Hiring in Indonesia

Indonesia's employment framework rests on the Manpower Law (Law 13/2003), substantially amended by the Omnibus Law on Job Creation (Law 11/2020) and its implementing Government Regulation 35/2021. These laws govern hiring, wages, working hours, termination, and benefits for all workers in the private sector. Employment contracts come in two forms: PKWTT (permanent/indefinite) and PKWT (fixed-term), with PKWT contracts limited to a maximum of 5 years including extensions under the Omnibus Law. The standard workweek is 40 hours, structured as either 7 hours per day across 6 days or 8 hours per day across 5 days.

Termination in Indonesia remains complex and employer-unfriendly. Employers cannot simply fire an employee at will. Dismissals must follow a mandatory bipartite negotiation process, and if no agreement is reached, the case goes to the Industrial Relations Court (Pengadilan Hubungan Industrial, or PHI). The Omnibus Law introduced a revised severance formula with three components: severance pay (UP) at 1-9 months salary based on tenure, long-service pay (UPMK) at 2-10 months salary for employees with 3+ years, and compensation pay (UPH) covering unused leave, return travel costs, and other contractual entitlements. For termination without cause, the employer typically owes 1x UP plus 1x UPMK plus UPH. Workers on PKWT contracts who are terminated early receive compensation for the remaining contract period.

Employees earn 12 working days of paid annual leave after completing 12 consecutive months of service. Indonesia observes 16 national public holidays per year, with the government also typically granting 1-2 additional collective leave days (cuti bersama). Workers are entitled to paid leave for marriage (3 days), death of a family member (1-2 days), circumcision of a child (2 days), baptism of a child (2 days), and other life events specified in Article 93 of the Manpower Law.

Payroll obligations in Indonesia center on two social security programs. BPJS Kesehatan (national health insurance) requires employer contributions of 4%% of monthly salary and employee contributions of 1%%, with a salary cap of IDR 12 million per month. BPJS Ketenagakerjaan (workforce social security) includes four sub-programs: JKK (work accident insurance) at 0.24-1.74%% employer-paid based on industry risk, JKM (death benefit) at 0.3%% employer-paid, JHT (old-age savings) at 3.7%% employer plus 2%% employee, and JP (pension) at 2%% employer plus 1%% employee with a salary cap of IDR 10,042,300 per month (2025 figure, adjusted annually). Total employer social security costs run roughly 10-12%% on top of gross salary.

Every employer must pay THR (Tunjangan Hari Raya), a religious holiday bonus equal to one month's salary for employees with 12+ months of service, or pro-rated for those with less tenure. THR must be paid no later than 7 days before the employee's religious holiday, and failure to pay on time triggers fines of 5%% of the total THR amount. Overtime is capped at 4 hours per day and 18 hours per week. Overtime pay is 1.5x the hourly rate for the first hour and 2x for each subsequent hour on workdays, with higher multipliers on rest days and holidays. Maternity leave is 3 months (1.5 months before and 1.5 months after delivery) at full pay. Paternity leave is 2 days paid under the Manpower Law, though many companies offer more.