With a population of around 250 million people, Indonesia is an extremely vibrant and active country. The GDP is about Rp 46,623,500($3,500; £2,705; €3.200) per capita, and the main economic industries include agriculture, manufacturing, mining, tourism and finance. The government has been slowly but surely embracing pro-market policies, and has seen success in the past three years in terms of attracting new businesses and talents to the area.

The amount of reports and financial details that need to be filed and turned into the tax authorities would be difficult for anyone to keep up with. Complying with payroll regulations can be a burden for companies that chooses to set up shop in the Southeast Asian country. International payroll help is available for the many companies who wish to take advantage of the growing economy.

Getting Started

The Investment Coordinating Board of the Republic of Indonesia (AKA BKPM) works with both businesses and the government, and they are the people who will serve as the go-between. Limited liability companies typically take between 5 and 10 business days to obtain an initial approval, though complete approval may take longer. You will also have to get a tax number through the Tax Office. It is the BKPM's job to improve foreign relationships and worker's conditions, which is a delicate balance. Certain sectors may be closed off to foreign investments based on the economic climate.

Companies do not need to set up a bank account in Indonesia but it is highly encouraged. You will need the initial approval from BKPM, a tax number, a Deed of establishment, and a domicile letter. Additionally, a power of attorney and proper identification is necessary. The whole process should take about a week to set up.

Employee Rights

Employees in Indonesia operate on a 40-hour work week, with a three hour cap on the amount of overtime per day. Overtime rates are 1/173 of the entire monthly salary, and breaks must be given every four hours of work. Those who have a job that is categorized as a planner or controller are not subject to overtime restrictions, but their salary needs to reflect their skills and the hours they put in.

Paperwork in Indonesia is notoriously lax when it comes to hiring employees, but you will need to have a registered contact with the Ministry of Manpower if you plan to hire someone of a temporary basis.

Compensation

Minimum wage is determined by the location of the company, largely based on the financial needs of the specific province. However, the minimum wage is only applicable to employees who work for employers for less than a year. Anything more than that and the price must be negotiated between employee and employer.

There are collective bargaining agreements in Indonesia, but there can be only one agreement for the entire enterprise. The agreements are valid for 2 years, and negotiations can start within 3 months of expiration. If wage growth and bonuses are not written out in those agreements, then it is up to the employee and employer to negotiate the terms.

Tax Requirements

Corporations are taxed at 25% for both global and domestic income. Employees are required to pay income tax and withholding taxes on both employee remunerations and payments to third parties. Insurance should be deducted from the earnings, and sent to the social insurance authorities every month, along with official reports regarding each employee’s information. You will also have to file a tax return stating the withholdings for every quarter and every year.

Employers contribute 3.7% to social security, with the employee paying 2%. Companies with less than 10 employees are not required to register with social security but it is highly recommended that it is done, regardless of company size. Companies may need to pay VAT, Land Tax, or Stamp Duty as well.

Leave, Maternity and Sick Time

New mothers are entitled to 3 months of paid maternity leave (typically half before the child is born and half after), with no time-off consideration given to fathers. After one year of service, workers are entitled to at least 12 days of personal time off a year. Indonesia observes 14 public holidays yearly. Extended sick time is paid at 100% of the salary for the first four months, and is paid through social insurance. In addition, workers are permitted to take personal leave for baptisms, weddings, and deaths.

Further Details

Indonesia continues to grow and expand their economy, which is exciting for everyone. Inflation rates are low and the government has the people’s rights and interests in mind when it comes to regulations.

Final Thoughts

As a developing nation, Indonesia is prone to frequent regulation changes, having a global payroll company to aid in your efforts can really be a lifesaver in Indonesia. A global payroll solution keeps up with both regulations today and tomorrow, so there are no legal hassles or messy audits down the line. 

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.