Indonesia Labor Law Guide for Hiring Employees and Contractors
This labor law guide for Indonesia has important information for businesses looking to hire employees or contractors in the country. Indonesia is a country in Southeast Asia.
As of 2023, Indonesia’s economy is one of the largest in Southeast Asia, with a GDP of approximately $1.2 trillion USD. The economy is diverse, with significant contributions from sectors such as manufacturing, agriculture, mining, and services, including tourism.
The services sector, particularly banking and finance, as well as telecommunications, has seen considerable growth.
The Indonesian Rupiah (IDR) is the currency used in the country.
Minimum Wage
IDR 5.06M per month (Jakarta)
Overtime Wage
1.5 times the regular wage for the first hour, 2 X after that
Meal Breaks
30 minutes after 4 continuous hours of work
Rest Breaks
10 minutes every 4 hours
Working hours
8 hours per day; 40 hours per week
Salary Payment Cycle
Monthly
Payroll Taxes
Social security contributions (BPJS)
Paid Vacation
12 days after 1 year of service
Overtime Hours
Over 40 hours per week
Night Shift Hours
Additional 10% of regular wage
Holidays
15 public holidays
No Work Days
Sundays
In Indonesia, businesses must be registered locally to hire employees.
The process of establishing a business entity usually involves registering with the Ministry of Law and Human Rights and the Investment Coordinating Board (BKPM), which can take about 2-4 weeks. The cost of setting up a business entity varies depending on the type and size of the business.
Employers are required to sign a written employment contract with employees, which should include essential clauses such as job description, salary, working hours, leave entitlement, and termination conditions.
Indonesian labor laws treat employees and contractors differently, with employees generally receiving more legal protections under the Manpower Law (Law No. 13 of 2003).
Indonesia has a minimum wage law, but the rate varies by province and sector. For example, the minimum wage in Jakarta as of 2024 is IDR 5.06M per month. The minimum wage rate is typically monthly, and adjustments are made annually based on inflation and economic growth.
Minimum wage is typically lower outside of Jakarta with the lowest minimum wage at 1.68M IDR/month. The following table shows the prevailing minimum wages in different parts of Indonesia as of August 2024:
| Province | Monthly minimum wage in IDR |
| Aceh | 3,460,672 |
| North Sumatra | 2,809,915 |
| West Sumatra | 2,811,449 |
| South Sumatra | 3,456,874 |
| Riau | 3,294,625 |
| Riau Islands | 3,402,492 |
| Jambi | 3,037,121 |
| Bangka Belitung | 3,640,000 |
| Bengkulu | 2,507,079 |
| Banten | 2,727,812 |
| Bali | 2,813,672 |
| Lampung | 2,716,497 |
| Jakarta | 5,067,381 |
| West Java | 2,057,495 |
| Central Java | 2,036,947 |
| East Java | 2,165,244 |
| Special Region of Yogyakarta | 2,125,897 |
| East Nusa Tenggara | 2,186,826 |
| West Nusa Tenggara | 2,444,067 |
| East Kalimantan | 3,360,858 |
| West Kalimantan | 2,702,616 |
| North Kalimantan | 3,361,653 |
| South Kalimantan | 3,282,812 |
| Central Kalimantan | 3,261,616 |
| Maluku | 2,949,953 |
| North Maluku | 3,200,000 |
| Gorontalo | 3,025,100 |
| North Sulawesi | 3,545,000 |
| Southeast Sulawesi | 2,885,964 |
| Central Sulawesi | 2,736,698 |
| South Sulawesi | 3,434,298 |
| West Sulawesi | 2,914,958 |
| Papua | 4,024,270 |
| West Papua | 3,393,000 |
There are exceptions to the minimum wage, such as for apprentices or workers in specific sectors, where different rates may apply. Additionally, some provinces may have their own mandated minimum wages that differ from the central government’s rates.
Employers in Indonesia are also required to pay holiday bonuses, known as Tunjangan Hari Raya (THR), which is typically one month’s salary, and must be paid before major religious holidays.
The standard working hours in Indonesia are 8 hours per day and 40 hours per week. Overtime is generally compensated at 1.5 times the normal wage for the first hour and 2 times the normal wage for subsequent hours. Night shift work, defined as work done between 10 PM and 5 AM, typically commands an additional 10% of the regular wage.
The minimum age for employment in Indonesia is 18 years, with strict laws against child labor. However, minors aged 15-17 may be employed under certain conditions, such as light work that does not interfere with their schooling.
Employers in Indonesia are required to make several payroll deductions, primarily for social security programs managed by BPJS (Badan Penyelenggara Jaminan Sosial). These include:
BPJS Kesehatan (Health Insurance): 5% of the employee’s salary (4% paid by the employer, 1% by the employee).
BPJS Ketenagakerjaan (Employment Insurance): Covers several programs, including work accident insurance, death insurance, old age security, and pension.
The income tax system in Indonesia is progressive, with the following tax rates for 2023:
Income Level (IDR) | Applicable Tax Rate (%) |
0 – 50,000,000 | 5% |
50,000,001 – 250,000,000 | 15% |
250,000,001 – 500,000,000 | 25% |
500,000,001 – 5,000,000,000 | 30% |
Above 5,000,000,000 | 35% |
Indonesia mandates various forms of leave for employees, including:
Annual Leave: Employees are entitled to 12 days of paid annual leave after completing 12 months of continuous service.
Maternity Leave: Female employees are entitled to 3 months of paid maternity leave.
Paternity Leave: Male employees are entitled to 2 days of paid paternity leave.
Sick Leave: Employees are entitled to paid sick leave, with varying entitlements based on the length of illness.
Religious Leave: Employees are entitled to time off for major religious holidays, with the number of days depending on the specific religion.
Public holidays in Indonesia are mandatory leave days. Below is a table of public holidays:
Holiday Name | Date |
New Year’s Day | January 1 |
Chinese New Year | Variable (February) |
Nyepi (Balinese Hindu New Year) | Variable (March) |
Good Friday | Variable (April) |
Eid al-Fitr | Variable (April/May) |
Ascension of Jesus Christ | Variable (May) |
Vesak (Buddha’s Birthday) | Variable (May) |
Eid al-Adha | Variable (July) |
Islamic New Year | Variable (July/August) |
Independence Day | August 17 |
Prophet Muhammad’s Birthday | Variable (October) |
Christmas Day | December 25 |
Other Regional Holidays | Varies by region |
Employers in Indonesia are required to provide certain benefits, including:
BPJS Health and Employment Insurance: Covering health, work accident, old age, and pension benefits.
Tunjangan Hari Raya (THR): A mandatory holiday bonus, typically one month’s salary.
Severance Pay: Based on the length of service, typically one month’s salary for each year of service.
Pension Funds: While not mandatory, many employers offer additional pension funds.
Indonesia does not follow At-Will Employment laws, meaning employment termination must be legally justified. The termination process is regulated by the Manpower Law and involves strict procedures. A notice period, generally 30 days, is required for termination, and severance pay is typically provided based on the employee’s tenure.
Employees who are terminated may challenge the decision through labor courts or dispute resolution mechanisms provided by the government. Employers can legally terminate an employee under the following conditions:
Misconduct: After a fair disciplinary process.
Incapacity: If the employee is unable to perform their duties due to illness or injury.
Redundancy: Due to economic or organizational restructuring.
These guidelines help businesses navigate the complex legal landscape of hiring and managing employees in Indonesia.