Indonesia is a newly industrialized country and the 7th largest economy in the world in terms of GDP (PPP). The services sector contributes nearly 44% of the GDP, followed by the manufacturing sector which contributes around 43%, while agriculture contributes around 13%. As a driving force in the ASEAN (Association of Southeast Asian Nations) and as a member of the G20, Indonesia plays a crucial role at the multilateral level. The government’s recent reforms aimed at weeding out corruption and improving public finance management have bolstered Indonesia’s business environment.
Currency: Indonesian Rupiah
Principal Language: Indonesian
Government: Presidential Representative Democratic Republic
Capital City: Jakarta
Major Cities: Surabaya, Bandung, Medan, Semarang
It is a common practice to have written employment contracts in Indonesia. A contract must contain the following details:
- Employer’s name, address, and type of business
- Occupation and type of work
- Worker’s name, sex, age, and home address
- Amount of wages and method of payment
- Duty stations or worksites
- Employment commencement date and duration of the contract
- Rights and obligations of the worker and the employer
- Signatures of both the parties
- Place and date of the work agreement
Verbal work contracts are permitted for permanent work provided that the employer prepares an appointment letter that contains:
- Worker’s name and address
- Type of work and
- Employment commencement date
- Amount of wages
The regular work schedule comprises 40 hours in a week. The daily work schedule is limited to 7 hours a day and 6 days a week or 8 hours a day and 5 days a week. Employees are entitled to a 30-minute rest period after working for 4 hours, 1 day of rest for a 6-day workweek, and 2 days of rest for a 5-day workweek.
Work done beyond the following hours is considered overtime:
- 40 hours in a week, or
- 8 hours per day in a 5-day workweek, or
- 7 hours in a day in a 6-day workweek
Employers are required to obtain workers’ consent for overtime. Overtime should not exceed 3 hours a day or 14 hours a week. If the overtime exceeds 3 hours a day, employers are required to provide food and drinks to employees containing at least 1,400 calories. Overtime should be paid at 1.5 times the regular hourly rate for the 1st hours and twice the regular rate for the subsequent 2 hours.
The following holidays are observed in Indonesia:
- Jan. 1: New Year's Day
- Chinese New Year
- Prophet Muhammad's Birthday
- Hindu New Year
- Ascension of the Prophet Muhammad
- Good Friday
- Vesak Day
- International Labor Day
- Pancasila Day
- Aug. 17: Independence Day
- Idul Fitri (5 days)
- Idul Adha
- Islamic New Year
- Dec. 25: Christmas Day
Employees who work on a holiday are paid twice the regular wage. Holidays that fall on a weekend are not carried over to another date.
Employees are entitled to 12 days’ annual leave after 12 months of continuous employment with an employer out of which 6 days must be taken consecutively. In some organizations, employees who have been working with an employer for 6 continuous years receive 1 month of paid leave a year for the next 2 years.
Employers are required to provide compensation at the following rates to employees who are sick provided they submit a medical certificate:
- 100% of wages – First 4 months
- 75% of wages – next 4 months
- 50% of wages – next 4 months
- 25% of wages – Subsequent months
Employers can terminate employees after 12 months of absence due to illness.
Female employees are entitled to 1.5 months of maternity leave before the childbirth and 1.5 months’ leave after the birth. Employees who suffer a miscarriage can also take 1.5 months’ paid leave. The maternity leave can be extended if attested by a midwife or obstetrician.
Male employees are entitled to 2 days’ paternity leave following the childbirth or their wife’s miscarriage.
Female employees are entitled to 2 days’ menstruation leave on the 1st and 2nd day of their cycle.
Muslim employees receive 3 months’ leave to undertake the Haj pilgrimage to Mecca.
Workers are entitled to paid leave in the following circumstances:
- Wedding - 3 days
- Birth of child/paternity leave – 2 days
- Children's wedding - 2 days
- Son's circumcision - 2 days
- Child's baptism - 2 days
- Wife's miscarriage - 2 days
- Death of a spouse, child, child-in-law, parent or parent-in-law - 2 days
- Death of another member of a worker's household – 1 day
- Trade union activities with the permission of the employer
- State obligations
Employees, including foreign workers, who have been working for a minimum 6 months in Indonesia are required to be a part of the social security program. Social security covers:
- Workers' compensation
- Old age
The retirement age is 56 which will be increased to 57 on January 1, 2019, and will increase gradually by 1 year every 3 years until it reaches 65. Employees are entitled to retirement benefits after completing 15 years or 180 months of enrolment in the program and reaching the retirement age.
Contribution rates are in the chart below:
0.24% - 1.74%
10.24% - 11.74%
*depending on the industry
Survivors of the deceased are entitled to survivors’ benefits if the deceased was:
- Under the age of 55 or was 55 when died
- Receiving a periodic pension
Employers need to provide medical insurance to employees, their spouses, and a maximum of 5 children. The policy premium is 5% of employees’ payout of which 4% is paid by the employer while 1% is paid by employees.
The following social security programs are mandated under the BPJS (Badan Penyelenggara Jaminan Sosial) Law:
- Health Care Security
- Work Accident Security
- Old-Age Security
- Pension Security
- Death Security
BPJS is a public agency that implements the social security program and consists of the BPJS for Health and the BPJS for Manpower.
BPJS of Health
BPJS of Health manages the healthcare security and covers all the employees including foreign workers who have worked in Indonesia for more than 6 months.
BPJS of Employment
BPJS of Employment manages Employment Security including old-age, work accident, and survivors’ benefits. All employees must register with BPJS by January 1, 2019.
Retirement Plan/Scheme Benefits
BPJS of employment includes old-age security, a cash benefit which is paid to participants when they reach the retirement age, suffer a permanent total disability, leave Indonesia permanently, or pass away. When participants pass away, the benefits are paid to their survivors.
The pension benefit between IDR 300,000 and IDR 3,600,000 or between USD 22 and USD 270 is paid each month at the current exchange rates. The benefit is paid as long as the participants are alive.
Rules and Penalties Related to Retirement Plan/Scheme Investments
Employers who do not register their employees in the social security programs are subject to fines, warning letters, and do not qualify to receive certain services from the government, which are below:
- Approvals to employ foreign workers
- Issuance and renewal of business licenses, and
- Building permits.
Individuals who don’t register with BPJS cannot obtain land certificates, passports, vehicle ownership certificates, and driver’s license.
Indonesia’s National Social Security Council (Dewan Jaminan Sosial Nasional or “DJSN”) and Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) monitor the BPJS for compliance.
State and Mandatory Benefits
The social security benefits for employees of private companies are provided at the age of 55, on permanent disability, or premature death. The benefits include contributions to the provident fund plus interest which is subject to a ceiling of 10% a year. If the benefits amount to less than IDR 3 million, they are paid as a lump sum. If the benefits are more than IDR 3 million, they are paid in installments over a 5-year period. In case, an individual dies before the age of 55, an additional sum of IDR 10 million is paid, plus a dependent’s allowance equal to IDR 200,000 each month for 24 months.
Typical New Pension Plan
Plans managed by financial institutions (DPLKs) or company pension funds (DPPKs) provide defined contribution benefits. If the total benefits exceed IDR 100 million, a minimum of 80% must be paid as an annuity. Many employers cover medical expenses and provide lump-sum death and accident benefits equal to 1 to 3 years’ earnings.
Employers contribute 3.7% of earnings while employees contribute 2% toward state retirement and death benefits. Married employees contribute 6% of earnings while single employees contribute 3% for medical benefits. Employers must also make contributions ranging from 0.24% to 1.74% of earnings toward occupational accident benefits. Employees usually contribute between 5% and 12% of earnings toward private defined contribution plans while employees contribute between 1% and 5%.
Employees who suffer an occupational injury receive compensation for costs of treatment, rehabilitation, transportation and payments to cover partial or total disability, temporary incapacity to work, and death benefits.
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With our Global PEO/Employer of Record services, companies can expand into Indonesia and hire their employees without having to establish a branch office or subsidiary in Indonesia.
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