the legal employer of the individual, as far as the Indonesian government, tax, and employment authorities are concerned.

We are responsible for:

• informing you about any pre-employment requirements
• ensuring employment is compliant with Indonesian employment law
• informing you about the length of the maternity leave, paternity leave, public holidays, illness benefits, medical benefits
• providing a locally compliant employment contract
• processing local payroll
• filing employment-related tax returns
• issuing payslips to the employee
• distributing salary payments
• payments to the local tax authorities

Customers who work with an Employer of Record in Indonesia are responsible for:

• sourcing and recruiting their own workers
• managing the employee’s day-to-day workload
• contributing to the personal/professional development of the employee through their work
• following any guidance we give on employment and HR best practices or legal obligations in Indonesia, such as the employment contract, public holidays, annual leave, sick leave, maternity and paternity benefits, probationary periods, overtime pay, statutory redundancy payments, liability insurance and many others
• ensuring that payroll bills relating to their team are paid to Boundless before the cut-off point in each pay cycle

Boundless as the Employer of Record files all pertinent taxes and social security contributions as they relate to the compliant employment of an individual in their home country.

We carefully choose employment lawyers or advisories to partner with in each country we operate in, including Indonesia. They ensure the Indonesian employment contracts and any other relevant documents required for new employees comply with the local jurisdiction.

We have thorough discussions on specific norms such as payroll services, social protection, data protection, notice periods or work-from-home regulations. Whenever a potentially sensitive issue arises in Indonesia, our internal team contacts the relevant firm to ensure all steps are taken to resolve it promptly.

The company remains responsible and informs employees of the day-to-day management of the people and teams employed through Boundless, including any disciplinary or performance issues. Boundless ensures compliance with Indonesia-specific procedures, practices, and labour laws while employing people and teams on behalf of the company.

Any new employee who is locally employed through an Employer of Record gets full employment rights and benefits as specified in Indonesian employment law. They get a locally compliant employment contract, statutory parental leave, annual leave, illness benefits, any relevant tax credits, and many more.

In Indonesia, employers are not required to pay a separate employment tax; however, they must contribute to the national social security system. Employer contributions typically range from approximately 10% to 12% of an employee’s salary. These contributions include payments for work accident protection (0.24%–1.74%), death insurance (0.3%), old-age savings (3.7%), healthcare (4%), and pension (2%).

Employees are also required to contribute to social security, amounting to around 5% of their salary. This consists of contributions to old-age savings (2%), healthcare (1%), and pension (1%).

In addition, employees are subject to personal income tax, which is applied at progressive rates ranging from 5% to 35%, depending on income level.