Indonesia offers foreign investors access to a large and increasingly skilled workforce. However, hiring employees in Indonesia requires more than agreeing on a salary and issuing an offer letter.
Employers must follow Indonesian rules governing employment contracts, payroll calculations, social security registration, income tax withholding, working hours, religious holiday allowances, company regulations, and employment termination.
These requirements generally apply to both locally owned companies and foreign-investment companies, including a PT PMA. A foreign parent company should therefore ensure that its Indonesian entity has a compliant HR and payroll framework before recruiting employees.
As of July 2026, Indonesia’s primary employment framework includes Law No. 13 of 2003 on Manpower as amended by Law No. 6 of 2023, Government Regulation No. 35 of 2021, and Government Regulation No. 36 of 2021 on Wages as most recently amended by Government Regulation No. 49 of 2025.
Why HR Compliance Matters for Foreign Companies
Employment compliance should be addressed from the beginning of the investment process.
Incorrect employee classification, unregistered fixed-term contracts, underpayment of statutory benefits, or inaccurate payroll deductions may expose a company to:
- Employee disputes and compensation claims
- Administrative sanctions
- Labor inspections
- BPJS and tax liabilities
- Penalties for late or incorrect payments
- Difficulties during financial, legal, or investor due diligence
- Reputational risks with employees and business partners
A compliant HR system also helps foreign investors understand the company’s actual employment cost. The employee’s monthly gross salary is only one component of the total cost.
Employers may also need to budget for social security contributions, religious holiday allowance, overtime, fixed-term contract compensation, leave benefits, payroll administration, and potential termination liabilities.
1. Establish the Correct Employing Entity
Employees working in Indonesia should generally be hired by a legally established Indonesian entity, such as a PT PMA or local limited liability company.
The employment contract, payroll records, BPJS registration, tax withholding, and mandatory manpower reporting should consistently identify the correct employing entity.
Before issuing employment contracts, the company should generally have:
- A valid company deed and approval from the Ministry of Law
- A Business Identification Number or NIB
- The appropriate business classification and licenses
- A registered tax identification number
- An Indonesian bank account for company transactions
- Access to the relevant manpower, BPJS, and tax reporting systems
Hiring employees directly through an overseas parent company without reviewing the Indonesian legal and tax implications can create permanent establishment, payroll, immigration, and employment risks.
2. Choose the Correct Employment Contract
Indonesian employment relationships are generally divided into two main categories:
Indefinite-Term Employment Agreement — PKWTT
A Perjanjian Kerja Waktu Tidak Tertentu, or PKWTT, is an employment agreement for permanent or ongoing work.
A PKWTT is normally appropriate when the position relates to the company’s continuing business operations, such as:
- Finance and accounting
- Human resources
- Sales and business development
- General administration
- Permanent production roles
- Management positions
- Ongoing technical or operational functions
A probation period may be included in a PKWTT, subject to a maximum period of three months. During probation, the employee must not be paid below the applicable minimum wage.
Fixed-Term Employment Agreement — PKWT
A Perjanjian Kerja Waktu Tertentu, or PKWT, may only be used for work that is temporary, seasonal, project-based, linked to a new product or activity under evaluation, or otherwise non-permanent.
Government Regulation No. 35 of 2021 states that a PKWT cannot be used for work that is permanent in nature. A time-based PKWT may generally be concluded for up to five years, including extensions. The Constitutional Court has also interpreted the applicable legislation so that the completion period for certain project-based work should not exceed five years, including extensions.
A PKWT must:
- Be made in writing
- Use Bahasa Indonesia and Latin letters
- Clearly describe the position and nature of the temporary work
- State the contract period or conditions for completion
- Specify wages and employee rights
- Not include a probation period
If a bilingual contract is used, the Bahasa Indonesia version should be carefully prepared and aligned with the foreign-language version.
PKWT Registration
Employers must register a PKWT electronically with the Ministry of Manpower no later than three working days after signing.
Where electronic registration is unavailable, the employer must submit the contract to the relevant regency or city manpower office no later than seven working days after signing.
PKWT Compensation
Employees under a PKWT are entitled to statutory compensation when the contract expires.
For an employee who has completed 12 consecutive months, the compensation is generally equal to one month’s wage. For shorter or longer periods, the amount is calculated proportionally.
The obligation should be included in the employer’s payroll and contract-expiry planning rather than treated as an unexpected termination expense. Government Regulation No. 35 of 2021 expressly regulates compensation for fixed-term employees.
3. Include Essential Clauses in the Employment Contract
A properly drafted employment agreement should clearly regulate at least:
- Employer and employee identities
- Position and job description
- Place of work
- Start date
- Contract type and duration
- Basic salary
- Fixed and non-fixed allowances
- Payroll date and payment method
- Working hours and weekly rest days
- Overtime procedures
- Annual leave and other statutory leave
- BPJS registration
- Religious holiday allowance
- Confidentiality obligations
- Company property and information security
- Intellectual property ownership
- Disciplinary procedures
- Grounds and procedures for termination
- Dispute-resolution mechanism
- Governing language and applicable Indonesian law
Clauses copied directly from another jurisdiction may not be enforceable in Indonesia. Foreign companies should therefore avoid relying exclusively on global employment templates without local legal review.
4. Comply With Minimum Wage Requirements
Indonesia does not use one nationwide minimum wage for all employees.
Minimum wages are determined according to the employee’s work location and may include:
- Provincial minimum wage
- Regency or city minimum wage
- Provincial sectoral minimum wage
- Regency or city sectoral minimum wage, where applicable
The government’s wage framework is regulated by Government Regulation No. 36 of 2021, which was amended by Government Regulation No. 51 of 2023 and most recently by Government Regulation No. 49 of 2025. The latest amendment took effect on 17 December 2025 and includes changes following Constitutional Court Decision No. 168/PUU-XXI/2023.
Because local minimum wages are normally updated each year, employers should check the latest governor’s decision for the province, regency, city, and business sector where the employee will work.
A company with employees in multiple Indonesian locations may therefore need to apply different minimum wage standards.
Employers must also prepare a proportional wage structure and scale that considers factors such as:
- Position
- Job classification
- Length of service
- Education
- Competency
- Company capability
- Productivity
The wage structure should be reviewed when employees are promoted, transferred, or given expanded responsibilities.
5. Understand the Employee Payroll Structure
A typical Indonesian payroll package may contain:
Basic salary
The employee’s principal monthly wage.
Fixed allowances
Regular allowances paid in a consistent amount, such as a fixed position or transportation allowance.
Non-fixed allowances
Payments that depend on attendance, actual expenses, performance, or other conditions.
Overtime pay
Compensation for approved work beyond statutory working hours.
Bonus or incentive
Performance-based compensation, subject to the employment agreement and company policy.
Religious holiday allowance or THR
A mandatory annual payment separate from regular monthly salary.
Employee deductions
These may include the employee portion of BPJS contributions, PPh Article 21, loan repayments, or other lawful and agreed deductions.
Employers should issue clear payroll statements showing gross salary, allowances, overtime, statutory deductions, and net take-home pay.
6. Register Employees With BPJS
Employers must register eligible employees for Indonesia’s mandatory social security programs.
These include:
- BPJS Kesehatan for national health insurance
- BPJS Ketenagakerjaan for employment-related social security
BPJS Kesehatan
The standard contribution for wage-earning employees is generally 5% of the applicable monthly wage:
- 4% paid by the employer
- 1% deducted from the employee
The BPJS Kesehatan service guide confirms the 4% employer and 1% employee contribution allocation for wage-earning participants.
Payroll teams should verify the applicable minimum and maximum wage bases and ensure eligible family members are correctly registered.
BPJS Ketenagakerjaan
For wage-earning employees, the main contribution components include:
Old-Age Security — JHT
- Employer: 3.7%
- Employee: 2%
Work Accident Security — JKK
- Employer: between 0.24% and 1.74%
- The percentage depends on the risk classification of the employee’s work
Death Security — JKM
- Employer: 0.3%
Pension Security — JP
- Employer: 2%
- Employee: 1%
- Contributions are subject to a maximum monthly wage base periodically determined by BPJS
As published by BPJS Ketenagakerjaan, the JP maximum wage base applicable in the latest contribution guidance is IDR 10,547,000 per month. This threshold should still be checked periodically because it can be adjusted.
The Job Loss Security program, or JKP, is funded through government contributions and a recomposition of certain employment social security contributions rather than an additional direct employee payroll deduction.
7. Withhold and Report Employee Income Tax
Employers are generally responsible for calculating, withholding, paying, and reporting employee income tax under PPh Article 21.
Indonesia introduced the effective average rate system, commonly known as Tarif Efektif Rata-Rata or TER, under Government Regulation No. 58 of 2023 and Minister of Finance Regulation No. 168 of 2023.
The TER method is generally used for monthly withholding calculations, while the annual tax liability is reconciled in the final tax period.
The actual employee tax calculation may depend on:
- Gross monthly income
- Fixed and variable allowances
- Bonuses and THR
- Employee tax status
- Marital status and dependants
- BPJS deductions recognised for tax purposes
- Whether the salary is structured as gross, net, or gross-up
- Whether the employee begins or ends employment during the year
Foreign companies should clearly state in employment offers whether the agreed compensation is:
- Gross salary before tax
- Net salary after tax
- Grossed-up salary where the employer provides a tax allowance
Unclear salary terminology frequently creates disputes between employers and employees.
8. Pay the Religious Holiday Allowance
The Tunjangan Hari Raya Keagamaan, or THR, is a mandatory annual payment for eligible employees.
Employees who have worked continuously for at least one month are generally entitled to THR.
The standard calculation is:
- Employees with 12 months of service or more: one month’s wage
- Employees with between one and less than 12 months of service: proportional calculation based on length of service
THR must be paid in full no later than seven days before the employee’s relevant religious holiday. The Ministry of Manpower reaffirmed these obligations in its 2026 THR circular.
THR should not be confused with a discretionary performance bonus. A company cannot generally replace the statutory THR with an ordinary annual bonus unless its payment structure fully meets the applicable legal requirements.
Companies should reserve THR costs throughout the year to avoid cash-flow pressure near major religious holidays.
9. Observe Working Hours, Rest Days, and Overtime
The standard working-time arrangements are generally:
- Seven hours per day and 40 hours per week for a six-day working week; or
- Eight hours per day and 40 hours per week for a five-day working week
Certain business sectors may apply specialised working-time arrangements where permitted by law.
Work beyond normal hours may qualify as overtime. Overtime generally requires an employer instruction and employee consent, subject to exceptions under applicable regulations.
Government Regulation No. 35 of 2021 regulates working hours, rest periods, overtime limits, overtime approval, and overtime pay.
Employers should maintain reliable attendance and overtime records, especially for:
- Manufacturing employees
- Shift workers
- Retail and hospitality employees
- Logistics staff
- Technicians
- Employees working on weekends or public holidays
A fixed monthly salary does not automatically eliminate an employee’s right to overtime. The employee’s role, responsibility, working arrangement, and applicable company regulations must be reviewed.
10. Provide Statutory Leave
Employees may be entitled to several categories of leave, including:
- Annual leave
- Weekly rest days
- Public holidays
- Sick leave
- Maternity leave
- Miscarriage leave
- Menstrual leave under applicable conditions
- Marriage leave
- Leave for childbirth or circumcision of a child
- Bereavement leave
- Leave for religious obligations
Annual leave is generally at least 12 working days after an employee has worked continuously for 12 months.
Companies may provide more favourable leave benefits through an employment contract, company regulation, collective labor agreement, or internal policy.
11. Prepare Company Regulations
A company employing at least 10 employees is generally required to prepare Company Regulations, unless the company already has a valid Collective Labor Agreement.
The Ministry of Manpower’s company regulation submission guidance confirms that company regulations are mandatory for companies employing at least 10 workers.
Company Regulations typically address:
- Employer and employee rights
- Working hours
- Attendance
- Leave
- Payroll procedures
- Workplace conduct
- Disciplinary measures
- Occupational health and safety
- Complaints and grievance procedures
- Termination procedures
- Other employment conditions
The regulations must be submitted for approval to the competent manpower authority and should be communicated to all employees.
A company’s internal policy cannot reduce statutory employee rights. However, once a policy grants benefits that are more favourable than the statutory minimum, those benefits may become contractually relevant and should not be removed without proper review.
12. Complete Mandatory Manpower Reporting
Companies should register and maintain their information through the Wajib Lapor Ketenagakerjaan Perusahaan, commonly known as WLKP.
WLKP is the Ministry of Manpower’s company employment reporting service and contains information regarding the company and its workforce.
The reported information may include:
- Company identity
- Business activity
- Number of employees
- Employee contract status
- Salary information
- BPJS participation
- Vacancies
- Foreign workers
- Company regulations or collective labor agreements
Employment data should be updated when there are significant changes to the company’s workforce or operations.
13. Hiring Foreign Employees Requires Additional Approval
A foreign-investment company may employ expatriates, but foreign employees are subject to a separate approval and immigration framework.
Depending on the position and applicable exemption, the employer may need:
- Approval of a Foreign Manpower Utilisation Plan or RPTKA
- Payment of the Foreign Manpower Utilisation Compensation Fund or DKPTKA
- A valid limited-stay visa and permit
- A permitted job title
- An Indonesian employee appointed as a counterpart
- Training or knowledge-transfer arrangements
- Periodic foreign manpower reporting
Government Regulation No. 34 of 2021 regulates employer obligations, RPTKA approval, DKPTKA, foreign worker positions, counterpart employees, training, reporting, and administrative sanctions.
Foreign workers may only hold positions permitted by Indonesian regulations. Certain human resources positions are restricted because they involve direct management of Indonesian employees.
14. Handle Termination Carefully
Terminating an employee in Indonesia requires more than issuing a termination letter.
The employer should first identify:
- The legal reason for termination
- The employee’s contract type
- Length of service
- Required notice and negotiation process
- Outstanding salary and benefits
- Unused leave
- PKWT compensation, if applicable
- Severance pay
- Long-service pay
- Compensation of rights
- BPJS and tax consequences
- Required reporting or dispute-resolution procedures
Government Regulation No. 35 of 2021 regulates termination procedures and the components of termination compensation.
Following Constitutional Court Decision No. 168/PUU-XXI/2023, termination disputes require particular care. Where bipartite negotiations do not produce an agreement, termination may require completion of the industrial relations dispute-resolution process in accordance with the legally binding interpretation of the employment legislation.
Foreign companies should therefore calculate termination liabilities before communicating a final decision to an employee.
15. Common HR Compliance Mistakes
Foreign companies entering Indonesia frequently make avoidable mistakes, including:
Using a PKWT for permanent work
A fixed-term agreement should not be used merely because the employer wants flexibility.
Failing to register a PKWT
Signing the agreement is not the final compliance step. The contract must also be registered within the required deadline.
Treating employees as independent contractors
Calling a worker a “consultant” does not necessarily prevent an employment relationship where the company controls the work, working time, and payment.
Quoting salary without explaining tax treatment
Employment offers should clearly specify whether compensation is gross, net, or grossed up.
Budgeting only for monthly salary
Employers should also budget for BPJS, THR, overtime, leave, PKWT compensation, and potential termination costs.
Applying the wrong minimum wage
The applicable wage may depend on the employee’s actual work location and sector, not simply the company’s registered head-office address.
Using global policies without localisation
Policies drafted for another jurisdiction may conflict with Indonesian employment law.
Terminating employees without calculating entitlements
The termination reason can materially affect the required payment and procedure.
HR Compliance Checklist for Foreign Companies
Before hiring the first employee, a foreign company should confirm that it has:
- Established the correct Indonesian employing entity
- Verified the applicable minimum wage
- Prepared compliant PKWT and PKWTT templates
- Defined gross, net, or gross-up salary arrangements
- Established a payroll calendar
- Registered for BPJS Kesehatan and BPJS Ketenagakerjaan
- Set up PPh Article 21 withholding and reporting
- Created attendance and overtime procedures
- Budgeted for THR
- Prepared a wage structure and scale
- Registered the company through WLKP
- Prepared Company Regulations once the employee threshold is reached
- Established leave, disciplinary, and termination procedures
- Implemented secure personnel recordkeeping
- Reviewed RPTKA and immigration requirements before hiring expatriates
Build Your Indonesian Workforce With the Right Compliance Structure
Hiring employees is one of the most important stages of establishing operations in Indonesia. A well-designed employment structure helps foreign companies control costs, reduce disputes, and build a reliable local workforce.
Accura assists foreign investors with:
- PT PMA establishment and business licensing
- Employment contract preparation
- Payroll and PPh Article 21 administration
- BPJS registration and monthly compliance
- Company Regulations
- WLKP registration and reporting
- HR compliance reviews
- Foreign manpower and RPTKA arrangements
- Employee onboarding and termination support
Planning to hire employees in Indonesia?
Contact Accura to establish a compliant payroll, contract, and HR system before your first employee starts work.
Visit: accura.co.id