Quick facts

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Indonesia's economy is one of the largest in Southeast Asia, heavily relying on manufacturing, services, and natural resources. The country has a diverse workforce and a mix of traditional and modern labor practices. Below are key employment specifics to consider when hiring or working in Indonesia.

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Employment Contracts

In Indonesia, employment contracts are typically classified into two types:

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1. Fixed-term employment contract: This type of contract is temporary and can last for up to two years, with an option to extend for an additional 12 months. After a 30-day grace period, the contract can be renewed once for another two years
2. Indefinite-term employment contract: This is the most common contract, offering ongoing employment until either the employee resigns or is terminated by the employer

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Probation Period

The probation period for indefinite-term employment contracts is typically up to three months. Fixed-term contracts do not include a probation period, making the termination process simpler.

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Working Hours

Standard working hours are either 7 hours per day for a 6-day workweek, or 8 hours per day for a 5-day workweek, with a maximum of 40 hours per week. Overtime is compensated based on the employee's monthly wage:

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• 1.5 times the normal hourly rate for the first hour
• 2 times the normal rate for subsequent hours

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Vacation Days

Employees are entitled to 12 days of annual leave after completing 12 consecutive months of work. If not taken within the year, these days are forfeited. Additional leave includes 3 days for the employee’s marriage and 2 days for the marriage of a child.

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Sick Leave

Sick leave is paid as follows:

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• 100% of wages for the first 4 months
• 50% of wages for the next 4 months
• 25% for subsequent months until employment termination

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Wages and Salary Payment

Salaries are generally paid weekly, bi-weekly, or monthly, but must be paid by the end of the month. The minimum wage varies by province, for example:

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• DKI Jakarta: IDR 4,416,186
• Papua: IDR 3,516,700

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Public Holidays

14 public holidays in Indonesia include:

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• January 1: New Year's Day
• May 1: Labour Day
• August 17: Independence Day
• December 25: Christmas Day

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Additionally, Islamic holidays like Idul Fitri and Idul Adha are widely observed.

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Employer Taxes

Employers contribute to social security, including:

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• Accident benefit: 0.24% to 1.74% depending on the industry
• Life insurance benefit: 0.3%
• Old-age benefit: 3.7%
• Pension benefit: 2%

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‍The maximum salary for certain contributions is capped at IDR 8,512,400 per month, with varying rates.

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Employee Taxes

Employees are taxed based on their income, with individual rates as follows:

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• Up to IDR 50 million: 5% tax
• Above IDR 50 million to IDR 250 million: 15%
• Above IDR 250 million to IDR 500 million: 25%
• Above IDR 500 million: 30%

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‍In addition, employees contribute to social security programs like health care (1%), pension (1%), and old-age benefit (2%).

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Notice Period

A 30-day notice period is required to terminate an employment contract in Indonesia, as governed by the Labour Law.

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Termination and Severance Pay

Severance pay varies depending on the contract type:

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• Indefinite-term employees are entitled to severance pay, long service pay, and compensation for rights.
• Fixed-term employees are not entitled to severance or long service pay. If terminated before the contract ends, the employer must pay the employee’s salary until the end of the contract period.