Hiring Employees in Indonesia in 2025: What You Need to Know

Indonesia, the world’s fourth most populous country and the largest economy in Southeast Asia, is rapidly climbing the global talent hiring map. 

With a diverse, young population and a growing digital economy, Indonesia offers a vibrant labor force across tech, finance, manufacturing, and customer service sectors. The blend of advanced metropolitan hubs like Jakarta and emerging regional talent pools makes it a compelling destination for global recruitment.

For US companies, hiring in Indonesia presents a strategic opportunity. The combination of affordable labor costs, an increasingly skilled workforce, and a robust remote work culture makes Indonesia an ideal location for expanding teams or setting up remote operations. 

By leveraging local expertise, companies can access new markets, support business growth, and efficiently scale their global workforce.

How to Hire Employees in Indonesia

Assess Your Hiring Needs

• Full-time vs. project-based support: Assess whether you need ongoing employees or temporary contractors.

• Local compliance requirements: Indonesia’s labor laws are complex. Align your hiring model with regulations.

• Onboarding speed vs. long-term control: Use an Employer of Record (EOR) for fast onboarding, or set up a legal entity for long-term control.

Hiring Options in Indonesia

• Set Up a Legal Entity: Full operational control, but resource-intensive and suited for long-term expansion.

• Partner with an Employer of Record (EOR): The EOR is the legal employer, handling payroll, taxes, and compliance, ideal for rapid market entry or testing the Indonesian labor market. See our list of top countries where you need an EOR service.

EOR vs. Legal Entity Comparison

Aspect	Employer of Record (EOR)	Legal Entity
Pros	Quick onboarding, payroll & tax managed, no incorporation	Full HR control, direct compliance, market presence
Cons	Higher ongoing fees, less direct management	Complex, lengthy setup, high initial cost
Cost & Implementation	Fast setup (weeks), monthly fees	Months to set up, significant costs
Compliance, Payroll, Benefits	EOR handles all statutory tasks	Direct responsibility for compliance

Understanding Worker Classification in Indonesia

Employees vs. Contractors

Aspect	Employees	Contractors
Employment Contract	Fixed/indefinite (Manpower Law)	Service agreement (Civil/Commercial Code)
Social Security	Employer registers & contributes (BPJS)	Not entitled; self-managed
Taxation	Employer withholds (PPh 21)	Contractor pays own taxes
Severance Pay	Entitled by law	Not entitled unless in contract
Wage Structure	Minimum wage, overtime, paid leave	Paid per project/service
Termination	Strict, requires justification & severance	Ends as per contract

• Legal and tax implications: Misclassifying workers can lead to penalties. Define contracts and roles clearly.
• Hire and Pay Contractors: Use clear service agreements. Contractors handle their own taxes.

Hiring Costs and Payroll in Indonesia

Hiring Costs Overview

• Salary varies by region, industry, and seniority.
• Employers must provide BPJS (social security & health), and statutory leave.
• Additional costs include recruitment, training, and possible EOR service fees. Learn more about Employer of Record benefits.

Payroll Setup Steps

• Register with BPJS and tax authorities.
• Draft compliant contracts (in Bahasa Indonesia).
• Determine mandatory and optional benefits.
• Set up payroll (in-house, local provider, or EOR).

Income Tax Rates

• Personal income tax (PPh 21) is progressive (5% to 35%).
• Employers must withhold and remit monthly.

Payment Methods

• Direct deposit to local accounts is standard.
• International transfers for contractors or remote workers.
• EOR manages payments, deductions, and withholdings.

Using Global Payroll Services

• Streamlines compliance, multi-currency payments, and benefit management.
• Useful for companies without in-country HR teams.

Compliance Risks When Hiring in Indonesia

Incorrect Payroll Contributions

• Failure to contribute to BPJS or withhold taxes results in penalties. See how EOR services ease payroll management.
• Employers must track regional wage and benefit requirements.

Permanent Establishment Risk

• Hiring without a local entity may trigger local corporate tax.
• EOR can mitigate this risk for market entry.

Statutory Benefits

• Mandatory: social security, health insurance, paid leave, severance. Non-compliance leads to fines.

Misclassification Risks

• Misclassifying employees as contractors may result in penalties.

Regional Law Variances

• Wages and requirements vary by province. Local expertise is crucial.

Onboarding New Employees in Indonesia

Before Their First Day

• Complete BPJS and tax registrations.
• Ensure contracts/offer letters are in Bahasa Indonesia and signed.
• Prepare equipment and access for remote roles.

On Day 1

• Conduct orientation and review employment terms.
• Introduce to team and assign mentors.
• Provide access to tools and platforms.

During First 90 Days

• Monitor performance with regular check-ins.
• Deliver training and ensure policy compliance.
• Gather feedback for onboarding improvements.

Offer Letter Essentials

• State job title, salary, benefits, working hours, and termination conditions.
• Include probation and severance terms.

NDAs and Confidentiality

• Draft NDAs in Bahasa Indonesia for enforceability.
• Clarify confidentiality and data protection expectations. Learn why industry-specific EOR solutions matter.

Running Background Checks

• Obtain candidate consent.
• Screen for employment history, education, and criminal records as permitted.

Managing Remote Employees in Indonesia

Computer and App Access

• Provide laptops and secure internal systems access.
• Use multi-factor authentication and VPNs for security.

Intellectual Property Protections

• Include IP assignment in all agreements. See custom EOR solutions for tech and IT.
• Train employees on IP and data handling.

Types of IP rights:

• Copyright (software, docs, designs)
• Patents (inventions, processes)
• Trademarks (branding, logos)
• Trade secrets (algorithms, client lists)

Complying with Indonesia Labor Laws

Working Conditions

• Standard workweek: 40 hours (either 5 or 6 days).
• Overtime must be compensated.
• Employees receive annual leave, public holidays, and sick leave.

No At-Will Employment

• Indonesia does not recognize at-will employment. Termination must meet statutory grounds.

Trade Unions and Collective Bargaining

• Employees can form and join trade unions.
• Collective agreements may add to statutory minimums.

Terminating Employees in Indonesia

Acceptable Termination Reasons

• Valid: redundancy, misconduct, company closure, mutual agreement.
• Written justification is required.

Notice Periods and Legal Protections

• Notice and severance depend on length of service.
• Employers must provide written notice, and may owe severance, long service pay, and compensation.

Why U.S. Companies Should Consider Hiring in Indonesia

Access to Skilled Talent

• Large pool of skilled professionals in tech, finance, customer support, and digital marketing.
• Many speak English and have international experience.

Cost Efficiency

• Salaries much lower than in the U.S.
• EOR and remote models reduce overhead. Learn how EOR helps manage distributed workforces.

Time Zone Overlap

• Partial overlap with U.S. Pacific hours—ideal for distributed or 24/7 teams.

Growing Remote-Friendly Infrastructure

• Major cities have strong internet, coworking spaces, and a startup scene supportive of remote work.

Build a Strong Indonesia Team with Compliance and Local Expertise

Hiring in Indonesia gives U.S. companies access to a vibrant, cost-effective, and skilled talent pool. Success depends on understanding Indonesia’s labor laws, employment practices, and culture. Whether setting up a local entity, partnering with an EOR, or hiring contractors, compliance and local expertise are essential for building a productive, legally sound team.