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Indonesia is the biggest economy in Southeast Asia, which has grown rapidly since the turn of the century and boasts a growing middle class and pool of skilled talent. For anyone looking to hire local professionals, contracting them through an employer of record in Indonesia could be a good option.
Because when you hire staff through an employer of record (EOR), those staff are officially employed by the provider, but report directly to you. Meaning you can have professionals in place in only the time it takes to find them, and without needing to worry about setting up your own local entity.
Your employer of record in Indonesia will take care of their, onboarding, payroll, other administrative matters, and eventual offboarding, providing a guarantee of compliance with all local regulations as part of the services agreement.
Meaning that you can operate safe in the knowledge that no legal inconveniences or unexpected financial penalties for non-compliance are going to arise.
With your employer of record in Indonesia taking care of the salaries, benefits, leave, and other concerns related to those professionals, your only focus will be on what matters most: the business.
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Note that an EOR is often referred to as a professional employer organization (PEO), with many providers using the two terms interchangeably.
In the United States, however, PEO and EOR are generally treated as different services, with PEO essentially referring to outsourced HR services that still require the client to have an entity through which people are hired, while EOR involves the provider hiring them through its own entity.
Indonesia’s economic growth has been consistently impressive, with GDP increasing sevenfold since the turn of the century to hit US $1.19 trillion in 2021.
That figure places it among the 20 largest economies in the world by GDP, and makes it the biggest economy in the Southeast Asian trading bloc ASEAN. Indonesia is also the fourth most populated country in the world, with a population of over 270 million people.
The country’s strategic location at the heart of Southeast Asia, as well as its abundance of natural resources, has enabled Indonesia to excel in international trade, with China, Japan, the United States and South Korea among as its main trading partners outside of ASEAN.
SEE ALSO: Indonesia country guide
Being the world’s largest archipelago, Indonesia has a massive fishing industry, as well as being rich in natural resources such as oil, tin, natural gas, rubber, nickel, copper, coal, gold, and silver.
Indonesia accounts for half the world’s production of palm oil within its large agricultural sector and this crop alone accounted for 11% of exports before a 2022 ban on exportation. It’s unclear when that will be lifted.
While the country boasts major agricultural and manufacturing economies, the services sector has grown to generate an increasing proportion of Indonesia’s GDP over the past decade. That is reflective of the fact the country’s middle class has expanded significantly over recent years, growing from 7% to 20% of the population between 2005 and 2020.
The number of people attending and graduating from university has similarly increased, with an estimated 25% of graduates earning degrees in IT-related fields, making Indonesia an increasingly attractive market for hiring tech talent.
With some projections suggesting that 60 million more Indonesians may join the middle class in the next decade, hiring via an employer of record in Indonesia is an attractive prospect for many companies.
If you are looking to hire via an employer of record in Indonesia, contact us today.
Doing business in Indonesia
Indonesia’s currency is the rupiah (IDR), which has fluctuated in value somewhat over recent years, but had an exchange rate of roughly 15,000 IDR to US $1 at the beginning of 2023.
When doing business in Indonesia, corporation tax is set at a base rate of 25%, however many exeptions are permitted.
For any company with a turnover below IDR 4.8 billion (around US $350,000), that tax rate is slashed to 1%, while those with a turnover below IDR 50 billion (around US $3.5 million) the rate is set at 12.5%.
Indonesia is home to 19 special exemption zones (SEZs) — either currently operating or in construction — which offer 0% corporation tax over for investments above IDR 100 billion (around US $7.5 million). These benefits last for a decade, with further benefits continuing after.
When considering doing business in Indonesia, it is worth keeping in mind that, while the country has liberalized significantly in recent years, restrictions remain for certain sectors.
In some sectors, foreign businesses may have to partner with local organizations and could require more permits for doing business. An employer of record in Indonesia will be able to provide you with guidance related to these restrictions.
In terms of business culture, punctuality is highly valued in Indonesian culture, so if you do visit the country to do business, always try to be on time, and let your host know in the event that you are running late.
It is also good to understand that, like in many Asian countries, heirarchies and seniority within organizations is important, and professionals will often enter a meeting room according to rank.
What does an employer of record in Indonesia do?
An employer of record in Indonesia will hire staff on your behalf in the country, allowing you to enter this Asian market quickly, effectively, and in compliance with local regulations, all without setting up an entity.
Tax and immigration laws are often a headache, especially in an unfamiliar country, and these will all be taken care of by an employer of record in Indonesia, which will take care of the onboarding, payroll, compliance, benefits, and eventual offboarding of all professionals employed on your behalf.
When it comes to finding the right people to fill the roles you have available, an employer of record in Indonesia will have an established recruitment network and expert knowledge of the local job market, meaning they will have a firm understanding of what to look for on resumes in order to present strong candidates in the shortest possible time.
In the event that you have an individual or team lined up to relocate to the country to oversee your operations, an employer of record in Indonesia will usually also be able to provide visa and immigration support.
Partnering with an employer of record in Indonesia will obviously come at a cost — usually a monthly per-employee fee, plus any additional services — but that investment will often be much lower than the cost of setting up and managing a local entity.
Even when the costs end up being comparable, working with an EOR in Indonesia still comes with the benefits of being a quick and convenient solution that guarantees compliance with all local regulations.
Regulations an EOR in Indonesia will take care of
An employer of record in Indonesia will take care of implementing the following regulations, among others:
Minimum wage: In Indonesia the minimum wage differs by region, ranging from approximately US $150 per month in some provinces to US $300 in capital city Jakarta.
Overtime: Under Indonesian law, employees are entitled for overtime for any additional hours worked over 40 hours in a five-day working week or 42 hours in a six-day working week.
Bonuses: After providing one year of service, all employees are entitled to an annual bonus, usually equivalent to one month of salary, and payable at least one week before the main religious festival associated with the employee’s declared religion.
Social security: All employers in Indonesia must register their workers with the social security system known as BPJS Ketenagakerjaan which provides pension support, among other things. Healthcare is provided via BPJS Kesehatan. Both of these responsibilities can be handled by an employer of record in Indonesia.
Vacations: After a year of service, professionals in Indonesia are entitled to 12 paid days of paid time off. Those are in addition to around 16 national holidays each year.
Sick leave: Employers must pay sick leave at a rate of 100% of an employees normal salary for the first four months of a doctor-approved leave. After four months, paid sick leave is paid at a reduced rate.
Other leave: In Indonesia, maternity leave totals 90 days, while employees are granted two days of leave for marriages, baptisms and paternity leave.
Labor contracts: All contracts provided to employees must be written in Bahasa Indonesia, although they may also be written in another language, such as English. Employees may be hired for a fixed or indefinite period. Indefinite period contracts may last up to three months, but fixed-term contracts may not include a trial period.
Termination: There is no required notice for employers when they let an employee go. Employees, however, may resign with 30 days’ notice. An employment relationship may be ended by resignation, misconduct, severe chronic illness for more than one year, disability due to a work accident, or unexplained absence from work for five consecutive days. When an employee is released, compensation is due for relocation expenses, annual leave not taken, and medical and housing allowance. Different amounts of severance pay are provided depending on the reason for departure and time worked.
Serviap Global can be your employer of record in Indonesia
At Serviap Global, we have more than 12 years of experience helping our clients expand their business overseas with our international PEO / EOR services. Our extensive and growing network of destinations means we are able to assist clients in over 100 countries worldwide.
We also offer global talent acquisition services to assist clients with the recruitment of direct hires overseas.
We are a family-run business that started life in Mexico before expanding throughout the world. While our vision is global, we are committed to the sort of service excellence and individualised treatment that comes with working with a local provider.
If you are looking to hire via an employer of record in Indonesia, contact us today.
If you were interested in this article about EOR in Indonesia, check out the rest of our coverage of the service. Or read more about us.