Hiring Employees in Indonesia: Employment Laws and Regulations

Expanding into Indonesia's vibrant market necessitates a deep dive into local employment laws and practices. Understanding Indonesian labor regulations, governed primarily by the Indonesian Labor Law No. 13 of 2003, is crucial.

This law mandates written employment contracts that detail terms such as wages, benefits, working hours, and termination conditions.

It also requires careful planning, adherence to local laws, and an understanding of cultural dynamics. Before hiring employees in Indonesia, Singapore employers should carefully consider several key factors to ensure compliance with local laws and successful business operations:

Pasal 94 of Law No. 13 of 2003 on Manpower (UU Ketenagakerjaan) emphasizes the importance of clearly outlining an employee's remuneration (compensation) package within their employment contract.

This section outlines the employee's compensation package. It includes details on:

1. Base salary

This is the fixed amount of regular pay an employee receives before any allowances or bonuses. It is typically expressed as a monthly amount (gaji pokok bulanan) but can be negotiated as weekly or bi-weekly depending on company practices and industry norms.

Indonesia has a decentralized minimum wage system. Each province sets its own minimum wage (pasal 84). This means the minimum wage can vary depending on location.

While the exact minimum wage varies by province, it typically falls within a range of SGD 140 to SGD 400 per month. Indonesian Rupiah (IDR) is the standard currency for remuneration in Indonesia.

Jakarta, the capital city, usually has the highest provincial minimum wage, while less developed regions tend to have lower minimum wages. It's important to note that the conversion rate between Indonesian Rupiah (IDR) and Singapore Dollar (SGD) can fluctuate.

The minimum wage undergoes review and adjustments at least once a year (pasal 85). Employers are obligated to stay updated on these changes. Employers can find the latest provincial minimum wage data published by Badan Pusat Statistik (BPS), the Indonesian Central Statistics Agency. BPS publishes this data regularly.

2. Allowances

Many employers in Indonesia offer various allowances on top of the base salary. Common allowances include:

• Housing Allowance (optional): To help offset housing costs, especially in expensive cities.
• Transportation Allowance (optional): To contribute to employee commuting expenses.
• Food Allowance (optional): To help cover meal expenses, particularly for employees who work long hours.
• Other Allowances: Some companies might offer additional allowances depending on the industry or role, such as communication allowances, shift allowances, or car allowances.

3. Bonus Structures (if applicable)

If the company offers performance-based bonuses, profit-sharing bonuses, or other incentive structures, the details should be outlined here. This includes eligibility criteria, calculation methods, and payout schedules.

4. Payment Methods and Schedules

The contract should specify how the employee will be paid (bank transfer, cash) and the frequency of payments (monthly, bi-weekly).

In many organizations, payments are scheduled around the end or beginning of the month, such as from the 25th to the 31st or from the 1st to the 5th of each month.

It's a good practice to provide employees with payslips (slip gaji) detailing their earnings and deductions for each pay period. This transparency fosters trust and allows employees to verify their compensation.

Employers are also responsible for withholding income taxes and social security contributions from employee salaries and remitting them to the relevant government agencies. The remuneration section should not contradict these legal obligations.

Pasal 91 of Law No. 13 of 2003 on Manpower (UU Ketenagakerjaan) lays the foundation for outlining an employee's benefits package within their employment contract in Indonesia. This ensures both the employer and employee have a clear understanding of the non-monetary forms of compensation offered by the company.

1. Social Security Contributions

Employers are legally required to contribute to mandatory social security programs for their employees. These programs are managed by BPJS (Badan Penyelenggara Jaminan Sosial) and cover various aspects of employee well-being:

BPJS Kesehatan (Health Insurance)

Provides employees with access to healthcare services, including hospitalization, outpatient care, and medication coverage.

BPJS Ketenagakerjaan/Jamsostek (Social Security)

Offers employees protection in case of work accidents, retirement, or disability. This program includes components like:

• Jaminan Kecelakaan Kerja (JKK): Covers medical expenses and income replacement for work-related accidents or illnesses.
• Jaminan Hari Tua (JHT): Contributes to a retirement savings account for employees.
• Jaminan Pensiun (JP): Provides a pension benefit upon retirement.
• Jaminan Kematian (JKM): Offers financial assistance to the employee's family in case of death.

2. Health Insurance Top-Up

Some companies might offer additional health insurance coverage beyond the basic BPJS Kesehatan plan. This can provide access to a wider range of healthcare providers, hospitals, and services.

3. Pension Plan Top-Up (Optional)

In some cases, employers might contribute to private pension plans on top of the mandatory BPJS Ketenagakerjaan/Jamsostek program. This enhances the employee's retirement savings and benefits.

4. Life Insurance (Optional)

Some companies offer life insurance coverage for their employees, providing financial security for their families in the event of the employee's death.

5. Paid Time Off (PTO) Beyond Statutory Minimums (Optional)

While UU Ketenagakerjaan mandates minimum leave entitlements (annual leave, sick leave, maternity leave), some employers offer more generous PTO policies. This can include additional days of annual leave, personal leave days, or extended sick leave allowances.

6. Flexible Work Arrangements (Optional)

Some companies offer flexible work arrangements like remote work options, compressed workweeks, or flexible start and end times. This can improve employee work-life balance and job satisfaction.

7. Training and Development Opportunities

Companies might invest in their employees' professional development by offering training programs, workshops, or educational reimbursement programs.

Pasal 78 of Law No. 13 of 2003 on Manpower (UU Ketenagakerjaan) establishes the framework for working hours and overtime regulations in Indonesia. This ensures a balance between employee well-being, productivity, and employer needs.

Standard Workweek

UU Ketenagakerjaan defines a standard workweek as 40 hours, spread over six working days (typically Monday to Saturday). This translates to an average of eight hours per day.

Overtime Regulations

While the law establishes a standard workweek, overtime work is permitted under specific regulations:

Daily Overtime Limit

Employers cannot require employees to work more than 3 hours of overtime per day (pasal 78). This protects employees from excessive workloads and ensures they have adequate rest time for recovery.

Weekly Overtime Limit

The total overtime hours cannot exceed 18 hours per week (pasal 78). This helps prevent burnout and promotes a healthy work-life balance for employees.

Overtime Pay

Overtime work must be compensated at a rate of at least 1.5 times the normal wage (pasal 78). This incentivizes employees for working extra hours while ensuring they are fairly compensated for their additional time.

Important Considerations

Employee Consent

While overtime is permitted, employers cannot force employees to work overtime. Employee consent is crucial, and the employee has the right to refuse overtime work.

Rest Periods

Even with overtime, there are mandated rest periods. Employees must be given a rest period of at least 30 minutes after working for 4 consecutive hours (pasal 78).

Exceptions

There might be exceptions to these regulations for specific industries or sectors with different work arrangements outlined in separate Ministerial Regulations. It's recommended to consult the relevant regulations for your specific industry.

Collective Bargaining Agreements

Collective bargaining agreements between unions and employers might establish different working hour or overtime rules that supersede the general provisions of UU Ketenagakerjaan. Employers should be aware of any such agreements applicable to their workplace.

Record Keeping

Employers are required to maintain proper records of employee working hours, including regular hours and overtime hours worked. This documentation is crucial for ensuring compliance with labor laws and for calculating overtime pay accurately.

Consequences of Non-Compliance

Failing to adhere to the working hours and overtime regulations can lead to penalties for employers. These penalties can include fines and administrative sanctions imposed by the Ministry of Manpower.

Pasal 79, 80, and 82 of Law No. 13 of 2003 on Manpower (UU Ketenagakerjaan) guarantee various leave entitlements for employees in Indonesia. These leaves allow employees time for rest, recuperation, personal matters, and family obligations.

Annual Leave (Pasal 79)

Minimum Entitlement

All employees who have worked for at least one year with a company are entitled to a minimum of 12 days of paid annual leave. This provides them with an opportunity for relaxation and rejuvenation.

Pro-Rated Leave

For employees who have not yet completed a full year of service, they are entitled to a pro-rated amount of annual leave based on their service length.

Leave Accumulation

Some companies offer more generous annual leave policies, allowing employees to accumulate unused leave days from year to year.

Sick Leave (Pasal 80)

The duration of sick leave depends on the employee's length of service and the reason for illness.

Less than 2 Years of Service

Employees with less than two years of service are entitled to a maximum of 2 months of sick leave with full pay, followed by an additional 2 months of leave with reduced pay (amount unspecified in UU Ketenagakerjaan, but typically determined by company policy).

2 Years or More of Service

Employees with two or more years of service are entitled to a maximum of 4 months of sick leave with full pay, followed by an additional 3 months of leave with reduced pay (amount unspecified).

Doctor's Note

In most cases, employees are required to submit a doctor's note as proof of illness to qualify for sick leave with pay.

Serious Illness

For chronic or serious illnesses that exceed the maximum leave duration, some companies might offer additional leave through disability benefits programs.

Maternity Leave (Pasal 82)

Female employees are entitled to 3 months of paid maternity leave after childbirth. This allows them time for recovery and bonding with their newborn baby.

In some cases, companies might grant additional leave for prenatal doctor appointments leading up to childbirth.

Some employers might provide additional financial support during maternity leave beyond the regular salary.

Additional Leave Entitlements (Pasal 80)

Beyond the core categories, UU Ketenagakerjaan also mandates other leave entitlements:

Religious Holidays

Employees are entitled to paid leave for religious holidays observed by their religion. The specific number of days might vary depending on the religion and its holidays.

Marriage Leave

Employees are entitled to a few days of paid leave to get married and attend to related wedding ceremonies.

Bereavement Leave

Employees are granted paid leave in the event of the death of an immediate family member (spouse, parent, child, sibling).

Important Considerations

While UU Ketenagakerjaan provides minimum entitlements, the employment contract might specify more generous leave policies offered by the company. It's important to review the contract for specific details regarding each type of leave.

Notice Period

For some types of leave, such as marriage leave or bereavement leave, employees might be required to provide reasonable notice to their employer in advance.

Leave Payout

When an employment relationship ends, some companies might have policies for cashing out unused or accrued leave days.

Termination of employment in Indonesia is a regulated process governed by Law No. 13 of 2003 on Manpower (UU Ketenagakerjaan). This legal framework ensures fairness for both employers and employees during the termination process. Here's a breakdown of the key aspects:

Employer-Initiated Termination (Pasal 153)

This occurs when the employer decides to terminate the employee's contract. There are various grounds for employer-initiated termination, including:

• Serious misconduct by the employee
• Poor performance
• Redundancy due to economic or operational reasons
• Expiry of a fixed-term contract (PKWT)

Employee-Initiated Termination (Pasal 54)

This occurs when the employee voluntarily resigns from their position. Employees are required to provide written notice to their employer in advance of their last day (typically 30 days).

Termination Procedures (Employer-Initiated)

Written Notice (Pasal 153)

Employers must provide the employee with written notification of termination, clearly stating the reason for the termination and the effective date. The notice period for employer-initiated termination depends on the reason for termination and the employee's service length:

• Minimum Notice Period: a minimum of 14 working days

• Shorter Notice During Probation: cannot be less than 7 days.

Severance Pay Calculation (Pasal 156)

Employees terminated by the employer are entitled to severance pay (uang pesangon) as compensation for the termination. The amount of severance pay is calculated based on a formula that considers the employee's monthly salary and their length of service.

Separation Pay (Optional - Pasal 156)

In addition to severance pay, some employers might offer separation pay (uang pisah) as a goodwill gesture. This is not mandatory but can be beneficial for employee morale during termination.

Consultation with Labor Union (if applicable)

If a labor union exists in the workplace, the employer might be required to consult with them before terminating an employee.

Important Considerations

Dispute Resolution

If an employee disputes the termination or believes the severance pay calculation is incorrect, they have the right to file a complaint with the Industrial Relations Dispute Resolution Body (Lembaga penyelesaian Hubungan Industrial/LPHI).

Documentation

Employers should maintain proper documentation throughout the termination process, including written notices, severance pay calculations, and any communication with the employee.

Employee-Initiated Termination

Notice Period

As mentioned earlier, employees who resign voluntarily must provide written notice to their employer, typically 30 days in advance. This allows the employer time to find a replacement.

Severance Pay

Employees who resign are generally not entitled to severance pay. However, some companies might offer a separation pay as a goodwill gesture depending on the circumstances and the employee's performance.

Find your next top-talents from Indonesia effortlessly with Epicareer for Employer.

Related articles:

• Guide to Creating a Candidate Evaluation Form (+ Free Template)
• Interview Assignments: The Key to Finding Top Talent
• Ways to Apologize When You Forget an Email from Jobseekers
• Medical and Hospitalization Leave in Singapore

Visit Career Guide to acquire all relevant HR resources.