Guide to Hiring in Indonesia

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Guide to Hiring in Indonesia

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Indonesia, being the 4th most populous country globally, presents a vast domestic market that offers numerous investment opportunities for both domestic and foreign investors. The Indonesian government has been proactively implementing measures to promote investment in the country, creating multiple avenues for conducting business.

With free trade agreements in place, a thriving economy, low cost of living, and a youthful population, there are compelling reasons to consider expanding your business to Indonesia.

If you are considering it as a potential location for business expansion, Links International has compiled a comprehensive guide specifically for you! This guide covers essential information on employment laws and best practices that you need to be aware of.

Please note that all the information listed below are to be used as a general guideline. For more detailed accounts of Indonesia employment laws and regulations, please visit the official governmental websites.

Labour Law – Basics

What are the basic requirements for employers in Indonesia?

Employee’s must fulfil the following rights for employees:

  • Pay employees within minimum wage, depending on sector and province;
  • Register employees under BPJS to be eligible for pension, healthcare, life insurance, accident insurance, and old-age benefits;
  • Entitlement to religious holiday allowances;
  • Provide employee with at least 1 rest day per week;
  • Provide payments for overtime work carried out by employee.

 

Indonesia recently had significant changes to the Labour Law Act which included the below key changes:

Item Description
Government Regulation in Lieu of LawPerpu No 2 / 2022
Benefit in Kind Treatment as of January 2023As of 2023, it is calculated as income in the WHT art 21 by a monthly basis and is paid and reported from the company.
Tax Bracket Changes as of January 2022– First 5% of the tax bracket will be applied starting from 0-60 million IDR.

– Additional tax bracket is 35% for the employees who have more than 5 billion IDR for taxable income.

BPJS Pension Rate as of March 2023Maximum threshold – IDR 9,559,600

What are the different types of visa in Indonesia?

  • Business Visas / Multiple Entry Business Visas – A single-entry visa valid for 60 days upon arrival and can be extended up to four times and suitable for businesspeople.

 

There are two types of work visas available in Indonesia:

  • ITAS (Izin Tinggal Terbatas) – A temporary-stay permit that requires several permits in a specific order:
    • VITAS (Visa Izin Tinggal Terbatas) – For entry into Indonesia.
    • IMTA (Work Permit) – For starting employment in Indonesia.
    • ITAS (Izin Tinggal Terbatas) – An immigration status that needs to be renewed annually, with a stamp on the passport to indicate the residence status.
    • KITAS (Kartu Izin Tinggal Terbatas) – A residence permit card that serves as proof of having an ITAS.

 

  • KITAP (Kartu Izin Tinggal Tetap) – A permanent-stay visa available only to those who already hold an ITAS. To be eligible for a KITAP, applicants must meet one of the following criteria:
    • Foreigners to be married to an Indonesian citizen for at least 2 years
    • Foreign investors, directors or commissioners in an LLC or PT PMA,
    • Foreigners who plan to retire in Indonesia and are already holding an Indonesia retirement visa, or
    • Indonesians who are in the process of regaining citizenship.

 

As of 31 March 2021, Indonesia’s Ministry of Manpower (MOM) issued Regulation No.8 of 2021 (MOM Reg 8/2021) on the Employment of Foreign Workers. For a local company employing a foreign worker, the company must prepare a Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing (RPTKA)). This document details the work, position, and length of employment the foreign employee plans to undertake in Indonesia. The RPTKA serves as the basis for the MOM to grant visas and permits.

There are four types of RPTKA categorized under MOM 8/2021:

RPTKA typeValidity
Temporary Work (Production quality control, filming, installation of machines, etc.)Valid for up to 6 months and cannot be extended
Employment for more than 6 monthsValid for up to 2 years with possibility of extension
Employment that does not require payment to the Foreign Worker Utilization Compensation FundValid for up to 2 years with possibility of extension
Employment in special economic zones (SEZ)Valid for 5 years with possibility of extension; or The SEZ RPTKA for directors or commissioners can be granted for a period as needed by the employer

What to remember when hiring new employees?

It is mandatory for employers to register all employees the national social security program under BPJS (Badan Penyelenggara Jaminan Sosial). If an employer:

  • Fails to register their employee;
  • Fails to report and pay social security contributions;
  • Fails to submit a report on the change of membership data of an employee; and
  • Fails to enter an employee in the Old Age Insurance Program,

They will receive two warning letters, penalties and be restricted from certain public services in Indonesia.

 

What are the different discrimination laws in Indonesia?

Law No. 21 of 1999 of Ratification of ILO Convention No. 111 of 1958 on Discrimination in Respect of Employment and Occupation defines “discrimination” as:

  • Any distinction, exclusion or preference made on the basis of race, colour, sex, religion, political opinion, national extraction or social origin, which has the effect of nullifying or impairing equality of opportunity or treatment in employment or occupation; and
  • Such other distinction, exclusion or preference which has the effect of nullifying or impairing equality of opportunity or treatment in employment or occupation as may be determined by the concerned after consultation with representatives of employers’ and workers’ organisations, where such exist, and other appropriate bodies.

 

What are the working hours in Indonesia?

The regular working hours in Indonesia are 40 hours per week, either seven hours a day for six working days or eight hours a day for five working days.

What is the legal probation period in Indonesia?

The different types of Employment in Indonesia – Based on the PP. No 35 Year 2021:

  • Full-time Workers / Indefinite Contracts (PWKT) – Employment agreement between workers/laborers and employers to maintain a permanent working relationship. Probation is allowed for a maximum of 3 months.
  • Contract Workers / Definite Contracts (PWKTT) – Employment agreement between workers/laborers and employers to maintain a periodic time of working or for a certain job. The job should not exceed 5 years and there is no probation period.
    • This job is only for:
      • Jobs which are estimated to be completed within a fixed period of time;
      • Jobs that are seasonal in nature; or
      • Jobs related to new products, new activities, or additional products that are still in trial or exploration period.

 

What are the minimum wage requirements in Indonesia?

Based on the PP. No 36 Year 2021

  • Wages shall be workers’/laborers’ rights received and expressed in cash as compensation from the employer to workers/laborers, set and paid according to an employment agreement, agreement, or laws and regulations, including allowances for Workers/Laborers and their families for a job and/or service that has been or will be performed.

Indonesia’s Minimum Wages for 2023 by region:

ProvinceMonthly Minimum Wage Rate (Rupiah)
Aceh3,413,666
North Sumatra2,710,493
West Sumatra2,742,476
Riau3,191,662
Riau Islands3,279,194
Jambi2,943,033
South Sumatra3,404,177
Bangka Belitung3,498,479
Bengkulu2,418,280
Lampung2,633,284
Banten2,661,280
DKI Jakarta4,901,798
West Java1,986,670
Central Java1,958,169
Special Region of Yogyakarta1,981,782
East Java2,040,244
Bali2,713,672
West Nusa Tenggara2,371,407
East Nusa Tenggara2,123,994
West Kalimantan2,608,601
South Kalimantan3,149,977
Central Kalimantan2,599,456
East Kalimantan3,201,396
North Kalimantan3,251,702
Maluku2,812,827
North Maluku2,976,720
Gorontalo2,989,350
North Sulawesi3,485,000
Southeast Sulawesi2,758,595
Central Sulawesi2,599,456
South Sulawesi3,385,145
West Sulawesi2,608,601
Papua3,864,696
West Papua3,282,000

What to note for existing employees?

  • Overtime – Overtime rate is calculated by 1/173 x salary based on the labour law.
    • The 173 is calculated from the average working hours in the 1 month.
    • In 1 year, there are 52 weeks so in 1 month the average is 4,33 weeks (52 week / 12 month). In 1 week, there are 40 hours of working hours so the average of one month is 40 x 4,33 = 173 (rounding).
    • For the employee who have 5 working days a week (commonly used)
      • Weekdays – 1.5x hourly rate of pay for the first hour and 2x hourly rate afterwards.
      • Weekend or Public Holiday – 2x hourly rate for the first 8 hours, 3x for the next 1 hour and 4x for the next 3 hours.
    • For the employee who have 6 working days a week
      • Weekdays – 1.5x hourly rate of pay for the first hour and 2x hourly rate afterwards.
      • Weekend or Public Holiday – 2x hourly rate for the first 7 hours, 3x for the next 1 hour and 4x for the next 3 hours.

The maximum overtime per day is 4 hours and 18 hours in one week. However, certain categories are not entitled for overtime. Employees with responsibili­ties as thinkers, planners, executors, and controllers of the company’s operations whose working hours cannot be limited. It is widely thought that employees with these responsibilities are those at or above the management level or professional employees.

 

Religious Bonus / Tunjangan Hari Raya (THR) –

  • Religious Holiday Allowance, hereinafter referred to as Religious THR (Tunjangan Hari Raya), is non-wage income that must be paid by Employers to Workers/Labourers or their families prior to Religious Holidays. THR is paid in accordance with the Religious Holidays of each Worker/Labourer, unless otherwise stipulated in accordance with the agreement between the Employer and the Worker/Labourer as stated in the work agreement, company regulations or collective work agreement.
  • THR must be paid by the employer no later than 7 (seven) days before the Religious Holiday.
  • Employers who violate the regulations will be subject to administrative sanctions as regulated in the PP No 36 YR 2021 art 79 as below:
    • Written warning;
    • Restriction on business activities;
    • Temporary cessation of production equipment;
    • Suspension of business.
  • Workers/Labourers who have worked 12 months continuously or more, are given 1 month’s wage.
  • Workers/Labourers who have a continuous working period of 1 month but less than 12 months, are given proportionately according to the working period by calculating: Period of working / 12 x 1 month salary.

 

Income Tax –

    • For Indonesians / Resident Employees who have stayed in the job for more than 183 days in a calendar year, the Progressive Tax Rate is between 5% – 35%.
    • For non-resident employees who have stayed in the job for less than 183 days in a calendar year, the Fixed Tax Rate is 20%.
    • An individual Is regarded as a tax resident if one fulfils any of the following conditions:
      • Resides in Indonesia.
      • Is present in Indonesia for more than 183 days in any 12-month period.
      • Is present in Indonesia during a fiscal year and intends to reside in Indonesia.

Income Tax Table 2021 (UU Pajak Penghasilan) vs Income Tax Table 2022 (UU HPP) and sample

Prior LawRateCurrent LawRateTaxable Income 250 mio / yearTaxable Income 750 mio / year
0 – 50 million5%0 – 60 million5%60 mio x 5% = 3 mio60 mio x 5% = 3 mio
> 50 -250 million15%> 60 – 250 million15%> 190 mio x 15% = 28,5 mio190 mio x 15% = 28,5 mio
> 250 – 500 million25%> 250 – 500 million25%250 mio x 25% = 62,5 mio
> 500 million30%> 500 million – 5 Billion30%250 mio x 30% = 75 mio
> 5 Billion35%250 mio x 30% = 75 mio
Total TaxTotal Tax
31,500,000169,000,000

An Overview of Income Tax for Severance

Taxable IncomeRateSev Pay IDR 20 MillionSev Pay IDR 200 Million
0 – 50 million0%20 mio x 0% = 050 mio x 0% = 0
> 50 -250 million5%50 mio x 5% = 2,500,000
> 250 – 500 million15%100 mio x 15% = 15,000,000
> 500 million25%
Total Tax = 17,500,000
  • Treatment of Income Tax –
    • Taxable income – scope of taxation
      • The object of tax is any additional economic capabilities received or obtained by the Taxpayer, whether originating from Indonesia and from outside Indonesia, which can be used for consumption or for increase the wealth of the taxpayer who concerned, by name and in any form.
      • Employment income includes salaries, overtime, bonuses, and any type of allowance (e.g., housing, leave allowance).
      • Benefits in kinds (BIKs) are generally taxable in the hands of the employee. An exception applies to BIKs that are required for the execution of a job, the cost of providing BIKs in certain areas, food and drink provided to all employees, BIKs financed from the government’s budget, and certain types of BIKs with a certain threshold.

 

    • Non-Taxable income – Deduction
      • The non-taxable income is the amount that will deduct from the total income. Total of taxable income is from total income minus the non-taxable income. The non-taxable income is:
        • Occupational expenses (5% of gross income, maximum IDR 500,000 per month);
        • Employee contribution to BPJS Manpower for Old Age Saving and Pension Fund;
        • Personal Relief
          • Taxpayer = IDR 54,000,000 per annum
          • Wife = IDR 4,500,000 per annum
          • Dependant (Max 3 person), each = IDR 4,500,000 per annum

 

  • Schedule of Income Tax –
    • Tax Period in Indonesia
      • The fiscal year period is from January – December.
    • Tax Payment for tax art 21 & 26
      • 10th of the following month, if the 10th falls on the weekend and public holiday then the payment can do on the next working day.
    • Tax Reporting for tax art 21 & 26
      • 20th of the following month, if the 20th falls on the weekend and public holiday then the reporting can do on the next working day.
    • Year-End Tax Filing
      • Employer will issue the 1721A1 form as the annual income tax report for the employee.
      • Employee must file the individual tax which also contain the income from the employer based on the 1721A1 and the other income if any. Also, must declare the wealth and payable during a year. The deadline to submit the individual tax is on 31st March of the following year.

 

Read also: Key Highlights of Indonesia’s Harmonization of Tax Regulations (HPP) Law

Termination of Employment – Indefinite Contract & Definite Contract

Based on the PP No 35 Year 2021

There are 15 reasons for termination based on the rules, here we discuss the top 5:

  1. Companies are merging, consolidating, taking over, or separating the Company and the Workers/Laborers are not willing to continue the Employment Relationship or the Employer is not willing to accept the Workers/Laborers;
  2. The company take a measure of efficiency, followed by the closure of the company to prevent further suffering from loss;
  3. The company closes after suffering from a continuous loss for 2 years;
  4. The company closes due to force majeure;
  5. Workers/Laborers violate the provisions stipulated in the Employment agreement, Company Regulation, or Collective Bargaining Agreement and have previously been given the first, second, and third reprimands, each of which valid for a maximum of 6 (six) months unless otherwise stipulated in the Employment agreement, Company Regulation, or Collective Bargaining Agreement.

 

  • Indefinite Contract – An employment contract that does not have a specific end date. They can be used to cover both full-time and part-time workers.
    • Terminations of an Indefinite Contract – In the event of termination of employment, the Employer shall be required to pay severance pay and/or long service pay, and compensation for rights that should have been received.
      • Severance Pay – The severance pay as referred to above shall be provided with the following provisions:
        • For service period of less than 1 year, 1 month of Wage;
        • For service period of 1 year or more but less than 2 years, 2 months of Wage;
        • For service period of 2 years or more but less than 3 years, 3 months Wage;
        • For service period of 3 years or more but less than 4 years, 4 months of Wage;
        • For service period of 4 years or more but less than 5 years, 5 months of Wage;
        • For service period of 5 years or more, but less than 6 years, 6 months of Wage;
        • For service period of 6 years or more but less than 7 years, 7 months of Wage;
        • For service period of 7 years or more but less than 8 years, 8 months of Wage; and
        • For service period of 8 years or more, 9 months of Wage.

 

      • Long Service Pay – The long services pay as referred to in paragraph (1) shall be provided with the following provisions:
        • For service period of 3 years or more but less than 6 years, 2 months of Wage;
        • For service period of 6 years or more but less than 9 years, 3 months of Wage;
        • For service period of 9 years or more but less than 12 years, 4 months of Wage;
        • For service period of 12 years or more but less than 15 years, 5 months of Wage;
        • For service period of 15 years or more but less than 18 years, 6 months of Wage;
        • For service period of 18 years or more but less than 21 years, 7 months of Wage;
        • For service period of 21 years or more but less than 24 years, 8 months of Wage; and
        • For service period of 24 years or more, 10 months of Wage.

 

      • Compensation for Rights – The compensation for rights that should have been received as referred to in paragraph (1) shall include:
        • Annual leave that has not been used and has not been expired;
        • Costs or fees to return home for Workers/Laborers and their families to the place where Workers/Laborers are employed; and
        • Other matters stipulated in the Employment agreement, Company Regulation, or Collective Bargaining Agreement.

 

  • Definite Contract – An employment contract that has a specified end date which means that the employee is employed by the company for a fixed period of time, after which the contract will automatically terminate. Definite contracts are often used for temporary or seasonal work, or for projects that have a specific deadline. They can also be used to hire employees for a trial period, before offering them an indefinite contract.
    • Terminations of a Definite Contract – Employers are required to provide compensation to Workers/Labourers whose working relationship based on the definite contract. Compensation is given at the end of the definite contract.
      • Compensation for Definite Contract – Based on the PP no.35 article 16 (1);
        • If the employee has worked for 12 months continuously, the compensation is 1x salary.
        • If the employee has worked for 1 month or more but does not exceed 12 months, the compensation is given at pro-rata basis.
        • If the employee has worked for more than 12 months, the compensation will be calculated based on the period of employment.

 

What is the retirement age in Indonesia?

The retirement age in Indonesia for both men and women is 58 years old as per January 2022 and will add 1 year after every 3 years.

 

Employment Dispute Channels

Labour Unit under Ministry of Manpower.

 

Is employment insurance compulsory in Indonesia?

BPJS stands for Badan Penyelenggara Jaminan Sosial (Social Insurance Administration Organization). BPJS administers the Indonesian national health insurance / Jaminan Kesehatan Nasional or JKN for short. There are two versions of BPJS:

  • BPJS Health (the successor of PT Akses)
  • BPJS Manpower (the successor of Jamsostek)

 

BPJS Health –

  • BPJS Health Rate
    • Total contribution = 5% x total income (salary and fixed allowance).
    • 4% will borne by the employer, 1% will borne by the employee.
    • Maximum total income for base computation is IDR 12 million per month.
  • BPJS Payment
    • 10th of the current month, if the 10th falls on the weekend and public holiday then the payment can do on the next working day.
  • Registration, Deregistration and Update
    • 20th of the previous month and will update on the 1st of the current month.
  • Register BPJS Health
    • Online on the Website (For Indonesian and the status is employee)
    • Manual submission to officer (Foreign employee or Indonesia employee but the status is not receiving income)
  • Deregister BPJS Health
    • Online on the Website, download the form from the Website
    • Manual submission to officer with supporting document

 

BPJS Manpower –

BPJS Manpower, also known as BPJS Ketenagakerjaan, is a government agency that was established to provide social security protections to employees.

BPJS Manpower has five benefit schemes for the members:

1. Jaminan Hari Tua / Old Age Saving – A protection program with the aim of ensuring that participants receive cash if they enter retirement age, permanent disability, or passed away.

Contribution Rate:

EmployerEmployee
3.7% x (salary + fixed allowance)2% x (salary + fixed allowance)

Benefit:

  • Lump Sum Cash Benefit
    • Reach the retirement age and include the employee who stop working.
    • Leave Indonesia permanently for foreign employee
    • Permanent disability
    • Passed away
  • Partially Cash Benefit
    • 10% to prepare entering retirement age
    • 30% for housing down payment with at least have contribute within 10 years

 

2. Jaminan Kecelakaan Kerja / Accident Insurance – Benefits in the form of cash and/or health services provided when the participant experiences a work accident or illness caused by the work environment.

Contribution Rate Based on the type of work:

Type of WorkEmployer Rate
Very low risk0.24%
Low risk0.54%
Medium risk0.89
High risk1.27%
Very high risk1.74%

Benefit:

The benefits received by participants are health services (care and treatment) according to medical needs, compensation in the form of money and the return-to-work program.

For example – you have permanent disability caused by working environment, you will get 70% x 80 x wages.

 

3. Jaminan Kematian / Life Insurance – Cash benefits given to heirs when the participant dies not due to a work accident or work-related illness.

Contribution Rate:

Employer Only
0.3% x (salary + fixed allowance)

Benefit:

Provided in the form of cash for death compensation, periodic compensation, funeral expenses and scholarships for children’s education.

  • A cash for death compensation IDR 20.000.000
  • Periodic compensation paid at lump sum IDR 12.000.000
  • Funeral expenses IDR 10.000.000

Scholarship for children with some condition.

 

4. Jaminan Pensiun / Pension Insurance – Protection program organized to maintain a decent standard of living when participants lose or reduce their income due to entering retirement age or experiencing permanent total disability.

Contribution Rate:

EmployerEmployee
2% x (salary + fixed allowance)1% x (salary + fixed allowance)

Maximum total income for base computation is IDR 9,559,600 million per month.

Benefit:

Benefits in the form of cash paid every month and/or all at once if the participant enters retirement age, permanently disabled, or dies. Could be transferred to the heirs.

For monthly cash must be contribute at least for 15 years when you are entering the retirement age.

 

5. Jaminan Kehilangan Pekerjaan / Job-Loss Insurance –

Benefit:

JKP benefits are in the form of cash benefits, access to job market information, and job training.

Cash benefits are provided by BPJS Ketenagakerjaan. Meanwhile, for the benefits of access to labor market information and job training, the ministry organizes affairs in the manpower sector.

  • 45% of wages for the first 3 months
  • 25% of wages for the next 3 months

(With the maximum basic computation is IDR 5 million)

Guarantees given to workers/laborers who experience termination of employment with the aim of maintaining a decent standard of living when workers lose their jobs. Workers can meet the basic needs of a decent living when there is a risk due to termination of employment while trying to get a job again.

Contribution Rate:

GovernmentFrom decomposition other program
0.22% x (salary + fixed allowance)0.14% from JKK contribution

0.1% from JKM contribution

Maximum total income for base computation is IDR 5 million per month for the first time.

 

Read also: Most Profitable Industries in Indonesia 2023

Labour Law - Leave

An employee is entitled to a certain number of paid annual leave days in addition to rest days and paid holidays. , they are entitled to paid annual leave at least for 12 days if the employee is working for more than 12 months continuously. Implementation of annual leave is regulated in the work agreement, regulations company, or collective labour agreement.

The provisions for this leave are regulated in , where employers are still required to pay wages for workers who are sick and unable to work based on the explanation from the doctor.

Wages paid to workers/laborers who do not come to work and/or do not perform their jobs due to illness as referred to in Article 41 paragraph (3) PP No 36 year 2021 a shall be as follows:

  • The first four months paid 100% of wages.
  • The second four months paid 75% of wages.
  • The third four months paid 50% of wages.
  • The other month is paid 25% of the wages before termination taken by the Employer.

Working moms are entitled to 1.5 months of maternity leave at full pay before and after birth- totalling to 3 months. Additionally, women in Indonesia are also entitled to ‘Menstrual Paid Leave’ for the first two days of their period each month and are unable to perform work.

  • Paternity Leave – Working dads are entitled to 2 days of paternity leave.
  • Parental Leave – Both working moms and dads are entitled to ‘Parental Paid Leave’ for events including:
    • Marriage of workers / Marry off their children – Paid for 3 days and 2 days respectively;
    • Circumcision of children – Paid for 2 days;
    • Baptism of children – Paid for 2 days;
    • Death of Child / Husband / Wife/ In-laws/ Child In-laws – Paid for 2 days;
    • Family members who live in the same house as the worker dies – Paid for 1 day.

Normal working hours in Indonesia should not exceed 7 hours per day or 40 hours per week for six working days and 8 hours per day or 40 hours per week for five working days, assuring, that every employee has at least one weekly rest day from work.

What are the 2024 public holidays in Indonesia?

Indonesia Public Holidays 2024

Employees are entitled to public holidays as follows:

National Holidays:

HolidayDate
New Year 2024 AD1 January
Isra Mikraj Nabi Muhammad SAW8 February
Chinese New Year 2575 Kongzili10 February
Nyepi Holy Day (Saka New Year 1946)11 March
Death of Jesus Christ (Good Friday)29 March
Resurrection of Jesus Christ (Easter)31 March
Eid al-Fitr 1445 Hijriah10 and 11 April
International Labour Day1 May
Jesus Christ Ascension9 May
Vesak Day 2568 BE23 May
Pancasila Day1 June
Eid al-Adha 1445 Hijri17 June
1 Muharram Islamic New Year 1446 Hijri7 July
Proclamation of Independence17 August
Maulid Nabi Muhammad SAW16 September
Birth of Jesus Christ (Christmas)25 December

Collective Leave:

HolidayDate
Chinese New Year 2575 Kongzili9 February
Nyepi Holy Day (Saka New Year 1946)12 March
Eid Al-Fitr 1445 Hijriah8, 9, 12 and 15 April
Jesus Christ Ascension10 May
Vesak Day 2568 BE24 May
Eid al-Adha 1445 Hijriah18 June
Birth of Jesus Christ26 December

 

Note: These dates may be modified if official changes are announced. Keep up with the latest public holidays in Indonesia on the official Kementrian Komunikasi and Informatika website.

 

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Please note that all the information listed below are to be used as a general guideline. For more detailed accounts of Indonesia employment laws and regulations, please visit the official governmental websites.

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