Indonesia is an island country in Southeast Asia between the Indian Ocean and Pacific Ocean.

The country consists of over 17,000 islands, including Sumatra, Bali, Java, Sulawesi, and parts of Borneo and New Guinea - more than half of the population lives in Java, which is the world’s most populated island. Indonesia is the only G20 member in Southeast Asia, and has the largest economy in the region.

Contract type:

In Indonesia, employers may choose between indefinite and fixed-term employment contracts. RemoFirst advises opting for fixed-term arrangements, as they provide greater flexibility and compliance advantages in the local labor market.

Fixed-term contracts in Indonesia can be established for up to five years and are considered full-time employment under local labor law, entitling employees to the same benefits as those on indefinite contracts. Fixed-term contracts in Indonesia may be renewed multiple times; however, once the total duration exceeds five years, they must be converted into permanent contracts.

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Minimum wage:

In Indonesia, the statutory Provincial Minimum Wages (UMP) wage varies by province:

• Range (2025): IDR 2.17 million – 5.40 million per month
• Payment basis: Monthly
• Notes: Certain sectors may have higher sectoral minimum wages (UMSK). Employers are legally required to comply with the applicable provincial or sectoral minimum wage.

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Working hours & Overtime:

In Indonesia, the statutory standard working hours for a 5-day workweek are:

• 8 hours per day
• 40 hours per week

This schedule is in accordance with law No. 13 of 2003 on Manpower. Employers must ensure that employees adhere to these limits unless specific exceptions apply, such as in certain business sectors or jobs, which may have different regulations as stipulated by a decree of the minister.

The same law also governs overtime rules in the country. Overtime must be agreed upon by both the employer and the employee, and the employee's consent should be documented.

• Maximum Overtime: Employees may work up to 4 hours per day and 18 hours per week, excluding overtime on rest days or public holidays.
  
• Exemptions: Certain business sectors or jobs may have different provisions regarding overtime, as regulated by a decree from the Minister of Manpower.

Overtime Pay Rates:

• Weekdays:
  • First hour: 1.5 times the regular hourly wage.
  • Subsequent hours: 2 times the regular hourly wage.
• Rest Days/Public Holidays:
  • First hour: 2 times the regular hourly wage.
  • Subsequent hours: 3 times the regular hourly wage.

‍Employer taxes and Contributions:

• Social Security Contributions (BPJS)- Employers must register employees with BPJS Ketenagakerjaan (Manpower Social Security) and BPJS Kesehatan (Health Insurance). Employer contributions include:
  • Work Accident Insurance (JKK): 0.24% – 1.74% of monthly wages (rate depends on industry risk classification).
  • Death Insurance (JKM): 0.30%.
  • Old Age Benefit (JHT): 3.70%.
  • Pension (JP): 2.00% (salary capped at ~IDR 9.8 million/month).
  • Health Insurance (BPJS Kesehatan): 4.00% (capped at IDR 12 million/month salary).
• THR (Religious Holiday Allowance) Accrual- This is a religious holiday bonus, equal to one month’s salary, paid annually before the major religious holiday of the employee.

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Employee tax and Contributions:

• Progressive Income Tax- Indonesia employs a progressive income tax system for resident individuals, with rates applied to annual taxable income (PKP).

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Note: Non-resident individuals are subject to a flat 20% withholding tax on Indonesian-sourced income.

Parental Leave

In Indonesia, female employees are entitled to three months of fully paid maternity leave, typically divided into six weeks before and six weeks after childbirth. Male employees are entitled to two days of paid paternity leave in connection with the birth of their child.

Sick Leave

Employees are entitled to paid sick leave provided they submit a medical certificate. Entitlement can extend up to 1 year if the illness continues.

• Payment of wages during long-term sick leave is regulated as follows:
  • Months 1–4: 100% of wages
  • Months 5–8: 75% of wages
  • Months 9–12: 50% of wages
  • After 1 year until reinstatement or termination: 25% of wages

Paid Leave

1. Annual Leave

• Employees are entitled to at least 12 working days of paid annual leave after completing 1 year of continuous service.
• Extended leave entitlemen:
  • After 6 years of continuous service: entitled to 1 month of leave in the 7th and 8th year.
  • After 8 years: entitled to 2 months of leave in the 9th and 10th year.
• Some employers implement this extended leave as “long leave” or “sabbatical” leave.

2. Public Holidays

• Indonesia observes 16 to 20 public holidays annually (number may vary each year depending on government decree).
• These are fully paid days off as mandated by the government’s joint ministerial decree (SKB).

3. Special Paid Leave
Employees are entitled to paid leave in specific personal/family circumstances, including:

• Marriage of the employee: 3 days
• Marriage of child: 2 days
• Circumcision of child: 2 days
• Baptism of child: 2 days
• Wife giving birth/miscarriage: 2 days
• Bereavement (death of spouse, child, parent, in-law): 2 days
• Death of grandparent, grandchild, sibling, in-law living in the same household: 1 day

Process

Before reaching the decision to terminate an employee, the employer has to make a genuine effort to avoid the termination by negotiating with the employee. They need to try to find an accommodation such as coaching, a change in working hours, or better working methods.

If this has been done and termination still cannot be avoided, the employer must explain the reasons for termination in writing and provide notice. If the employee who has been dismissed believes the termination is unjust, they can challenge the decision in the Labor Court, who will give the final ruling.

Notice Period

In Indonesia, the statutory notice period for termination is generally 30 days. Employers may stipulate longer notice periods in the employment contract, provided they comply with labor law requirements. The statutory notice period does not vary with the employee’s length of service. Employers can agree to longer notice periods in the employment contract, but this is not mandatory and cannot be shorter than 30 days.

Severance Pay

Severance pay is primarily payable when the employer terminates the employment.

This includes termination due to:

• Business closure or downsizing.
• Employee redundancy.
• Company bankruptcy.
• Termination for reasons unrelated to misconduct, e.g., incapacity or poor performance after due warnings and attempts to accommodate.

Termination due to misconduct or resignation without agreement generally does not qualify for severance pay. Employees who resign voluntarily are generally not entitled to statutory severance pay, except in cases where:

• The employee has worked at least 5 consecutive years.
• The employment agreement or collective labor agreement (PKB) specifies a separation payment.

Severance pay is determined by how long the employee has worked at the company:

• 0-1 years = 1 month wages
• 1-2 years = 2 months wages
• 2-3 years = 3 months wages
• 3-4 years = 4 months wages
• 4-5 years = 5 months wages
• 5-6 years = 6 months wages
• 6-7 years = 7 months wages
• 7-8 years = 8 months wages
• 8+ years = 9 months wages

Severance pay is statutory, and cannot be waived by the employment agreement.

Indonesia has a mandatory holiday bonus made before called the Tunjangan Hari Raya (THR) bonus, paid out before the longest religious holiday in Indonesia. THR must be paid at least 7 days before the major religious holiday (Idul Fitri for Muslims, or the employee’s relevant religious holiday). Employees who have worked for at least 1 month continuously are entitled to a pro-rated THR. Minimum 1 month’s salary for employees with 12 months of service.