Recruitment in Indonesia: Understanding the Labor Situation and Recruitment Process

Recruitment in Indonesia is pivotal in supporting business growth and success for newly established foreign companies, known as PT PMA. This article delves into Indonesia’s labor landscape nuances and offers valuable insights to effectively attract and hire local talents for your company’s growth.

Understanding the Indonesian Labor Situation

Indonesia’s demographic advantage is striking, with a population exceeding 255 million, of which 66.5% fall within the productive age bracket of 15-60 years. The youthful median age of 28.2 years indicates a vast potential workforce eager to contribute to the country’s economic sectors.

The labor force participation rate, at 65.76% (approximately 169.6 million individuals in 2015), highlights the significant labor pool. Minimum provincial wage standards vary between IDR 2,700,000 to IDR 4,000,000, with higher-skilled positions commanding at least IDR 5,000,000, contingent on location, expertise, and tenure.

Key Labor Law Essentials for Employers

Before you start hiring in Indonesia, it is important to thoroughly understand the country’s labor regulations to protect both employers and employees. Compliance to this law will create a fair and productive workspace. Here’s an overview of what you need to know:

Employment Contracts

Indonesian law requires written employment contracts outlining key terms such as job role, salary, benefits, working hours, and contract duration. Clear contracts help prevent misunderstandings and protect both parties.

Minimum Wage

Minimum wage rates differ by province and sector. Employers must pay at least the applicable regional wage to avoid penalties and ensure fair compensation.

Working Hours & Overtime

The standard workweek is 40 hours, usually over five or six days. Overtime must be compensated at a higher rate, and there are limits to how many overtime hours are allowed per day and week.

Leave Entitlements

Employees are entitled to paid annual leave, sick leave, maternity/paternity leave, and other statutory leaves. Employers must grant these in line with labor regulations.

Termination Procedures

Termination must follow legal procedures, including proper notice, reasons for dismissal, and severance pay when applicable. Failing to follow due process can result in legal disputes.

Employee Benefits & Social Security

Employers must register employees for BPJS (Social Security and Health Insurance) and contribute to retirement funds. These benefits are mandatory under labor law.

Foreign Worker Permits

Hiring expatriates requires valid work permits (IMTA) and stay permits (KITAS). Employers must comply with immigration rules and ensure proper documentation is in place.

Labor Unions & Collective Bargaining

Employees have the right to form or join unions and engage in collective bargaining. Employers must engage in dialogue and respect union activities when applicable.

Health & Safety Standards

Workplaces must comply with health and safety laws, ensuring a safe environment to prevent accidents and illnesses. The regulation encourages companies to conduct regular assessments and safety measures to comply with this standard.

Violations of labor laws can lead to fines, lawsuits, or business sanctions. Staying informed and seeking legal advice helps ensure compliance and avoid costly consequences.

Types of Workers in Indonesia

Contract Type	Duration	Benefits
Permanent Employment (PKWTT)	No fixed end date	Full benefits (severance, leave, insurance)
Fixed-Term Employment (PKWT)	Fixed period (temporary)	Basic benefits (if contract extended)
Daily Worker (KKH)	Day-to-day basis	No long-term benefits
Outsourcing Employment (KJO)	Based on contract with provider	Benefits provided by outsourcing company
Probationary Employment (KKP)	3-6 months trial	Limited (may include basic benefits)
Part-Time Employment	Ongoing but with reduced hours	Pro-rated benefits
Internship (Magang)	Short-term (a few months)	No full benefits (may include allowance)

Based on the Indonesian Labor Law (UU No. 13 Year 2003), Indonesia has different types of employment contracts, each with its own characteristics and implications for employers and employees. Below are the breakdown of each employment contracts:

1. Permanent Employment Contract (PKWTT – Kontrak Kerja Waktu Tidak Tertentu)

This is the most common contract type, with no set end date. It gives employees long-term job security. Employers must provide full benefits, including severance pay, annual leave, health insurance, and other mandatory entitlements.

2. Fixed-Term Employment Contract (PKWT – Kontrak Kerja Waktu Tertentu)

This contract is valid for a specific period agreed by both parties, typically for project-based, seasonal, or temporary jobs. If ended early without proper cause or agreement, the employer may have to pay compensation.

3. Daily Worker Contract (KKH – Kontrak Kerja Harian)

Used for short-term, non-regular jobs. Companies will hire and pay their workers on a daily basis, typically with no long-term benefits like severance, paid leave, or social security.

4. Outsourcing Employment Contract (KJO – Kontrak Kerja Outsourcing)

Employees are hired and managed by a third-party outsourcing company. The outsourcing firm handles payroll, benefits, and legal responsibilities. This setup helps businesses focus on their main activities by outsourcing support roles.

5. Probationary Employment Contract (KKP – Kontrak Kerja Percobaan)

Used to evaluate new employees before offering a permanent contract. The probation period usually lasts three months and can extend to six. Either party can terminate the contract during this time with shorter notice.

6. Part-Time Employment Contract (Kontrak Kerja Paruh Waktu)

Applies to employees working fewer hours than full-time staff. They receive proportional benefits such as salary, leave, and social security based on hours worked. It offers flexibility for both employer and employee.

7. Internship Contract (Kontrak Magang)

Intended for students or recent graduates seeking practical experience. Interns may receive a small allowance but are not entitled to full employee benefits. Internship periods are usually short and clearly defined.

Challenges in the Indonesian Labor Landscape

Two key challenges confront PT PMAs seeking to harness Indonesia’s labor potential:

1. Geographical Disparity

Skilled and talented workers are often concentrated in major cities like Jakarta, Surabaya, Semarang, and Bandung, posing a distribution imbalance across the country.

2. Human Development Index

Indonesia’s lower Human Development Index (HDI) of 0.617 relative to global and regional benchmarks affects the overall quality of its labor force. This calls for meticulous selection to secure the best candidates from the abundant talent pool.

READ MORE:

• How Recruitment Process Outsourcing Helps Attract Top Talent in Indonesia
• 4 False Myths about Recruitment Process Outsourcing in Indonesia

Two Ways to Hire Employees in Indonesia

Companies looking to hire in Indonesia generally have two main options: either by setting up a legal business entity in the country or by partnering with recruitment agency.

Setting Up a Legal Entity

This option is for companies planning a long-term presence in Indonesia. You can establish a foreign-owned company (PT PMA) or a representative office. A PT PMA allows full business operations, including hiring staff, but the process can take months and requires at least IDR 10 billion in paid-up capital. A representative office is quicker and cheaper to set up but has limitations—it can’t generate revenue, sign contracts, or issue invoices.

Partnering with Recruitment Agency

Hiring through a recruitment agency is a faster, low-commitment way to hire employees in Indonesia without opening a company. The third-party become the official employer, handling payroll, taxes, benefits, and compliance with local labor laws. This is ideal for businesses that want to test the market or hire quickly.

The Process of Recruitment Indonesia

PT PMAs can embark on the recruitment journey through in-house efforts or outsourcing the task to third-party experts. Irrespective of the chosen approach, the recruitment process typically involves the following stages:

1. Launching job vacancy ads

Promote openings through diverse media campaigns, including reputable ones. Boost credibility by featuring job ads on your company’s website. This step will increase the awareness of the potential candidates.

2. Reviewing all the requirements

Precisely outline role-specific criteria before making job ads public. This ensures efficient shortlisting when the influx of applications occurs.

3. Conducting the selection process

Employ written and/or oral tests to evaluate shortlisted candidates. While resource-intensive, this phase is pivotal in identifying.

4. Providing recommendations to the end-user

After rigorous selection processes, present the cream of the crop to the end-user (company or department) for final selection.

Since the recruitment process is an overwhelming task for any company, many prefer to outsource the duty to a third party with credibility. As a market entry consulting firm, InCorp Indonesia also provides this service for PT PMA.

With years of experience in this field plus a wide-ranging network it has to fully manage the recruitment and HR establishment for PT PMA, we will put our best efforts and resources to ensure that your company will have the best selection of candidates that will suit your company’s needs.

In addition, our exceptional knowledge of Indonesia, Indonesian culture, working environments, workers’ characteristic, minimum regional base salary, and other local resources make InCorp Indonesia stands out as one of the leading PT PMA consulting firms in Indonesia.

It enables us to provide the best local manpower with world-class qualifications that will support your team. It means you will be equipped with qualified workers who understand the local business systems and cultures but can play and compete well in the global setting.

READ MORE:

• Why Hiring a Headhunter in Indonesia is Key to Your Business Success
• 7 Human Resource Management Challenges when Doing Business in Indonesia

Recruitment Indonesia: Required Documents and Permits for Hiring Foreigners

In terms of hiring foreigners, recruitment in Indonesia has strict regulations that should be followed. A PT PMA is not allowed to engage foreigners without obtaining a special permission letter from The Ministry of Labor and Immigration and other essential documents signed by several government authorities under the Ministry.

InCorp Indonesia will assist you in getting the required documents and legalization for both your company (that employs the expatriate) and the expatriate candidates, including:

The RPTKA (The Foreign Manpower Utilization Plan) from The Ministry of Manpower

There are five types of RPTKA which you foreign workers can obtain, such as:

1. General RPTKA

It is a common RPTKA for expats. The holders of this RPTKA can extend the license after five years.

2. Temporary RPTKA

This will be issued for a maximum period of 6 months and cannot be extended. Usually, workers must come to Indonesia for temporary jobs such as machinery installations of maintenances, trial product assistance, sales, or services.

3. Emergency RPTKA

This is a permit issued for emergency work situations, such as things that should be done, fixed, or addressed immediately in your company so that it will not potentially harm the existence of the company or the general public. This RPTKA can be issued for a maximum period of 1 month and cannot be extended.

4. Exclusive Economic Zone RPTKA

There is no time restriction for this RPTKA.

5. Impresario Service Business RPTKA

This RPTKA is given to any expats who want to manage or organize amusement activities in Indonesia. There is no time restriction for this RPTKA.

Visa for Expatriates

Next, the RPTKA holders must apply for TA01 (Approval Recommendation Visa) to get Indonesia Work Permit (RPTL).

Permanent Residence Permit (KITAP)

This is for any expat who applies for a permanent resident permit. The KITAP is given for maximally 1 year and can be extended afterward.

This is an overwhelming process if it is not done by an experienced agent who understands Indonesia’s legal and bureaucratic systems—considering that there are many forms to be filled out and so many documents to be prepared. You need to be careful to conduct the whole process if you want to recruit legally and this is based on Indonesian Labor Law.

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InCorp Indonesia will give you more information and assistance related to Indonesia’s recruitment and hiring process. Feel free to contact us through the form below.