Indonesia has emerged as one of the biggest players in Southeast Asia with a rapidly growing economy, a thriving middle class, and an endless pool of skilled talent. With favorable conditions and a wealth of skilled professionals, the country positions itself as a strategic hub for businesses aiming to thrive in the diverse APAC marketplace.
If you're thinking of hiring local professionals in Indonesia, using an Employer of Record (EOR) is a smart move. Here's how it works: When you hire through an EOR in Indonesia , your staff officially works for the EOR but reports directly to you. This means you can get professionals on board quickly without the hassle of setting up your local entity.
Your EOR in Indonesia takes care of everything from hiring to payroll, and even handling administrative tasks like onboarding and offboarding. Their commitment is to ensure everything aligns with local rules and regulations as a core part of their service. With your EOR managing salaries, benefits, and other staff-related matters, you can focus on what's most important – running your business . It's a straightforward way to operate in Indonesia without getting caught up in complicated administrative tasks.
In this guide, we're going to explain the costs and benefits of using an EOR and show you how to work with an EOR to navigate Indonesian labor laws. We'll also help you figure out the factors before choosing the right EOR partner for your needs. Let's make understanding EOR services in Indonesia simple and help you make smart decisions for your business expansion.
Five Steps to Hiring Employees in Indonesia Using an Employer of Record
Given the variety of providers in the market, each offering slightly different services, follow these five steps to identify the right EOR partner for building your new team in Indonesia:
Step 1: Evaluate the advantages and disadvantages of each potential partner
Start by making a list of the important things you need to make your global hiring process easy, like:
- 1. Payroll services for efficient salary distribution and invoice payments.
- 2. Ongoing legal support to navigate Indonesian labor laws seamlessly.
- 3. Intellectual property protection and robust data security measures.
- 4. A user-friendly onboarding experience to get new hires started.
- 5. A comprehensive benefits solution taking care of healthcare, pensions, and more.
- 6. Transparent and reasonable pricing.
Use this checklist to quickly assess EOR providers and find the one that fits your needs and budget.
Step 2: Pick the right EOR service provider after careful consideration
Make sure the EOR provider possesses regional expertise, particularly with a proven track record in the APAC region. Opting for an EOR with experience in Indonesia will be advantageous when expanding your operations to this market.
Step 3: Review testimonials and coverage of your shortlisted EOR providers
Check out the reviews and client testimonials published online to judge potential EOR providers based on the actual service quality experienced by existing customers, as opposed to marketing claims on their websites. Additionally, explore their social media presence and online press coverage to gain a better understanding of the company's operations and reputation.
Step 4: Work Together for Fair Pay and Benefits
When working with your EOR service provider, make sure you're offering fair and reasonable pay. Deciding on salaries for remote jobs can be tricky, considering factors like living costs and local labor laws. Your EOR should help you come up with a competitive salary and benefits package based on the job, skills, and experience to attract and keep the best people.
Step 5: Safeguard Your Intellectual Property and Data Security
The next step is to ensure your EOR is committed to keeping your ideas safe and your data secure. Check if they have certifications that enable them to protect sensitive information. Your EOR should also be able to create employment contracts that clearly state your company owns any new ideas your remote employees come up with. This helps avoid legal problems in a country where you might not be familiar with the existing legal rules and regulations.
Key Considerations Before Engaging an EOR in Indonesia
Before entering the Indonesian market, carefully think about the following crucial aspects:
Legal and cultural awareness
- Get to know Indonesian labor laws and cultural norms.
- Understand the legal duties and cultural subtleties that might affect your business.
Market research
- Conduct in-depth market research to pinpoint your target audience and competitors.
- Study the demand for your products or services in the Indonesian market.
Economic and political environment
- Stay updated on the economic and political conditions in Indonesia.
- Keep an eye out for potential risks or changes that could impact your business operations.
Tax and financial considerations
- Understand the tax implications of conducting business in Indonesia.
- Collaborate closely with your financial team to create a budget that covers all relevant costs.
Benefits of Using an Employer of Record in Indonesia
An Employer of Record makes international hiring simple. Without one, you'd have to go through several complicated steps, like setting up a local office, dealing with paperwork, creating benefit plans, and spending hefty amounts on HR resources – all just to hire one person from another country.
An EOR, on the other hand, takes care of all the legal and HR responsibilities, allowing you to begin the hiring process within a few days without breaking the bank or drowning in paperwork. An employer of record service provider is expected to handle the administrative workload related to hiring and paying workers. This includes but isn’t limited to:
- Ensuring timely payment to employees and contractors.
- Managing benefits within your budget.
- Facilitating the onboarding of new employees.
- Handling employment levies, payroll taxes, and more.
- Providing guidance on any changes in the Indonesian labor scenario.
- Offering intellectual property protection and ensuring data security.
How much does it cost to use an EOR in Indonesia?
When it comes to using Employer of Record (EOR) services in Indonesia, there are two main costs: a setup fee and an ongoing management fee. The exact cost you'll pay depends on factors like how many employees you have, what services you need, and which EOR provider you choose. So, when you're looking into EOR services, it's a good idea to get custom price quotes to figure out the best option for your business.
Opting for BGC Group as your EOR service provider comes with transparent pricing – costing no more than US $300 per employee per month. This all-inclusive fee covers essential services like payroll, compliance with local laws, benefits administration, and tax reporting. Choosing BGC Group means you get a reliable EOR partner at a fixed and affordable rate, making it easy to manage your global workforce without unexpected costs.
Hiring in Indonesia
Understanding how to hire in Indonesia means getting familiar with the Labor Law of 2003, which lays out the rights and protections for workers. Knowing how these rules apply helps you avoid problems that could lead to fines, legal issues, or even a ban on doing business in Indonesia.
Employment contracts and agreements in Indonesia
When it comes to employment contracts, they can be spoken or written. For full-time positions, a letter of appointment should include key details like the employee's name, start date, job details, and proposed wages.
Labor compliance in Indonesia
Making sure you comply with labor laws is crucial. In Indonesia, it's required to protect employees from discrimination based on various factors. There are also rules to prevent harassment, protect whistleblowers, and set limits on working hours and breaks.
Payroll and payroll taxes in Indonesia
Now, let's talk about payroll and taxes. Employers in Indonesia need to follow specific rates, ranging from 10.24% to 11.74%. These cover things like work accident insurance, old age, death benefits, pensions, and health insurance. Employees are subjected to pay taxes as per the following income brackets by law:
| Taxable income band (IDR) | National income tax rate | |
|---|---|---|
|
0-60 million IDR |
5%
|
|
|
60-250 million IDR |
15% |
|
|
250-500 million IDR |
25% |
|
|
500 million- 5 billion IDR |
30% |
|
|
Above 5 billion IDR |
35% |
|
Employment benefits and compensation in Indonesia
Following Indonesian labor laws, employers must provide specific benefits to employees based on factors like tenure and gender. BGC Group is here to help you create an all-encompassing strategy that meets these legal requirements and improves engagement and retention for your international team in Indonesia and beyond.
Let's break it down:
Maternity and paternity leave
- Expecting mothers get three months of paid maternity leave, starting six weeks before delivery.
- Fathers are entitled to two paid days of paternity leave after the birth of their child.
Vacations and public holidays
- Indonesia has 15 public holidays each year.
- Full-time employees with at least 12 months of tenure get 12 days of paid vacation annually.
- For those working on a public holiday, overtime pay rates are:
- 1st – 7th hour: 200% hourly wages
- 8th hour: 300% hourly wages
- 9th and 10th hour: 400% hourly wages
Healthcare and sick leave
- Full wages are provided for a year of sick leave, with percentages decreasing over time.
- This means 100% for the first four months, 75% for the second four months, 50% for the third four months, and 25% for the last three months.
Severance pay and employee terminations in Indonesia
Indonesian law makes it tough for employers to fire employees, requiring them to explore all options before termination. Even if termination is necessary, it must be for valid reasons like dishonesty, fraud, redundancy, or insolvency.
When an employee is let go, Indonesian labor law outlines what they should be paid. This includes a standard severance pay, calculated as one month's pay for each year worked, with a maximum of nine months' pay. Employees are also owed a service appreciation pay and money for any remaining benefits or unused leave.
If an employee is unfairly terminated without a valid reason, they have the right to more compensation. This includes double the standard severance pay, the service appreciation pay, and settlement for any outstanding benefits owed. This legal framework ensures that terminations are fair and that employees receive appropriate compensation based on the circumstances.
What are the risks of employee misclassification in Indonesia?
In Indonesia, it's crucial to get the distinction between employees and contractors right, as misclassification comes with hefty risks for employers. Here's a closer look:
Employee vs. Contractor basics:
- An employee follows an employer's rules, with set hours and a guaranteed salary.
- A contractor is more independent, setting their own schedule and working for multiple clients.
- Employees get legal protections and perks, unlike contractors who operate more independently.
Consequences of getting it wrong:
If an employer misclassifies workers intentionally or by mistake to avoid giving benefits, it can lead to trouble. Trouble means fines, penalties, and legal issues, with employers on the hook for back taxes, benefits owed, and unpaid wages:
- Financial hit: Employers may face a financial hit, needing to pay back taxes, owed benefits, and unpaid wages due to misclassification.
- Legal turmoils: Misclassification can bring on legal headaches, inviting potential lawsuits and legal battles.
To avoid misclassification risks, partnering with an employer of record is a smart move. BGC Group, with its expert team well-versed in Indonesian labor laws, ensures that you are compliant with all regulations. The team of specialists at BGC Group know their way around Indonesian employment rules, offering expert help to businesses for accurate worker classification.
Ultimately, correctly determining the employment status, whether employee or contractor, holds importance. It's not just about following the rules; it's also about avoiding big fines, legal troubles, and financial hits. If you're unsure, a reliable partner can help steer you in the right direction and keep you out of trouble.
Get started with an Employer of Record for Indonesia
Whether you're searching for sales, marketing, or engineering talent in Indonesia, BGC Group is your go-to partner to make international hiring a breeze. Here's a detailed breakdown of how BGC Group's Employer of Record (EOR) services can seamlessly guide you through the process:
1) Swift onboarding
BGC Group ensures a quick and hassle-free onboarding process, allowing you to integrate new team members with ease.
2) Tailored benefits
Customize employee benefits to match their unique needs and preferences. This personalized approach enhances job satisfaction and contributes to long-term retention.
3) Legal compliance assurance
Gain access to a dedicated team of legal experts at BGC Group, providing comprehensive support to ensure your business operations align with Indonesia's complex labor laws.
4) Global payroll services
BGC Group simplifies the payment process for both employees and contractors with their global payroll services, ensuring accuracy and efficiency.
5) Intellectual property protection
Safeguard your business assets, including intellectual property and internal data, with BGC Group's robust protection measures. Ensure that your innovative ideas and sensitive information stay secure.
6) Efficient scaling strategies
Accelerate the growth of your global team by leveraging BGC Group's expertise. Tap into a diverse pool of talent from around the world, allowing your business to scale efficiently.
To learn more about how global EOR can optimize your global workforce, check this page out.
The Future of EOR in Indonesia
Looking ahead, Employer of Record (EOR) services in Indonesia are gearing up for some exciting changes. As more companies seek global talent, EOR will be a key player in helping international professionals seamlessly join the Indonesian workforce. With remote work becoming more common, EOR services will adapt to make sure everything stays compliant with local rules while making it easy for people to work from different parts of the world.
Technology is going to be a major part of this future. Automation , smart tools, and data insights will make things smoother and more efficient. EOR services will also become more flexible, tailoring solutions to fit each company's unique needs in the competitive job market. More benefits are on the horizon, going beyond the usual perks to include things like support for mental health, wellness programs, and opportunities for professional growth.
Keeping up with Indonesia's work laws can be tricky, but EOR services can help you stay on top of it. With the use of technology to stay updated, you can always rest assured that you’re compliant to all employment laws and regulations. Plus, there's a growing focus on doing good and giving back to the planet. EOR providers might start including social responsibility and sustainability initiatives in their services, aligning with the global trend of making positive impacts.
In a nutshell, the future of EOR in Indonesia is going to be all about keeping things simple, using technology smartly, and making sure businesses and employees have what they need to thrive in a changing work world. BGC Group's Employer of Record services make international hiring and working in Indonesia a breeze. Learn more about how BGC Group's Employer of Record services can facilitate a swift, secure, and seamless hiring process in Indonesia.
If you’re ready to take your business to greater heights by expanding your team in the APAC region, contact us and kickstart the process with BGC Group today!
