Indonesia, the 16th largest economy in the world by nominal GDP, is Southeast Asia’s largest economy and a major hub for global trade. With a population of 279 million (2024) and a GDP of approximately USD 1.37 trillion, it is the only ASEAN nation in the G20 contributing to global trade.

Indonesia’s economy grew by 5.1% in 2024, driven by strong domestic demand and rising private consumption. Investment growth is expected to strengthen over the next two years, and unemployment has fallen to 4.8%. Over the past five decades, poverty has declined dramatically — from 60% to just under 10%, reflecting the country’s progress in economic development. 

As a member of RCEP, the world’s largest free trade agreement, Indonesia offers businesses access to a vast market where companies can hire local employees and set up operations. However, companies must manage labor informality, social security requirements, and work permit regulations to ensure compliance with local employment laws.

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Why Expand Your Business to Indonesia

Indonesia is projected to be the third-largest contributor to the global middle class in the next decade. This, combined with rich natural resources like palm oil and nickel, makes Indonesia an attractive destination for foreign investment.

Strategic Advantages of the Indonesian Market

Jakarta, Bandung, Surabaya, and Bekasi serve as Indonesia’s primary business hubs, each contributing uniquely to the country’s economic growth. Jakarta, the capital and Indonesia’s only megacity, has a population of 10.7 million and functions as the country’s economic, financial, and political center.

Unlike other cities in Indonesia, Jakarta operates as a province with city management, making its governance structure distinct. It hosts major multinational corporations, financial institutions, and government offices, positioning it as Indonesia’s most important business center. Surabaya, Indonesia’s second-largest city, is a major commercial and industrial hub with a strong presence in shipping, logistics, and manufacturing. Its port, Tanjung Perak, is one of the busiest in the country, supporting trade and maritime industries.

What pulls businesses in are Indonesia’s trade agreements. Indonesia is a member of the Regional Comprehensive Economic Partnership (RCEP), the biggest free trade deal worldwide. This gives companies access to rich regional markets. Trade agreements with other countries also make Indonesia attractive for foreign investment.

Indonesia’s economy grows because of its natural resources, factories, and online businesses. The country leads the world in palm oil production and exports a lot of nickel, coal, and rubber. Factories making cars, clothes, and electronics create jobs and boost exports. Online shopping, retail, and digital money services, fueled by a rapidly growing middle class and high internet penetration, are also driving the country’s GDP. 

Bahasa Indonesia serves as the main language across the country. English skills differ depending on the area and job type. You’ll find more English speakers in Jakarta and big business centers in global companies, banks, and tech firms. Companies moving into Indonesia should focus on hiring workers who speak both languages or team up with local partners to facilitate operations.

Importance of Complying With Indonesian Labor Laws

Indonesia has strict rules for employment. Employers are required to comply with the working hours, administer employee benefits, and make in-time social security contributions, all while ensuring worker protection and employer accountability. The Manpower Law (Law No. 13 of 2003) regulates all such employment relationships.

Key requirements include: 

  • Employment contracts must be written in Bahasa Indonesia, defining salary, work hours, benefits, and job responsibilities. A bilingual contract must be provided for foreign employees. 
  • Overtime pay is 1.5 times the hourly wage for the first extra hour and twice the hourly wage for additional hours.
  • 12 days of paid annual leave must be given to workers, plus national holidays, which can exceed 20 days per year. 
  • Employees also receive paid sick leave, covered by BPJS Kesehatan (Indonesia’s national health insurance system), after two consecutive days of illness.
  • The corporate tax rate is set at 22%, and employers must ensure proper tax filings and salary disbursements.
  • Employers must pay Tunjangan Hari Raya (THR), a mandatory religious holiday bonus equal to at least one month’s salary for employees who have worked more than 12 months.

Compliance with mandatory social security contributions is crucial, which includes:

  • Pension (Jaminan Pensiun): Employers contribute 3%, employees 1%.
  • Old Age Benefits (JHT): Employers 3.7%, employees 2%.
  • Health Insurance (BPJS Kesehatan): Employers 4%, employees 1%.
  • Work Accident Insurance (JKK): Rates range from 0.24% to 1.74%, depending on industry risk.

Following labor laws helps businesses avoid fines and maintain a good reputation. It also creates a fair workplace, making it easier to attract skilled employees and build long-term success in a new market.

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Step 1: Define Your Hiring Needs

Before hiring in Indonesia, businesses need to outline job roles, contract types, and language requirements. Employment contracts fall under two categories:

  • Indefinite contracts – Long-term roles that offer job security, benefits, and full legal protections.
  • Fixed-term contracts – Temporary roles with a defined end date, often used for project-based work or seasonal employment.

Language considerations are also important. Bahasa Indonesia is the official language, and most workplaces conduct business in it. While English is commonly used in multinational companies, finance, and tech sectors, businesses operating in local markets, government dealings, or customer-facing roles may require fluency in Bahasa Indonesia.

Clearly defining these factors before you hire employees sets your goals right and creates a more organized hiring approach for the best candidate selection.

Step 2: Understand Compliance Requirements

Indonesian labor laws regulate working hours, wages, social security contributions, and benefits. Employers must follow these regulations:

  • Work Hours: A typical work week lasts 40 hours, spread across five days. Employees who work six days a week can’t work more than seven hours each day.
  • Paid Leave: Workers get 12 days off with pay every year, plus 16 public holidays.
  • Parental Leave: New mothers receive three months off with full pay, while fathers can take two days off.
  • Minimum Wage: Indonesia’s minimum wage is set regionally, with each province determining its own rate (UMR). For example, Jakarta’s 2024 minimum wage is IDR 6,000,000 per month (approximately USD 367). Companies must pay at least the minimum wage for the province where they do business.

Step 3: Choose Your Hiring Method

Businesses looking to hire Indonesian employees have three main options:

Establishing a Legal Entity

To set up a local entity in Indonesia, you need to register a Perseroan Terbatas(PT). This process requires you to get a Deed of Establishment, business license domicile letter, and tax ID number (NPWP) through the Online Single Submission (OSS) system. Some industries have limits on foreign ownership, so businesses should check the rules and make sure they follow tax laws.

Using an Employer of Record (EOR)

Another option for hiring in Indonesia is using an Employer of Record (EOR). An EOR manages payroll, compliance, and tax filings on behalf of a company, allowing businesses to hire without establishing a legal entity. This is a fast and efficient solution for companies testing the market or handling short-term projects without long-term administrative commitments.

Learn more about EOR in Indonesia

For guidance on selecting the right EOR for your business, refer to our insights in How to Choose an Employer of Record (EOR).

Hiring Independent Contractors

Hiring freelancers or independent contractors is another flexible and cost-effective approach. However, businesses must ensure proper classification to avoid legal risks. If a contractor works fixed hours, performs ongoing tasks, or operates under company supervision, they may be reclassified as an employee, requiring benefits and back pay. To prevent misclassification penalties, companies should use clear, legally binding contracts that define the working relationship.

For more information on the risks and best practices for hiring independent contractors, visit out guide on Misclassification.

Step 4: Develop a Recruitment Strategy

Attracting the right talent in Indonesia requires a well-planned recruitment strategy. You must have clear hiring objectives in mind to attract qualified candidates. Define job roles and choose the best hiring channels for this.

Some effective recruitment methods include:

  • Job Portals: Platforms like JobStreet, Kalibrr, and LinkedIn are widely used for hiring across various industries.
  • Recruitment Agencies: Specialized recruitment firms help businesses find talent in finance, technology, healthcare, and manufacturing.
  • Networking Events: Industry conferences, job fairs, and professional meetups provide opportunities to connect with skilled professionals.

Choosing the right hiring channels ensures businesses attract qualified candidates while streamlining the recruitment process.

Step 5: Conduct Interviews and Assessments

A structured and professional approach to interviews leads to better hiring decisions. Focus on job-specific abilities and pose straightforward questions related to the position. To pick the right person, evaluate technical know-how through hands-on tests when necessary.

If the job needs foreign language skills, run language tests before hiring. In Indonesia, applicants often inquire about career advancement, job stability, and perks. Companies should be ready to talk about long-term growth chances to draw in and keep top performers.

Step 6: Perform Background Checks

Companies often need a criminal background check called (Surat Keterangan Catatan Kepolisian) SKCK. This police clearance document, given by the Indonesian National Police, confirms whether an applicant has a criminal history. Employers should obtain written consent before conducting background checks, though.

Common verifications include:

  • Employment history and references to confirm past experience.
  • Criminal records (if relevant to the job role).
  • Financial background checks for positions in finance and banking.

Working with licensed screening agencies helps businesses stay compliant with privacy laws while ensuring a safe and trustworthy hiring process.

Step 7: Draft Employment Contracts

Written contracts are mandatory in Indonesia. The Indonesian court declared that a contract that is not drafted in the Indonesian language is null and void. You should be very careful of this when drafting employment contracts.

The contracts can prevent many miscommunications. Every contract must include:

  • Job responsibilities and work expectations
  • Salary and payment schedule
  • Contract type (fixed-term or indefinite)
  • Working hours and leave entitlements
  • Mandatory employee benefits 

Step 8: Register with Authorities and Set Up Payroll

Once an employee is hired, businesses must register them with the Indonesian Social Security Administration (BPJS).

Employers should comply with: 

  • Social Security contributions: Employers contribute between 10.24%–11.74% of employee salaries.
  • Payroll Tax Withholdings: Businesses must deduct and submit income tax (PPh 21) monthly to the tax authorities.
  • Health insurance provisions: Employers cover 4%, while employees contribute 1% toward BPJS Kesehatan.

Step 9: Onboard Your New Employees

A structured onboarding process helps new hires adjust quickly and improves employee retention. Employers should provide a clear introduction to company policies, work culture, and expectations. Job-specific training ensures employees understand their roles and responsibilities from day one.

Assigning a mentor or team leader gives new employees ongoing support and helps them integrate smoothly. Businesses that invest in employee development see higher productivity and retention rates. A strong onboarding experience builds a motivated workforce and sets the stage for long-term success.

Understanding the Indonesian Employment Landscape

Indonesia has one of Southeast Asia’s largest workforces. As the country’s formal job sector continues to grow, its labor laws provide clear guidelines on contracts, benefits, and workplace protections, ensuring fair treatment for employees.

Companies hiring in Indonesia must comply with local labor regulations, understand workplace norms, and navigate industry-specific challenges to build a strong and legally compliant team. Here’s what businesses should consider when expanding their workforce in Indonesia.

Informal Employment and the Job Market

A large portion of Indonesia’s workforce is engaged in informal employment, with estimates suggesting that around 70% of workers are employed informally. This is especially common in agriculture, small businesses, and street vending.

While formal job opportunities are increasing, many skilled workers lack proper contracts, benefits, or job security. Businesses expanding into Indonesia must consider how informal employment affects hiring patterns, salary expectations, and workforce stability. Offering competitive wages and benefits can help attract qualified talent from both the formal and informal sectors.

Collective Bargaining and Labor Rights

Indonesia allows Collective Bargaining Agreements (CBAs), giving workers the right to negotiate wages, benefits, and working conditions in some industries.

  • Sectors like manufacturing, banking, and logistics have active trade unions that advocate for employee rights and help resolve disputes.
  • CBAs provide job security and standard benefits, but they are not used in every industry.

In many cases, employers and workers negotiate compensation based on market trends rather than formal agreements. Just like wages in Indonesia are decided regionally, other similar considerations are also dependent on industries and regions. Businesses that operate in non-unionized sectors should ensure that their employment terms are fair, competitive, and compliant with the regional labor laws.

Language and Communication in the Workplace

Indonesia is a multilingual country with over 700 distinct languages! While English is widely spoken in multinational companies, most local businesses operate in Bahasa Indonesia.

Companies hiring in Indonesia should consider language needs based on the job role:

  • Customer-facing roles often require Bahasa Indonesia proficiency.
  • Technical, international, or corporate roles may use English as the primary language.

Providing language training or hiring bilingual employees can help businesses improve workplace communication and efficiency.

Hiring Foreign Employees and Work Permits

Hiring foreign talent in Indonesia requires strict government approvals. Employers must obtain approval for an RPTKA (Expatriate Placement Plan) before hiring foreign workers, followed by a Limited Stay Visa (KITAS) for legal employment.

Processing times can be lengthy, so businesses should plan ahead and explore training programs to develop local talent for specialized roles.

Employee Grievances and Dispute Resolution

Indonesia’s labor laws include clear procedures for resolving workplace disputes. Employees can file complaints related to unfair treatment, wrongful termination, or unpaid wages through:

  • The Manpower Office (Dinas Tenaga Kerja).
  • The Industrial Relations Court for legal cases.

Employers should have internal grievance policies in place to address disputes before they escalate. Handling complaints transparently helps build a trustworthy workplace and avoids legal complications.

Public vs. Private Sector Employment Differences

Employment conditions in Indonesia vary between the public and private sectors.

  • Government jobs offer stability, fixed salaries, and pensions.
  • Private sector jobs typically provide higher wages but fewer long-term guarantees.

Understanding these differences helps businesses attract qualified candidates and set competitive salaries.

Workplace Dress Code and Professional Etiquette

Indonesians value modesty in attire, especially in formal settings. Individuals are expected to dress conservatively and avoid overly casual or revealing clothing in business settings. 

Corporate offices follow formal dress codes similar to Western business attire. Startups and tech companies tend to have more relaxed dress codes. Employers should communicate dress expectations clearly, as professionalism and cultural respect are important in Indonesian business culture.

Religious and Cultural Observances at Work

Indonesia has a diverse religious population, with Muslim, Christian, Hindu, and Buddhist communities.

  • Many businesses adjust working hours during Ramadan.
  • Employees may request prayer breaks throughout the day.
  • Christian employees may take leave for Christmas and Easter celebrations.
  • Hindu employees, particularly in Bali, observe Nyepi (Day of Silence), during which businesses may close for the day.
  • Buddhist employees celebrate Vesak (Waisak), a public holiday, with many taking time off for religious ceremonies.

Understanding how religious observances affect workplace culture helps businesses create a respectful and inclusive work environment.

Transportation Challenges

Traffic congestion is a major issue in Indonesian cities, especially in Jakarta. Public transportation options are improving, but many employees still rely on motorcycles or personal vehicles.

Some businesses offer transportation allowances or shuttle services to help employees with their commute. Considering commuting challenges when setting work hours or office locations can improve employee satisfaction and punctuality.

Internships and Skill Development

Indonesia has a large youth population, making internships a key entry point into the workforce. Many companies offer internship programs in engineering, IT, finance, and marketing.

On-the-job training helps businesses develop skilled employees and improve retention rates. Investing in employee development benefits both companies and job seekers, creating a stronger and more competitive workforce.

How to Hire Employees in Indonesia — Our Take

Indonesia’s expanding workforce, diverse industries, and trade partnerships make it an attractive destination for businesses looking to grow in Southeast Asia.

However, hiring in Indonesia requires understanding cultural norms, workplace etiquette, and strict labor regulations to ensure compliance and long-term success. Businesses that prioritize legal adherence and employee well-being can build a strong, competitive team in one of the region’s fastest-growing economies.

Remote People simplifies the process of hiring employees in Indonesia. Our Employer of Record (EOR) solution handles payroll, tax compliance, and work permits, allowing your company to focus on operational activities. Whether you’re hiring local professionals or bringing in international talent, Remote People make it easier and faster. Expand into the Indonesian market with confidence — Contact Remote People today!