Build a Team in Indonesia Without a Legal Entity
If you plan to quickly build a team in Indonesia without the help of a legal entity, then you should consider AYP’s EOR solutions.
Business expansion is never easy, especially when expanding overseas. With the need to keep up with local laws and regulations, which may change over the years, you might feel discouraged from even trying.
But what if AYP’s EOR solutions can help your business expand overseas legally and conveniently? In fact, AYP can help you hire overseas, onboard remotely, and manage your tax responsibilities and compliance across countries. This way, you can hop on the remote working bandwagon. Here are 5 quick tips on how to build a team in Indonesia:
Written contracts are necessary in Indonesia
All employment contracts are written in Indonesian, stating position, jobscope, compensation, employment benefits, and termination requirements. Even if the contracts are bilingual, the Indonesian terms will take precedence if there are any inconsistencies between the two languages.
Fixed-term contracts also shouldn’t last beyond five years.
Offer at least 14 days notice and appropriate severance
According to Indonesian labour law, notice of resignation should be at least 14 days for regular employees and 7 days for employees still under probation.
And if a fixed-term contract is terminated before the expiration date stipulated in the Perjanjian Kerja Waktu Tertentu (PKWT), or what was contractually agreed upon, the employer has to offer the compensation outlined in Government Regulation No. 35, 2021. The rate will be based on the PKWT period of employment.
Employees under regular or indefinite contracts also get offered severance, an amount which depends on the reason for termination and the employee’s length of employment.
Learn about Indonesia’s universal social security system
Companies have to pay payroll taxes into Indonesia’s universal social security system, which consists of a central healthcare programme, an occupational injury fund, a retirement savings fund, a pension benefits programme, and a death benefits fund for employees.
Here’s the breakdown for the employer and employee monthly contributions for each programme.
|Programme / Fund||Employee Contributions||Employer Contributions|
|Occupational injury||–||0.24% to 1.74%|
Do also note that all employees are required to pay their yearly income tax.
A standard workweek is 40 hours long
In Indonesia, the standard workweek is 40 hours long. Employees typically work six days a week and seven hours a day, or five days a week and eight hours a day.
For overtime, employees have to receive 150% of their regular pay for the first hour and then 200% of their regular pay for the remaining hours. The maximum amount of overtime is four hours per day and 18 hours per week.
Indonesian employees should also get at least 12 annual leave days, maternity / paternity leave, as well as leave on 14 public holidays a year. This includes “cuti bersama” days, or collective leave days, which change according to government decree every year.
And regarding yearly sick leave, employees are allowed to receive their full salaries for no specific number of days. This applies indiscriminately unless an employee’s length of illness exceeds four months. If that’s the case, your company may subsequently cut the sick employee’s pay every quarter, up to 25% of their regular salary.
Bahasa Indonesia is Indonesia’s official language
More than 800 languages are being used in Indonesia, with Bahasa Indonesia being the official language. However, it is the first language for only about 20% of Indonesians. Javanese is actually the common first language, with 30% of locals using it as their primary language.
Knowing those languages would also help you achieve effective communication and avoid any unnecessary misunderstandings with employees.
With these five tips, you should have a broad understanding of what your business should take note of when expanding to Indonesia. But there’s more to pay attention to, especially since labour law reforms are still ongoing in Indonesia.
Let AYP EOR solutions help you quickly build a team in Indonesia, so you can safely avoid any legal trouble when doing so.
By outsourcing all of your HR tasks to us, you can build a team without a legal entity in Indonesia and that process can start right now.