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How to hire and pay employees in Indonesia
Slasify
Jun 21, 2025
| Key Takeaways |
|---|
| 1. Monthly payroll cycle with city-specific minimum wages, including Jakarta's 2025 minimum wage of IDR 5,396,760 per month. Major cities like Surabaya, Bandung, Medan, and Bekasi each set different statutory minimums. |
| 2. Personal income tax is progressive from 5%–35% for residents. Non-residents pay a flat 20% on gross income. Severance and pension payments are taxed separately under final withholding tax rules. |
| 3. Mandatory employer and employee contributions apply through BPJS Kesehatan and BPJS Ketenagakerjaan. Employer costs range from 0.24%–1.74% (Work Accident), plus 3.7% for Old Age Pension, 0.3% for Death Insurance, 2% for Pension, and 4% for Health Insurance. |
| 4. Standard working hours are 40 per week, with 7–8 hour daily limits depending on a 5-day or 6-day schedule. Overtime is capped at 4 hours/day and 18 hours/week, paid from 150%–200% of hourly wages. |
| 5. Employees receive at least 12 days of annual leave after 12 months of service, plus 17 public holidays in 2025, paid sick leave, maternity (3 months total), paternity leave, and additional religious and family-related paid leave. |
| 6. Termination requires written notice—14 days for employer-initiated dismissal and 30 days for resignations. Complex severance rules apply, including four categories of termination payments (UP, UPMK, UPH, SP) based on length of service and reason for separation. |
| 7. THR annual religious bonus is mandatory and equals one month's salary for employees with at least one year of service. Must be paid 7 days before the applicable holiday. |
| 8. Visa and work eligibility tied to employer sponsorship, requiring BPJS registration for foreigners working in Indonesia for more than 6 months. |
Discover the global hiring and employment landscape in Indonesia – a country with a thriving demographic dividend driven by the influx of talented young professionals into the workforce and is projected to become the world's top four economies by 2050, making it a prime choice for business expansion.
Personal Income Tax
Non-residents are taxed at a flat rate of 20% on their gross employment income, whereas tax residents are subject to the following progressive tax rates:
| Taxable Income (IDR) | Progressive Tax Rate (%) |
|---|---|
| Up to 60,000,000 | 5 |
| 60,000,001–250,000,000 | 15 |
| 250,000,001–500,000,000 | 25 |
| 500,000,001–5,000,000,000 | 30 |
| Over 5,000,000,000 | 35 |
Note: Severance and pension payments are subject to final withholding tax at different rates.
Local Taxes
There are no local taxes on employment income in Indonesia.
Statutory Contributions
Employers are obligated to register their employees to the relevant social security agencies (BPJS Kesehatan and BPJS Ketenagakerjaan) and pay the contributions required for the social insurance schemes under each agency. These contributions are applicable to both locals and foreigners who have lived, or expected to work, in Indonesia for at least 6 months.
Contributions made for Pension Insurance are calculated based on the employee's monthly salary of up to IDR 10,547,400, while those made for Health Insurance are calculated based on the employee's monthly salary of up to IDR 12,000,000.
Employer Contributions
| Contribution Rate | |
|---|---|
| Work Accident Insurance | 0.24%–1.74% |
| Old Age Pension | 3.7% |
| Death Insurance | 0.3% |
| Pension Insurance | 2% |
| Health Insurance | 4% |
Employee Contributions
| Contribution Rate | |
|---|---|
| Old Age Pension | 2% |
| Pension Insurance | 1% |
| Health Insurance | 1% |
Payment of Wages
Employees shall be paid at least once a month, with employers having the option to come to an agreement with their employees to have their pay at an interval of at most once every week.
Minimum Wage
The minimum wage in Indonesia varies by province and regency/city, with the minimum wages in the major cities of being set as follows for 2025:
| Cities | Monthly Minimum Wage (IDR) |
|---|---|
| Jakarta | 5,396,760 |
| Surabaya | 4,961,753 |
| Medan | 4,014,072 |
| Bandung | 4,482,914 |
| Bekasi | 5,690,753 |
Statutory Bonus
Employers are obligated to pay their employees a religious holiday allowance, or Tunjangan Hari Raya (THR), once a year in accordance with the respective religious holidays celebrated by their employees.
| Recognized Religions | Relevant Religious Holidays |
|---|---|
| Islam | Eid al-Fitr |
| Christianity | Christmas |
| Hinduism | Nyepi |
| Buddhism | Vesak |
| Confucianism | Lunar New Year |
THR payments are usually equivalent to a month's wage for those who have worked a full year, and prorated according to the number of months already worked if they have not. These payments must be made at least 7 days before the beginning of the respective holidays.
Employees and employers may choose to agree on a single date for THR payment regardless of the employees' religions.
Termination
Termination can be executed by means of voluntary resignation or justified dismissal, both of which require the terminating party to produce a written notice of termination.
Employers must generally be able to justify their reasons for dismissing an employee to prevent any potential labor disputes. These reasons can be classified into personal and business-related reasons, as follows:
| Personal Reasons | Business-Related Reasons |
|---|---|
| Employee committing theft and/or fraud | Employee not willing to continue their employment in the event of a change in the company's status, merger or acquisition |
| Employee being absent for 5 consecutive workdays without a written justification and relevant evidence, provided that the employer has summoned them twice to no avail | Employer being required to shut down their operations due to force majeure or continuous losses for 2 consecutive years |
| Workplace intoxication or violence | Employer becoming insolvent |
| Employee committing immoral or indecent acts at work | Employer permanently closing down their business |
The list of reasons here are non-exhaustive. Furthermore, there are specific procedures that the employer must follow when dismissing an employee, even if there is a legitimate reason for their dismissal. These include issuing warning letters before dismissing an employee for minor contract violations and holding bipartite negotiations with the relevant employee or their unions, among others.
Notice Period
Employers dismissing an employee are obligated to notify the relevant employee of their dismissal in writing 14 days in advance to allow them sufficient time to appeal the decision. On the other hand, resigning employees are obligated to submit a resignation letter 30 days in advance.
No notice period is required if the employee is being dismissed due to a violation of the employment contract, company regulations or collective agreements. However, this can only be done after giving the employee 3 consecutive warning letters within 6 months of one another.
Severance Pay
There are 4 different types of termination payments in Indonesia, which includes the Standard Severance Pay (UP), Long Service Pay (UPMK), Compensation Pay (UPH) and Separation Pay (SP).
Both UP and UPMK are calculated based on the employee's length of service, as follows:
| UP | UPMK | ||
|---|---|---|---|
| Length of Service | Pay | Length of Service | Pay |
| Less than 1 year | 1-month wage | 3–6 years | 2-month wage |
| 1–2 years | 2-month wage | 6–9 years | 3-month wage |
| 2–3 years | 3-month wage | 9–12 years | 4-month wage |
| 3–4 years | 4-month wage | 12–15 years | 5-month wage |
| 4–5 years | 5-month wage | 15–18 years | 6-month wage |
| 5–6 years | 6-month wage | 18–21 years | 7-month wage |
| 6–7 years | 7-month wage | 21–24 years | 8-month wage |
| 7–8 years | 8-month wage | 24 years+ | 10-month wage |
| 8 years+ | 9-month wage | ||
On the other hand, UPH and SP may be paid irrespective of an employee's length of service. They are determined as follows:
| UPH | This shall be calculated by summing up the payment in lieu of any remaining annual leave, travel cost for employees (and their families) to be repatriated back into the place where they were initially recruited and any other voluntary allowances that has been agreed to. |
|---|---|
| SP | This is a completely voluntary award to compensate for the employee's service and is regulated either by the employment agreement, company regulation or collective agreements. |
Calculation of Termination Payment
An employee's entitlement to each of the four termination payment type varies according to the reason of their termination, but they are generally as follows:
| Reason for Termination | UP | UPMK | UPH | SP |
|---|---|---|---|---|
| Expiry of a fixed-term contract | Not entitled to any pay | |||
| Dismissal during probation | ||||
| Company merger and consolidation, spin-off | 1 | 1 | Yes | No |
| Employee dismissed during company acquisition | ||||
| Business-related reasons to prevent company losses | ||||
| Resignation due to the employer's misconduct | ||||
| Employee resigned during company acquisition | 0.5 | 1 | Yes | No |
| Business-related reasons where the company has suffered losses | ||||
| Company closure due to force majeure or after sustaining losses for at least 2 years | ||||
| Employee's continued violation of their contracts, company regulations or collective work agreements after being given 3 warnings letters | ||||
| Force majeure without company closure | 0.75 | 1 | Yes | No |
| Voluntarily resignation | 0 | 0 | Yes | Yes |
| Unexplained absence for 5 consecutive days | ||||
| Justly dismissed for personal reasons, including committing criminal acts that results in losses for the employer | ||||
| Committing criminal actions that does not result in losses for the employer. | 0 | 1 | Yes | No |
| Prolonged illness or disability (over 12 consecutive months) or death | 2 | 1 | Yes | No |
| Retirement | 1.75 | 1 | Yes | No |
Probationary Period
Probationary period cannot be implemented for fixed-term employees, while it is subject to a maximum of 3 months for permanent employees. Those on probation can be dismissed with a notification letter given 7 days in advance.
Work Time Rules
Standard Working Hours
The standard working hours in Indonesia are subject to the following limitations:
| Maximum standard working hours | |
|---|---|
| Employees with 6 working days per week | 7 hours per day or 40 hours per week |
| Employees with 5 working days per week | 8 hours per day or 40 hours per week |
Break Period
Employees who have worked for 4 consecutive hours are entitled to at least 30 minutes of break, the period of which shall not be counted as part of their working hours. It is also a given that employers should provide their employees with an adequate opportunity to pray and/or worship their God as obliged by their respective religions.
In addition to the above, female employees are also entitled to have the opportunity to breastfeed their babies during working hours.
Overtime
Any work that goes beyond the employee's standard working hours is considered overtime, and this is only allowed if the employee agrees to it. A written order by the employer and a written consent by the employee must be issued before overtime can commence.
Overtime work is subject to a maximum of 4 hours per day or 18 hours per week, exclusive of any work performed during weekly rest days or public holidays. They are paid as follows:
| Overtime Hours | Overtime Rate |
|---|---|
| First hour | 150% of the employee's hourly rate |
| Any subsequent hour | 200% of the employee's hourly rate |
Weekly Rest Days
Employees are entitled to at least a day of rest every week. Those required to work on their weekly rest day shall be paid as follows, provided that they are granted appropriate breaks and meals with at least 1,400 kilo calories if they are required to work for more than 4 hours:
For employees working 5-day weeks
| Working Hours | Pay Rate |
|---|---|
| First 8 hours | 200% of the employee's hourly rate |
| 9th hour | 300% of the employee's hourly rate |
| 10th, 11th and 12th hours | 400% of the employee's hourly rate |
For employees working 6-day weeks
| Working Hours | Pay Rate |
|---|---|
| First 7 hours | 200% of the employee's hourly rate |
| 8th hour | 300% of the employee's hourly rate |
| 9th, 10th and 11th hours | 400% of the employee's hourly rate |
Holiday and Leave Entitlements
Public Holidays
Employees are not obligated to perform any work during public holidays. There are 17 days of public holidays in Indonesia for 2025.
| Holiday | Date |
|---|---|
| New Year's Day | January 1 |
| Isra Mi'raj | January 27 |
| Chinese New Year | January 29 |
| Holy Day of Silence | March 29 |
| Eid al-Fitr | March 31–April 1 |
| Good Friday | April 18 |
| Easter Day | April 20 |
| International Labor Day | May 1 |
| Vesak Day | May 12 |
| Ascension Day | May 29 |
| Pancasila Day | June 1 |
| Eid al-Adha | June 6 |
| Islamic New Year | June 27 |
| Independence Day | August 17 |
| Prophet Muhammad's Birthday | September 5 |
| Christmas Day | December 25 |
Employees may be required to work during public holidays if the nature of their jobs calls for a continuous and uninterrupted operation or under other circumstances based on their respective contracts, provided that they are paid at the following rate:
| Working Hours | Pay Rate |
|---|---|
| First 5 hours | 200% of the employee's hourly rate |
| 6th hour | 300% of the employee's hourly rate |
| 7th, 8th and 9th hours | 400% of the employee's hourly rate |
These employees must be granted appropriate breaks and meals with at least 1,400 kilo calories if they are required to work for more than 4 hours.
Annual Leave
Employees are entitled to at least 12 days of paid annual leave after every 12 months of continuous service.
Sick Leave
When employees are sick or injured, they are entitled to paid sick leave from their employers, provided they show a medical confirmation of their ill-health. The duration of sick leave and its corresponding pay are as follows:
| Duration of sickness | Sick Pay |
|---|---|
| Up to 4 months | 100% of their wage |
| 4–8 months | 75% of their wage |
| 8–12 months | 50% of their wage |
| Over 12 months | 25% of their wage |
Maternity Leave
Female employees are entitled to 1.5 months of pre-natal leave and 1.5 months of post-natal leave. This maternity leave period shall be paid in full by the employer at the employee's regular rate of pay.
In the event of a miscarriage, the employee shall be entitled to 1.5 months of rest in accordance with the medical statement issued by their obstetrician.
Paternity Leave
Male employees are entitled to 2 days of fully paid leave for the birth of their child or a miscarriage. Paternity pay shall be fully paid by the employer at the employee's regular rate of pay.
Parental Leave
Employees are entitled to 2 days of paid leave in the event of their child's circumcision, Baptism, marriage and death.
Other Leave
Employees are entitled to fully paid leave in the following events, the duration of which shall be paid in full by the employer:
| Leave | Duration | Notes |
|---|---|---|
| Menstrual Leave | 2 days per cycle | Only applicable to female employees who requested for it, and can be taken on the 1st and 2nd day of their menstrual cycle. |
| Employee's marriage | 3 days | - |
| Bereavement Leave (spouse, child, child-in-law, parents, parents-in-law) | 1–2 days | 2 days for the death of the employee's spouse, child, child-in-law, parents, parents-in-law; 1 day for other members of the employee's household. |
| Leave to perform State obligations | - | Paid only the difference between the amount paid by the State and the employee's normal wages. |
| Leave to practicing or observe religious obligations | - | - |
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