Introduction

Indonesia is one of Southeast Asia’s fastest-growing economies, attracting investment across sectors from manufacturing to tech. For companies looking to scale in the region, hiring local talent is an obvious first step. But without a clear understanding of Indonesia’s labour laws, well-intentioned businesses can quickly face penalties, reputational damage, or workforce disengagement.

The Indonesian Employment Law landscape has seen significant changes in recent years - most notably with the introduction of the Omnibus Law and its subsequent revisions. For global employers, these updates offer both greater flexibility and new compliance challenges.

Quick Tips

• Always issue written employment agreements in Bahasa Indonesia - dual language contracts are permitted but must include the official language.

• Be clear on fixed-term vs. permanent contracts - misclassification carries legal risk.

• Severance entitlements are generous by global standards - factor this into workforce planning.

• Register employees with BPJS (the social security system) and ensure timely contributions.

• Working hours, overtime, and rest days are all regulated - don’t assume flexibility by default.

Understanding the Basics: Contracts and Classifications

Under Indonesian law, employment agreements can be permanent (PKWTT) or fixed-term (PKWT). The 2023 revision to the Omnibus Law allows PKWT contracts for up to five years (including extensions), but only in certain conditions - such as project-based or seasonal work.

Misusing fixed-term contracts for ongoing roles can lead to automatic conversion to permanent status, with associated severance liabilities. The Ministry of Manpower closely monitors this area.

All contracts must be in writing and in Bahasa Indonesia. Dual-language contracts are acceptable but must include accurate translations. If there’s a dispute, the Bahasa version prevails - a detail many international businesses miss.

Wages, Benefits and Severance: Plan for the True Cost

Indonesia has a tiered minimum wage system, set at the provincial or regency level and updated annually. In Jakarta, for example, the 2024 minimum wage is IDR 5,067,381 per month (approx. USD 320).

Employers are also required to enrol workers in BPJS Ketenagakerjaan (social security) and BPJS Kesehatan (healthcare), covering contributions for pensions, work accident insurance, and healthcare benefits. Failing to register staff or delaying payments can lead to fines and liability.

Severance obligations are significant. As of 2023, severance payments may include:

• Severance Pay (based on years of service)

• Long Service Pay (for tenured employees)

• Compensation for unused leave, relocation, and housing (if applicable)

Global employers often underestimate these costs. In my own practice, I supported a European client planning a restructure of their Jakarta team. After calculating the full severance and compensation liabilities, they adjusted the timeline and approach - avoiding legal action and maintaining a positive exit process.

Working Hours, Overtime and Leave

Indonesia has a standard 40-hour workweek (7 hours per day over 6 days, or 8 hours over 5 days). Overtime is allowed but capped at four hours per day and 18 hours per week, and must be paid at regulated rates.

Public holidays are extensive, and employees are entitled to a minimum of 12 days of annual leave after one year of service. Many employers also provide religious holiday allowances (Tunjangan Hari Raya or THR), which are mandatory and must be paid before key religious celebrations.

A Real Example: Navigating Local Compliance with Global Standards

One client, a tech firm expanding from Singapore into Indonesia, wanted to replicate their regional employment model. But after reviewing local laws, we redesigned their HR approach - issuing bilingual contracts, enrolling staff in BPJS, and adapting working time policies to Indonesian norms.

With these local adjustments in place, the business scaled quickly, attracted high-quality talent, and avoided the kind of missteps that can derail growth.

Final Thoughts

Indonesia offers enormous potential for international companies - but success depends on getting the foundations right. Labour laws here are protective, formal, and enforced. Respecting them is not only a legal necessity but a sign of good faith that resonates with local teams.

What’s next for your global people strategy?

Book a free compliance check-in or HR audit with ThinkGlobal HR. Whether you're hiring your first Indonesian employee or reviewing a local entity, we’ll help you build a legally sound and people-centred approach that supports growth - with multilingual guidance and on-the-ground insight from experts who’ve done it before.