Postcard Series: Employing a worker in Indonesia

Capital GES created this series to help businesses that are considering expansion and hiring global staff.

In this postcard series, members of our sales and business development team provide helpful tips on international employment. In our latest post, Crispian Lye – VP Business Development, provides information on employment law in Indonesia.

Indonesia Overview

As Southeast Asia’s largest economy, Indonesia should be on your expansion list. Long known for its agriculture, Indonesia continues to be a key market in the agricultural and manufacturing sectors. With abundant natural resources, a young population, and investor-friendly policies, Indonesia is an attractive place for businesses looking to expand into Asia.

However, expanding is not without its challenges. Therefore, it’s vital to have local help when considering business expansion into Indonesia. Below, Crispian discusses the three most common questions asked by clients regarding employment in Indonesia.

1. Contracts

Can I trial a worker using a fixed-term employment contract, as I am not sure whether it will work out in the long-term?

Fixed-term contracts are possible, but only if you have a valid reason, such as a time-based project, seasonal work, or maternity replacement.

In Indonesia, fixed-term contracts are only valid for the specified period, and they end when the project/task is completed. It’s important to note that if found to be using a fixed-term contract improperly, the contract will immediately transfer to a permanent contract. To ensure your worker remains fully compliant, it’s best to discuss your options with a local partner.

2. Termination Rules and Costs

What do I need to know about termination and severance pay in Indonesia?

In general, employers prefer to terminate with a mutual agreement, rather than go down the path of negotiating in Labour courts. Before terminating, it is advised that the employer and the employee first enter into negotiations. If negotiations are successful, a mutual agreement is signed. If negotiations fail, the case will be escalated to the Labour court. When the case reaches this stage, it could be years before the termination process is complete.

Indonesian employment law is generally considered to be pro-employee. As such, terminations are not as simple as other markets and can be a complex and costly process. So, before you decide to terminate an employment relationship, it’s best to discuss the options with a local partner.

Notice and Severance Pay

Legally, there is no requirement for employers to give a notice period. However, in practice, most employers give a 30-day notice to terminate an employment contract.

The amount and type of severance pay an employee receives depends on the reason for dismissal or termination. In the majority of cases, the employer must make a severance payment. The standard for severance pay is one month’s wages for each year of service, with a maximum of nine months’ wages. In addition, an employee may also be entitled to service appreciation pay and compensation.

3. Statutory Employee Benefits – Paid Leave

What are the statutory employee benefits in Indonesia?

Paid Holiday Leave

Employees are entitled to 12 days of paid holiday leave after one year of continuous service. Public holidays are not included. In addition, an employee who has been working for the same employer for six consecutive years may be entitled to a statutory leave of at least two months.

Religious Holiday Allowance

Employers must pay employees a religious holiday allowance for one religious festival each year, according to their religion. The amount of allowance depends on the employee’s length of service.

Special Leave

Employees are also granted special leave for life events such as their wedding, a family member’s death, or their child’s baptism or circumcision.

Sick Leave

Employers must provide paid sick leave to an employee with a medical certificate. Sick pay is broken down to the following:

  • 100% of salary for the first four months
  • 75% of salary for the second four months
  • 50% of salary for the third four months
  • 25% of salary for subsequent months until termination.

Maternity & Paternity Leave

Maternity Leave

Female employees are entitled to three months of maternity leave. This leave starts 90 days before giving birth and ends another 90 days after giving birth. During this leave, employees are entitled to a full salary.

Paternity Leave

Male employees are entitled to two days of paid paternity leave.

How Capital GES Can Help You Expand in Indonesia

If your business is looking to expand internationally and employ workers in Indonesia, Capital GES can help. To establish what services you require, contact CLye@Capital-GES.com, or phone +65 9049 5224.

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