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Global Payroll Team
Written by Global Payroll Team
Last updated May 7, 2026
Expert Reviewed
Payroll in Indonesia
Tax in Indonesia
Immigration in Indonesia

Indonesia map

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Mercans offers complete payroll, PEO and HR services in Indonesia

Indonesia is the largest economy in Southeast Asia and remains a major investment destination in the region. It is attractive for its large labor force, growing consumer market, strategic location, and broad natural resource base. Key sectors include manufacturing, mining, agriculture, trade, services, and the digital economy.

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Doing Business in Indonesia

Indonesia continues to attract foreign investment through its risk-based Online Single Submission (OSS) licensing system and the Ministry of Investment and Downstream Industry/Investment Coordinating Board (BKPM). Investors should assess sector-specific licensing, foreign ownership limitations, employment obligations, and local compliance requirements before starting operations.

Entity Registration and Incorporation Requirements

Setting up a new business or expanding an existing one in Indonesia is generally handled through the OSS system. Foreign investors typically use a foreign investment limited liability company (PT PMA), subject to business sector rules, licensing requirements, and post-licensing compliance.

Banking

Banking hours vary by institution and branch, but many banks commonly operate Monday to Friday, around 8:00 am to 3:00 pm.

Working Week

The normal working time is generally 40 hours per week, usually arranged as 7 hours per day over 6 working days or 8 hours per day over 5 working days.

Labor Law

The main employment framework is Law No. 13 of 2003 on Manpower, as amended by the Job Creation Law and its implementing regulations, including Government Regulation No. 35 of 2021. Indonesian employment law is protective in nature and regulates working time, leave, termination, fixed-term employment, and employee entitlements.

Main Industries

Manufacturing, mining, agriculture, trade, construction, transport, tourism and digital services

GDP Growth

5.0%

Dates & Numbers

dd/mm/yyyy

Official State Name

Republic of Indonesia

Population

284.44 million

Capital

Jakarta

Major Languages

Indonesian

Currency

Indonesian Rupiah (IDR)

Internet Domain

.id

International Dialing Code

+62

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Indonesia
Jakarta, ID
6:47 pm, May 18, 2026
30°C
scattered clouds
74 %
Wind Gust: 0 mph
Clouds: 40%
Sunrise: 5:54 am
Sunset: 5:43 pm

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Payroll

Minimum wages in Indonesia are set by provincial and, where applicable, regency or city authorities, so payroll obligations can vary depending on the employee’s work location. Employers must also comply with income tax withholding, BPJS social security registration, and mandatory holiday allowance requirements.

Employers should maintain clear payroll documentation and provide salary details to employees

Payslip

Payroll and supporting tax records should generally be retained for 10 years

Reports

Employees receive paid annual leave of at least 12 working days after 12 months of service

Annual Leave

Paid sick leave is available and compensation depends on the period of illness and medical support

Sick Leave

There is provision for 3 months of paid maternity leave and 2 days of paid paternity leave

Maternity & Paternity Leave

Termination may be initiated by the employer or employee, subject to statutory procedure and payment obligations

Employee Termination

THR is a mandatory religious holiday allowance generally equal to 1 month of wages for eligible employees

13th month salary

Minimum wage levels vary by province and, in some cases, by regency or city

Minimum Wage

Overtime is paid at statutory rates and is subject to legal limits and employee consent

Overtime

Severance and other termination payments depend on the reason for termination and the statutory formula

Severance Pay

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Tax and Social Security

Indonesian tax residents are generally taxed on worldwide income. Foreign individuals who meet Indonesian tax residency criteria may also become subject to resident tax rules, while non-residents are generally taxed on Indonesia-sourced income. Employees must generally be enrolled in BPJS social security programs, including BPJS Kesehatan and BPJS Ketenagakerjaan, where applicable.

Tax

There are generally no separate local taxes on employment income in Indonesia. Employers must withhold personal income tax and meet monthly and annual reporting obligations.

22%

Corporate Income Tax

35%

Personal Income Tax

Varies

Sales Tax

11% to 12%

VAT

Social Security

Employees generally must be registered in the national social security system. BPJS Ketenagakerjaan covers old-age, pension, work accident, death, and job loss related programs, while BPJS Kesehatan covers healthcare. Contribution rates vary by program, wage cap, and work risk classification.

Varies

Social Security Rate

higher

Social Security Rate for Employers

lower

Social Security Rate for Employees

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Employment Law

Employment law in Indonesia generally applies to employees working in Indonesia. The hiring of foreign workers is also subject to immigration and manpower approvals, including compliance with rules on the use of foreign labor.

Employment Agreement

Employees may be engaged under fixed-term or indefinite-term contracts. Employment agreements should be prepared in Indonesian, and bilingual versions are commonly used for foreign-related arrangements.

Working condition

The private sector commonly applies a 5-day working week, although a 6-day arrangement is also permitted as long as normal working time remains within statutory limits.

Leaves

Employees are entitled to statutory leave, including annual leave, maternity leave, paternity leave, sick leave, and certain special leave entitlements. Additional benefits may also apply under company regulations, collective agreements, or employment contracts.

Employment termination

Termination must be based on a valid reason and follow the applicable legal procedure. Employers should issue written notice and settle statutory entitlements, which may include severance pay, long service pay, or compensation of rights depending on the circumstances.

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Written notice

Required for terminating an employee, subject to prevailing rules and the reason for termination

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17

Total number of public holidays in 2026

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40

Working hours per week

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2 days

Total number of days for Compassionate & Bereavement Leave

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Immigration

Foreign nationals who will work in Indonesia generally require the appropriate visa and limited stay permit, together with manpower approval. Indonesia now uses an electronic visa and stay permit system, and work-related stays are commonly issued for limited periods that may be extended subject to the applicable category.

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Residency permits

Work-related limited stay permits are commonly available for up to 180 days, 1 year, or 2 years depending on the approved visa category and supporting permissions. Compliance reporting may also be required after arrival.

Work Permit Validity

Up to 180 days, 1 year or 2 years depending on the approved work visa and stay permit category

Required Documents

A passport valid for at least 6 months

Recent color photograph

Curriculum vitae

Travel itinerary

Proof of funds, where required

Guarantee letter from the sponsor or guarantor

Relevant manpower approval or work permit documentation from the Ministry of Manpower, depending on the visa category

Compliant, reliable, error-free and touchless payroll in Indonesia

Build the best team and hire top talent compliantly in Indonesia. Get in touch with Indonesia payroll outsourcing & PEO specialists for a free consultation!

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.
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    FAQs

    What is an Employer of Record (EOR) in Indonesia and how does it work for foreign companies?

    An Employer of Record in Indonesia acts as the legal employer of staff on behalf of a foreign company. It handles employment contracts, payroll administration, tax and social insurance contributions, and compliance with Indonesian labour law, while the foreign business directs the employee’s daily work.

    Why should businesses use an EOR instead of setting up a legal entity in Indonesia?

    Using an EOR lets companies hire quickly in Indonesia without the time and cost of forming a local entity. It reduces setup risk, simplifies administrative tasks, and ensures compliance during market entry or pilot phases.

    How does payroll outsourcing in Indonesia ensure compliance with labour and tax regulations?

    Payroll outsourcing in Indonesia ensures that salaries are processed, income tax is withheld, social insurance contributions (such as BPJS) are made, and statutory benefits are provided according to local law. This supports regulatory compliance and lowers legal risk.

    Can an Employer of Record in Indonesia hire employees and manage work permits for international companies?

    Yes. An EOR in Indonesia can legally hire employees on behalf of a foreign firm and assist with work permits or immigration requirements for non-local staff. It manages the HR, employment and payroll processes ensuring all local criteria are met.

    What are the main benefits of using EOR and payroll services in Indonesia for global expansion?

    The main benefits include fast and flexible hiring, full local compliance, lower administrative burden, access to local HR and payroll expertise, and the ability to scale operations in Indonesia while the company focuses on its core business strategy.

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