Hire employees in Indonesia
Everything a foreign company needs to know before employing people in Indonesia: whether you need an entity, what an employee really costs once BPJS and the religious holiday bonus are added, how payroll and PPh 21 withholding work, what leave is mandatory, and why severance makes termination the part that catches people out. Written for CHROs, CFOs, General Counsel and founders.
Quick answers
The questions leadership teams ask first, answered directly. Detail follows further down the page.
Do I need a local Indonesian entity to hire?
No. Foreign companies can engage talent in Indonesia through three routes:
- Employer of Record. Dryft Global employs your people through a compliant Indonesian entity. Dryft runs monthly payroll with PPh 21 withholding, both BPJS schemes, the mandatory religious holiday allowance (Tunjangan Hari Raya, THR) and fixed-term compensation pay. You direct the work.
- Direct local entity. You incorporate a foreign investment company (PT PMA) through the Ministry of Law and the OSS-RBA licensing portal, or open a representative office (KPPA). A PT PMA needs a minimum investment of IDR 10 billion per business line and local directors.
- Independent contractor. Lawful only for genuinely autonomous specialists. See the contractor section below.
When should I use an EOR instead of setting up a PT PMA?
An EOR makes commercial sense when you are:
- Onboarding engineers, support teams, shared services specialists or sales leads in 3 to 5 business days rather than the 8 to 14 weeks a PT PMA takes.
- Employing 1 to 20 people without the IDR 10 billion capital hurdle, resident director mandates and corporate secretarial work.
- Testing the market or running a business development team without triggering permanent establishment audits.
A PT PMA becomes the right answer when headcount passes 20 to 30, when you need to trade locally, issue tax invoices or hold sector licences, when you lease factories or warehouses, or when you will sponsor many expatriates under your own manpower plan.
What does an employee actually cost beyond salary?
Plan for roughly 27% to 29% on top of gross salary for a permanent employee, and 35% to 37% on a fixed-term contract. The mandatory THR adds 8.33% (one month's wage a year). BPJS Ketenagakerjaan adds 10.24% to 11.74% for accident, death, old age and pension cover, and BPJS Kesehatan 4% for healthcare, both subject to wage ceilings. Fixed-term contracts (PKWT) also accrue end-of-term compensation worth another month per year. Full breakdown below.
How difficult is termination in Indonesia?
Difficult and expensive. There is no at-will dismissal. Every termination must fit a ground in Government Regulation 35 of 2021, and performance or conduct exits need three successive warning letters (Surat Peringatan, SP 1 to SP 3), each valid for 6 months. A permanent employee is owed up to three payments: severance (up to 9 months' wages), long service pay (up to 10 months) and rights compensation for unused leave, with a multiplier of 0.5 to 2 on severance depending on the ground. If the employee rejects the notice, you go through bipartite talks, mediation and then the Industrial Relations Court.
Can Dryft Global legally employ my team in Indonesia?
Yes. Dryft supports employment in Indonesia through a compliant local entity. We handle the Bahasa Indonesia contract, monthly payroll and PPh 21 withholding, BPJS enrollment and remittance, THR and PKWT compensation accruals and the statutory filings, while you direct the work. Confirm role eligibility, lead times and commercial terms with your Dryft representative.
Hiring routes compared
How the three routes compare on speed, capital and permanent establishment risk.
| Factor | Direct entity (PT PMA) | Dryft Global EOR | Independent contractor |
|---|---|---|---|
| Speed to onboard | 8 to 14 weeks (OSS, BKPM, bank account) | 3 to 5 business days | 1 to 2 business days |
| Capital required | IDR 10 billion paid-up | Zero | None |
| Corporate presence | Full commercial entity (Perseroan Terbatas) | Zero foreign corporate footprint | None |
| Statutory registrations | Direct BPJS, tax office and Manpower filings | Fully administered by Dryft | None; worker self-reports tax |
| Permanent establishment risk | Corporate presence by definition | Significantly mitigated | Medium to high if dependent |
| Best fit | Long-term operations with 25+ staff, manufacturing | Rapid entry, tech teams, shared services, sales | Short-term, autonomous projects |
What an employee costs in Indonesia
Indonesia runs two public social security bodies: BPJS Ketenagakerjaan for employment risks and BPJS Kesehatan for healthcare. On top sits the mandatory THR, a statutory 13th-month payment, and for fixed-term staff a compulsory end-of-contract compensation. Pension and health contributions are capped at wage ceilings, so the effective percentage falls for higher earners.
| Component | Employer share | Notes |
|---|---|---|
| Religious holiday allowance (THR) | 8.33% | One month's wage plus fixed allowances, paid 7 days before the employee's religious holiday |
| Old age security (JHT) | 3.70% | Provident fund; employee adds 2%. No cap |
| Pension (JP) | 2.00% | Capped at a wage of about IDR 10,042,300 a month |
| Work accident (JKK) | 0.24% to 1.74% | By hazard class; 0.24% for office and tech roles |
| Death security (JKM) | 0.30% | Flat rate, no cap |
| Healthcare (BPJS Kesehatan) | 4.00% | Capped at IDR 12,000,000 a month; covers spouse and 3 children |
| Statutory subtotal (permanent) | ~27% to 29% | THR plus BPJS on capped bases; job loss insurance (JKP) costs nothing extra |
| PKWT compensation pay | 8.33% | Fixed-term only: one month's wage per year, paid at the end of each term |
| Supplementary medical plan | IDR 500,000 to 1,500,000 a month | Market standard for tech and professional staff |
| Total employer on-cost | ~27% to 29% permanent, ~35% to 37% fixed-term | Above base salary, before private medical |
For a permanent employee on IDR 25,000,000 a month (IDR 300 million a year), budget roughly IDR 358 million all-in with a private medical plan, about 27.6% above base. The same hire on a fixed-term contract costs roughly IDR 383 million, about 36%. Ask us for a cost model with current ceilings applied.
Payroll and tax
Payroll runs monthly in rupiah, paid by bank transfer, usually between the 25th and the last day of the month. Government Regulation 36 of 2021 requires an itemised payslip showing basic wage, allowances, overtime, PPh 21 and the employee's BPJS deductions. BPJS Kesehatan is remitted by the 10th of the following month and BPJS Ketenagakerjaan by the 15th, PPh 21 is paid by the 10th or 15th, and the monthly PPh 21 return is filed by the 20th.
Income tax withholding (PPh 21)
The employer is the withholding agent. From January to November, monthly withholding uses the average effective tax rate (TER) tables under Government Regulation 58 of 2023, applied to gross monthly income by family status. In December the employer recalculates the year on the progressive scale and settles the difference: 5% on annual taxable income up to IDR 60 million, 15% to IDR 250 million, 25% to IDR 500 million, 30% to IDR 5 billion and 35% above. The non-taxable threshold (PTKP) is IDR 54 million a year for a single person, plus IDR 4.5 million for a spouse and for each of up to three dependants. Non-residents pay a flat 20% on Indonesian-sourced income unless a treaty says otherwise.
Statutory minimum wage
There is no national minimum wage. Provincial governors set a provincial floor (UMP) each year under Government Regulation 36 of 2021 as amended by Regulation 51 of 2023, and regency or city mayors can set a higher local rate (UMK) that takes precedence. Jakarta sits at the top of the range, Central Java at the bottom. Every employer must also keep a formal wage structure and scale.
Leave and mandatory benefits
- Paid annual leave. 12 working days after 12 months of continuous service (Article 79). Unused leave is cashed out on lawful termination as rights compensation.
- Public holidays. 15 to 17 gazetted national holidays covering Islamic, Christian, Hindu, Buddhist and Chinese festivals plus national days. Government collective leave days (Cuti Bersama) are optional for private employers and normally come out of annual leave.
- Sick pay. Employer-paid for up to 12 months on a descending scale: 100% of wages for months 1 to 4, 75% for months 5 to 8, 50% for months 9 to 12 and 25% after that, when termination with severance becomes possible.
- Maternity. 3 months fully paid, 1.5 before and 1.5 after the birth, extendable to 6 months for medical complications under the 2024 Maternal and Child Welfare Law. 1.5 months paid leave after a miscarriage. Lactation facilities and paid nursing breaks are mandatory.
- Paternity and family leave. 2 paid days for a birth or miscarriage, a child's circumcision, baptism or marriage, or a death in the immediate family. Women may take 2 paid days of menstrual leave (Cuti Haid).
- THR. Mandatory 13th-month religious allowance for anyone with at least one month of service, prorated under 12 months, paid 7 days before the employee's own religious holiday. Late payment carries a 5% fine.
- Working time. 40 hours a week as 7 hours over 6 days or 8 hours over 5 days. Overtime needs written consent, is capped at 4 hours a day and 18 a week, and pays 1.5 times the hourly wage for the first hour and 2 times after that; rest-day work pays 2 to 4 times by hour. Employers must allow time for Friday prayers.
Termination and notice periods
Indonesia has two contract types. An indefinite contract (PKWTT) allows a probation of up to 3 months at no less than the minimum wage. A fixed-term contract (PKWT) must be written in Bahasa Indonesia, registered with the Ministry of Manpower within 3 days, can run for at most 5 years including extensions, cannot include probation (a probation clause makes it permanent), and ends with compulsory compensation pay. Dismissing a permanent employee must fit a ground in Government Regulation 35 of 2021, be notified in writing at least 14 days ahead, and be paid for.
| Completed service | Severance pay (UP) | Long service pay (UPMK) |
|---|---|---|
| Under 1 year | 1 month | None |
| 1 to under 3 years | 2 to 3 months | None |
| 3 to under 6 years | 4 to 6 months | 2 months |
| 6 to under 9 years | 7 to 9 months | 3 months |
| 9 to under 12 years | 9 months | 4 months |
| 12 to under 24 years | 9 months | 5 to 8 months |
| 24 years or more | 9 months | 10 months |
- Three warning letters. For performance or discipline, SP 1, SP 2 and SP 3 must be issued in sequence, each valid for 6 months, before dismissal. Only severe breaches written into the Company Regulations (Peraturan Perusahaan, mandatory at 10 or more staff) allow skipping ahead.
- The multiplier depends on the ground. Severance is paid at 0.5 times for efficiency cuts caused by losses or dismissal after SP 3, 1 times for cuts to prevent losses or after a merger, 1.75 times at retirement and 2 times for illness beyond 12 months. Long service and rights compensation are always paid in full.
- Bahasa Indonesia governs. Contracts with Indonesian citizens must be in Bahasa Indonesia under Law 24 of 2009. Bilingual versions are allowed; the Indonesian text prevails.
- Protected employees. Article 153 prohibits dismissal for marriage, pregnancy, childbirth, miscarriage or breastfeeding, and during certified sick leave of up to 12 months.
- The dispute ladder. Rejection within 7 business days, then up to 30 days of bipartite negotiation, mediation at the Manpower Office (Disnaker), the Industrial Relations Court (PHI) and finally the Supreme Court.
Can I use independent contractors?
Only for genuinely autonomous, project-based specialists who control their own hours, methods and tools and serve several clients. Article 50 of the Manpower Law defines an employment relationship by three elements: work (pekerjaan), instruction (perintah) and wages (upah). If those are present, the contract's label does not matter. Authorities look for mandatory schedules, direct supervision, a single source of income, a regular monthly fee, company laptops and email, core business tasks and representing you to clients. On reclassification the person becomes a permanent employee from day one, and you owe all historical THR with the 5% late-payment fine, BPJS arrears with a 2% monthly penalty, PPh 21 reassessed at employment rates with interest, and full severance, long service pay and rights compensation when the relationship ends. An EOR is the compliant alternative for anyone who works like an employee.
The legal framework in brief
Indonesian employment law is a civil law system built on the Manpower Law, heavily amended by the Job Creation Law and implemented through government regulations, with the Industrial Relations Court supplying case law. The instruments you will hear referenced most:
- Law 13 of 2003 on Manpower. The core statute on worker rights, employment relationships, unions and disputes.
- Law 6 of 2023 on Job Creation (Omnibus Law). Reformed fixed-term durations, severance formulas and outsourcing, and created job loss insurance.
- Government Regulation 35 of 2021. Fixed-term contracts and compensation pay, working hours, overtime, termination grounds and multipliers.
- Government Regulations 36 of 2021 and 51 of 2023. Minimum wages, wage structures and payslips.
- Government Regulation 37 of 2021. Job loss insurance (JKP) through BPJS Ketenagakerjaan.
- Minister of Manpower Regulation 6 of 2016. THR formulas, deadlines and penalties.
- Law 2 of 2004. Industrial relations dispute settlement.
- Law 27 of 2022 on Personal Data Protection. Consent for employee data, disclosed monitoring, restricted cross-border transfers, fines up to 2% of turnover.
Where the talent is
Indonesia is the largest economy in Southeast Asia and the fourth most populous country in the world, with more than 278 million people and a young, digital-first workforce. Its unicorns (GoTo, Traveloka, Bukalapak, Xendit) have produced a deep tier of software engineers, product managers and fintech specialists, and compensation remains well below Singapore or Malaysia. English is strong in professional roles, but Bahasa Indonesia is the legal language for contracts and filings.
| Region | Talent and industry concentration |
|---|---|
| Greater Jakarta (Jabodetabek) | Regional headquarters, fintech, e-commerce, banking, BPO delivery, enterprise SaaS |
| Bandung (West Java) | Software engineering, creative digital, AI research, gaming, top STEM universities (ITB, Unpad) |
| Yogyakarta and Central Java | Software outsourcing, content moderation, customer operations, digital back office |
| Surabaya and East Java | Advanced manufacturing, logistics, heavy engineering, maritime trade, agritech |
| Bali (Denpasar, Badung, Canggu) | Remote engineering hub, creative media, Web3, distributed tech teams |
Indonesia Implementation Kit
This page tells you the rules. The kit tells you what to do, in what order, and what goes wrong when you skip a step. Built from Dryft's own onboarding checklist for Indonesia.
- Step-by-step implementation checklist, from hiring route selection to first payroll
- PKWT versus PKWTT decision guide and the compensation pay accrual
- Bahasa Indonesia contract template with the Article 54 mandatory particulars
- UMP and UMK minimum wage check for the candidate's province and city
- THR accrual and payment calendar by religious holiday
- BPJS Ketenagakerjaan and BPJS Kesehatan enrollment steps
- PPh 21 effective tax rate setup and payslip template
- Data protection notice, warning letter protocol and Company Regulations registration
This guide is general information, not legal, tax or immigration advice. Indonesian labor statutes, regional minimum wage decrees, BPJS contribution schedules and visa policies change regularly through ministerial decrees and court interpretation. Confirm current figures with a qualified adviser or with Dryft before acting. Last reviewed September 2026.
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