Companies in Indonesia must adhere to the Manpower Law when hiring local employees as it regulates the rights and obligations between employers and employees.
Making a Formal Offer to a Candidate
Once a company has agreed to hire a candidate, they will need to send an official offer letter, which sets out the clear expectations of both parties. The letter should include:
- The candidates job position;
- Salary and benefits;
- Starting date;
- Job description; and
- Type of contract.
The Employment Contract
There are different types employment contracts in Indonesia:
- FTC based on the completion of work;
- FTC based on the period of time; and
- FTC related to non-permanent work.
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Fixed term contracts can be set for as long as five years and there is no probationary period. The contract must be in the Indonesian language, although bilingual contracts are also allowed.
An FTC based on the completion of work has no specific maximum contract period, but the agreement must include the expected period for when the work must be completed.
The FTC base on the period of time is for seasonal work or work that can be completed in a short amount of time. The contract period is for five years.
Finally, an FTC related to non-permanent work is a contract for work based on attendance or volume or time. The contract period is a maximum 20 days per month.
Compensation for FTC workers
If any party terminates an FTC, the employer is now obligated to pay compensation to the employee, even if the employee terminates the FTC prematurely.
The employers must pay compensation upon:
- The expiry of an FTC;
- Each extension of the FTC; and
- Early termination of the contract, irrespective of who terminates the contract.
Healthcare and Social Security
Indonesia’s social security programs are run by two organizations – the Social Security Administrator for Health (BPJS Kesehatan) for healthcare and the Workers Social Security (BPJS Ketenagakerjaan) for pensions.
[tips title="Did You Know"]The premium for employees is calculated as five percent of the monthly salary, with a salary cap of 12 million rupiah (US$722). [/tips]
In the private sector, the employer must pay four percent and the employee the remaining one percent. For civil servants, the government contributes to three percent while the employee contributes two percent.
The pension program covers the following:
- Work compensation – provides protection for accidents occurring during or as a result of work;
- Old age benefits – provides protection for participants that are in retirement, laid off;
- Pension benefits – provides guaranteed income in retirement; and
- Life insurance – upon the death of the participant, their heirs can claim the benefits.
Paid Annual Leave
The Manpower Law entitles all employees to 12 days of annual leave per year.
The government has now extended the overtime working hours to four hours per day and 18 hours per week, which does not apply to public holidays. Under regulation 35 of 2021, collective labor agreements, company regulations, or employment agreements specifically state which roles are entitled to overtime pay.
The regulation does include provisions on employees that are exempt from overtime pay eligibility. These are:
- Employees that hold certain positions with responsibilities as thinkers, controllers, planners, executors, etc.;
- Workers whose working hours cannot be capped, such as those in managerial roles; and
- Workers that are paid high salaries.
Maternity leave for mothers is three months, on full pay. Half should be taken before birth and the remainder after birth. Fathers are entitled to two days’ leave on full pay.