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Staff Recruitment in Indonesia

With a population of about 260 million, Indonesia is the fourth most populous nation in the world after China, India and the US. Indonesia’s population is relatively young with approximately half of the population below the age of 30. As such Indonesia has the largest pool of workers in ASEAN, with a reported labour force of about 1,230 million people. A key problem faced by foreign firms in Indonesia, however, is to recruit workers at the right skill level, with over 90% of Indonesians without tertiary training.

The Ministry of Manpower and Transmigration (MOMT, in Indonesian only) is responsible for labour and employment. The main employment law is the Labour Law (2003), which is generally considered onerous, particularly in respect of the rules and regulations on termination of employees and the level of severance and termination benefits payable in the event of termination. A lack of training, cultural background and difficulty in terminating non performing workers often means that staff numbers can reach higher levels than a foreign company may initially anticipate.

The key points around recruitment of local and expatriate staff in Indonesia that Hong Kong companies should be aware of are:

  • Employment of foreign workers is generally not encouraged and MOMT Regulation 12/2013 provides that a foreign candidate must meet several requirements: (i) possess educational qualifications suitable for the intended position; (ii) possess competency certificates or work experience of at least five years for the intended position; (iii) sign an undertaking to transfer knowledge to the Indonesian counterpart; and (iv) be able to communicate in the Indonesian language. Instead of merely requiring either point (i) or (ii) as per the superseded 2008 regulation, Reg.12/2013 requires that both be met.

  • The sponsoring company must seek approval from the MOMT of an Expatriate Manpower Utilisation Plan (RPTKA), the master document for processing individual work permits for expatriate employees, supplemented by a written Indonesian Counterpart Mentoring Programme Plan (RPP) in addition to the appointment letter of the Indonesian counterpart trainee.

  • Furthermore, foreign workers must obtain a work permit through their sponsoring employer. Work permits are valid for a 12-month period and are extendible upon expiration subject to approval from the MOMT.

  • Minimum monthly salaries must be adhered to. Each province or city is given the power to frame its own Provincial Minimum Wage (known as UMP in Indonesia or UMK in Bali), which is reviewed and set annually. The 2017 minimum salary varied between IDR 1.34 million (about US$100) to IDR 3.35 million (about US$250). According to Regulation 6/2016, an employee with at least 12 months service is entitled to a Religious Festivity Allowance of an additional one month salary (similarly, pro-rata allowance will be given to employees who have been working consecutively for at least one month).

  • Working hours are seven or eight hours per day, depending on whether a work week consists of five or six working days, with additional hours considered overtime. Overtime is calculated based on legally abiding formulae. 

  • There are strict rules on the termination of employees. A company has an obligation to pay severance, gratuity and other compensation to permanent employees if they resign voluntarily or are involuntarily terminated (there must be strong grounds for termination and evidence of warning letters issued prior to the termination). In general terms, minimum severance pay is based on one month’s salary or wages for each year of service, up to a maximum of nine months of pay. 

  • It is compulsory for all employees (including foreign workers who have been working in Indonesia for more than six months) to contribute to social benefit schemes. BPJS Ketenagakerjaan is the social security administration body and manages employment social security programmes, which include:
Social Security SchemeEmployer ContributionsEmployee Contributions
Provident Fund Benefit (JHT)3.7%2%
Work-related Accident Benefit (JKK)0.24% to 1.74% (dependent on the work’s risk level)N.A.
Death Benefit (JKM)0.30%N.A.
Pension Benefit2%1%
  • Trade union memberships are allowed but not compulsory. The majority of Indonesian workers are not unionised, potentially owing to the generous severance and termination benefits already in place.

 

A Practical Guide to Doing Business in Indonesia

  1. Regulatory Environment
  2. Establishing a Presence
  3. Intellectual Property Protection
  4. Staff Recruitment
  5. Tax Considerations
  6. Import/Export Procedures
  7. Further Information


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