Compensation and Benefits of Indonesian Employees – Key provisions of The employment act in Indonesia

According data from Badan Pusat Statistik (BPS), that most of the population works as full-time workers with a percentage of 66.19 percent in February 2025. Meanwhile, the remaining 33.81 percent are part-time workers. The Open Unemployment Rate (TPT) is 4.76 percent and the average wage of workers is 3.09 million rupiah.

Multinational companies in Indonesia are required to pay wages in accordance with labor law provisions, including provisions regarding the regional minimum wage (UMR), both full time workers and part time workers

There are certain requirements and regulations that businesses employing (both local and foreign) staff in Indonesia must know before and after hiring their employees.

Multinational companies operating in Indonesia are required to comply with applicable employment laws in Indonesia, including regulations related to wages, working hours, leave, and layoffs.

We have put together a guide outlining the key provisions of the labour law in Indonesia, including information on hiring employees, types of contracts, leave entitlement, work hours, employment termination and more.

Key takeaways

• To recruit in Indonesia, your business needs a legal entity. You need to set up all the infrastructure such as a local office, a registered address as a subsidiary, and a local bank account. All this, coupled with understanding regional benefits, payroll, taxes, and HR laws, can take months. So make sure you have everything in place before you start operating.
• There are two types of employment contracts in Indonesia: fixed-term and indefinite-term employment contracts
• Newly hired employees are placed on a probation period of no longer than three months, and employees must not be paid less than the minimum wage

Key provisions of The employment act in Indonesia

Working hours and overtime

The regular working hours in Indonesia are 40 hours per week, either seven hours a day for six working days per week or eight hours a day for five working days a week.

Employers must provide overtime pay if work hours exceed seven hours in six working days or eight hours in five working days and if employers require employees to work on weekends or public holidays.

Overtime working hours should not exceed four hours per day and 14 hours per week.

Minimum Wage Requirements 

Jakarta – IDR 5,067,381 per month. Other minimum wages vary by province.

Individual Income Tax

The individual income tax ranges from 5% to 35%. Income tax is calculated according to progressive rates.

                    Up to IDR 50 million                                                                                 5%                                          

                    From IDR 60 million to IDR 250 million                                               15%

                    From IDR 250 million to IDR 500 million                                             25%

                    From IDR 500 million to IDR 5 billion                                                  30%

                    Above IDR 5 billion                                                                                  35%

Payroll Cost

The employer cost is generally estimated at 10.24% of the employee salary.

Provident fund – 3.70%

Death Security – 0.30%

Work-related accident benefit – 0.24%

JSHK Additional Outside Work-related Accident Benefit – 0.24%

Healthcare and social security – 4*

Pension Fund – 2**

*capped at IDR 210,948 per month

**capped at IDR 480,000 per month

These costs are provided as estimates and are intended solely for general informational purposes. To fully comprehend all associated costs and fees related to the terms of any employment agreement for this country, please contact our Sales team for a quote.

(Next Article : Social Security for Health in Indonesia).