Are you an SME or startup leader aiming to expand in Indonesia? Take the move! As one of the largest economies in Southeast Asia, Indonesia may achieve a GDP growth of 5.1% to 5.4% in 2025 (higher than world average). This success is predicted to be primarily driven by a rise in domestic consumption and export diversification.

Besides, the fast-growing country has a young population with skilled workers. The median age in Indonesia is just around 30 years old, which is much lower than the median age in Europe, US, China, and most of the East Asian countries. This makes the 04th most populous country a lucrative option for businesses looking for younger skilled labor, or a large market with younger consumers. 

Indonesia also has abundant natural resources (minerals, timber and natural gas) and a strategic location, making it a perfect place to expand your business. However, the country has tough labor laws and tax compliance issues. There are also many prohibitions and exemptions that you may take ages to understand. 

Therefore, the only way to make your expansion seamless is by partnering with a PEO. 

But how does a PEO in Indonesia work? Also, is the partnership beneficial? To find answers to these burning questions, have a read.

What Is an Indonesia PEO?

A professional employer organization or PEO is a company that offers human resources-related services such as payroll processing, tax management, employee onboarding, benefits administration, and law compliance for startups and SMEs.

When you partner or invest in a PEO, you not only streamline your processes and operations. These organizations also help you expand globally by allowing you to enter the Indonesian market quickly. 

When you work with a PEO in Indonesia, you get the opportunity to hire skilled employees through the organization. What’s more, the PEO handles multiple ranges of human resource services:

  • Payroll
  • Benefits
  • Compensation
  • Payroll Taxes
  • Employment Taxes
  • Administrative functions
  • Employee onboarding
  • Recruiting and hiring

To put it simply, a PEO makes your business adventures in Indonesia a breeze. So, if your business can’t set up these functions itself or doesn’t have the right resources to scale up your venture, consider a PEO. 

But is a PEO the same as an EOR?

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Let us handle the complexities of hiring, compliance, and payroll in Indonesia while you focus on growing your team.

  • Hire employees in Indonesia with an Indonesian EOR
  • No local entity is needed
  • Pricing starts at USD 199 per employee
  • Remote People can also help you find the best talent in Indonesia
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PEO and EOR Are Different

In a perfect world, you can hire all your desired skilled workers in Indonesia without worrying about compliance issues. 

However, the reality is different. In the real world, Indonesian tax and labor laws make it difficult for businesses like yours to hire local workers. 

To overcome this problem, companies like yours can partner with PEO or EOR organizations. 

These two are slightly different. 

To work with a PEO, you must establish a legal entity in Indonesia or your chosen part of the world. With a PEO, there is a co-employment arrangement between your company and your chosen PEO. So, when you use a PEO, you are solely responsible for compliance with local labor laws. 

However, if you opt for an EOR, you don’t have to establish an entity in Indonesia. An EOR hires employees for you in Indonesia and acts as a legal employer of the hired workforce in the paper. In that case, you are left with no control over your employees. 

Therefore, if you want to expand in Indonesia while having some control over your Indonesian employees, a PEO solution is the best one to go for.

How Does a PEO Work in Indonesia?

When you partner with a PEO in Indonesia, you sign a contract with them that allows the company to hire local talent on your behalf. The PEO takes care of all human resources, benefits, payroll, and tax needs for the employees.

Meanwhile, the new hires and your headquarters teams focus on your ultimate business goals. When a PEO service hires employees on your behalf, they make sure to follow the Indonesian labor laws and tax regulations to save you from hefty fines.

PEOs offer you a streamlined path that you can walk on for hiring employees, testing markets, and responding to the ever-changing business needs in Indonesia. A PEO is responsible for looking after many aspects of payroll and workforce management. 

Here are some of the main areas that a PEO in Indonesia is responsible for handling as per the local labor laws.

Recruitment of Indonesian Employees

Indonesia has a labor workforce of 142 million people. This makes it the largest in Southeast Asia. Additionally, the population in Indonesia is notably young. Most of the people are around 30 years old, making them productive and skilled.

However, not everyone is experienced enough to work for your business, so finding the right ones could be a challenge in Indonesia. But, with the help of a PEO, you can hire the best from the lot. A PEO makes sure to recruit a team of employees for you so your business can flourish in the country.

Management of Employment Contract

Written employment contracts are pretty common in Indonesia. PEOs make sure to get them signed by the newly hired employees and keep a copy of them safe for you for any changes required later.

A written contract usually contains the following:

  • Employer’s name, address, and business nature
  • Occupation and type of work
  • Worker’s name, sex, age, and home address
  • Wage and method of payment
  • Duty stations or worksites
  • Commencement day of work
  • Rights and obligations of the worker
  • Rights of the Employer
  • Signatures of both parties
  • Place and date of the work agreement

There are multiple types of employment contracts in Indonesia. Some of the primary ones are:

  • Fixed-term Contracts: These contracts can last up to five years and are usually for project-based work.
  • Part-time Contracts: This contract in Indonesia is designed for employees who only work for seven to eight hours per day.
  • Permanent Employment Contracts: These contracts are for the workforce hired for an indefinite period.
  • Temporary Employment Contracts: This contract is designed for jobs that are usually curated for trial projects or seasonal work.

PEOs make sure to design accurate contracts for hired employees based on their job tenure and description. This work saves you the hassle of doing all of this yourself.

Onboarding of Employees

A PEO establishes a proper onboarding program to welcome employees to your team with ease. The organization also curates an employee handbook with all the company policies so that the new workforce follows the company rules easily.

Benefits and Rights of Employees

Indonesia’s labor law has multiple sections. For instance, the Manpower Act (Law No. 13 of 2003) covers many labor issues, such as maximum working hours, employment contracts, minimum wages, and termination.

Similarly, the Employee/Labour Union Law (Law No. 21 of 2000) regulates acts like union activities and strikes. If you aren’t familiar with these laws, you will fail to follow them when hiring labor in Indonesia, resulting in unnecessary fines and penalties.

Therefore, it is important to get a PEO on board to save yourself from all the hassles. Here are some of the laws that a PEO looks after when managing employees in Indonesia.

Minimum Wages

As of January 2026, Indonesia’s minimum wage has continued to rise, with the national average reaching its highest level ever of about IDR 5.73 million per month. This reflects annual increases of around 5–7% in many regions under the government’s new wage formula.

Working Hours

Indonesia’s standard working hours are 40 hours per week. All employers are obliged to pay their employees if they work more than this tenure. According to the law, overtime hours must not be more than four hours per day or 18 hours every week.

Probation and Terminating Laws

Probation periods in all types of jobs are restricted to only three months. However, termination is quite complicated. The employer must get approval from the Industrial Relation Court (IRC) before they decide to terminate an employee.

It is preferred to give a 30-day notice to the employee before terminating them. A company cannot terminate employees for reasons like pregnancy or illness. It is important that all terminated employees must get a severance pay.

This pay is equal to one month of pay for every year they’ve worked with that particular company.

Entitled Holidays

All employees who have worked for a year are entitled to get 12 days of paid holidays. This is equal to annual leave. Employees who have served the company for six years are eligible for one month of paid annual leave in their seventh and eighth years in the company.

Income Tax and Payroll Considerations

All employers in Indonesia are obligated to submit their monthly tax payments to the Indonesian government. In fact, all foreign companies also follow the same guidelines as the resident companies when it comes to corporate tax rates. Indonesia follows a progressive income tax structure. The tax rate depends on how much an individual makes.

Here is a breakdown of rates and salaries earned.
Taxable Income (IDR) Tax Rate
Up to IDR 60 million 5%
IDR 60 million – IDR 250 million 15%
IDR 250 million – IDR 500 million 25%
IDR 500 million – IDR 5 billion 30%
More than IDR 5 billion 35%

All payroll taxes for employees cover 2% tax for old age, 1% tax for the pension plan, and 1% tax for the health insurance plan. All employers working in Indonesia have to pay:

Contribution TypeRate
Work Accident Insurance0.24% – 1.74%
Provident Fund3.7%
Death Benefit Contribution0.3%
Pension Plan2%
Health Insurance Plan4%

A PEO makes sure to take care of all the above aspects of payroll and tax for you, so you don’t have to worry about your employees earning against Indonesia’s laws.

How to Choose a PEO in Indonesia?

Partnering with a PEO in Indonesia is definitely a smart move. It will not only help you enter the market with ease but will also take control of your HR-related work. This allows you to focus on other major operations of your business. 

It is imperative to choose a PEO wisely. Here are some major factors to consider when selecting a team.

1

Expertise and Experience

A great PEO is one who has the expertise and experience to manage HR-related functions of a number of different companies. If a certain PEO has worked with multiple clients in the same industry as yours, you must give it a shot. That’s because the team may be well-versed in industry-related laws and the challenges that may cross your company’s path.

2

Knowledge on Compliance

A good PEO is one that has a complete understanding of Indonesia’s labor laws and tax compliance issues. Therefore, be sure to do your search and only go for that team that has worked in the compliance sector for many years.

3

Services Offered

When selecting a PEO, you must request that they show you a portfolio of all the services they offer. Then, go for organizations that can at least offer you the core functions like payroll management, tax filing, and employee onboarding. For additional services required, make sure to ask them about the charges and whether the organization has the right resources to offer them or not.

4

Pricing Model

Most professional employer organizations (PEOs) in Indonesia typically adopt one of the two primary pricing models, which are a flat fee per employee and a percentage of total payroll. The flat fee per employee cost model charges a fixed monthly fee for every employee hired.

Companies that go for the percentage of total payroll take a fee equal to a certain percentage of the total employees hired. This charge is between 2% and 12% of the total payroll as it majorly depends on the range of services provided and the company’s size.

5

Reputation and References

It is important to go through various articles, case studies, and client testimonials to learn about the reputation of the PEO. Solid sources can help you understand the general reputation of the PEO and make a decision on whether you should partner with them or not.

For more details on the reputation of the company, you can also request references from companies working in the same industry as you. A reputable PEO in Indonesia will never hide its weaknesses and will be honest about its performance.

6

Customer Support

When you hand over all your HR-related tasks to a PEO, you trust them to run this department seamlessly and honestly. Similarly, you consider them as a part of your venture, requiring their assistance whenever you want.

To make sure that the PEO is available for your assistance all the time, go for a company that has a strong customer support team. A dedicated team will ensure you perform all operations professionally while keeping you in the loop at all times.

Expand Your Business Successfully-Partner With the Best PEO in Indonesia

Indonesia is a great place to enter and build a business name. However, for this to happen, you must have a PEO by your side.

With a PEO, you can simplify many complexities of labor laws, payroll regulations, and compliance requirements. With local expertise, you can expand your business to Indonesia, manage HR on a local level, and achieve business success, all without having to set up a separate HR office. 

Unsure which PEO to pick in Indonesia? Contact Remote People, your trusted PEO, to be the best solution for your business. We provide top-rated PEO services that help unlock your business potential in Indonesia. Reach out today to get started!

Frequently Asked Questions

A PEO in Indonesia is ideal for you if you are a company that already has or wishes to establish a legal entity in the country. You can use the PEO to get assistance with your company’s HR tasks, such as payroll, compliance, and different benefits management.

They don't earn a fixed amount. Different PEOs offer varying services and have variable expertise. They charge according to their experience, services offered, and employees hired.

Suppose you want to go for a co-employment model. In that case, partner with PEO. However, if you want the organization to have legal control over your employees in Indonesia, an EOR may be a suitable option.