Employment in Indonesia: Exploring Hiring Trends and Strategies for Global Employers

Employment in Indonesia: Exploring Hiring Trends and Strategies for Global Employers

Discover the latest hiring trends in Indonesia and gain insights into the employment landscape, unemployment rates, and internet reach in the country. Learn about the requirements and visa types for foreign employees and explore the different types of employment available. Understand the definition of labor and workers, as well as the duties of an employer. If you’re considering establishing a foreign investment company in Indonesia, this article provides an overview of the employee hiring options. Explore this comprehensive guide to navigate Indonesia’s talent market and make informed decisions for your business.

Indonesia has been ranked 2nd most attractive outsourcing destination and among the top ten outsourcing country in the world. The country is known for its abundant human resources, high-quality, reasonable price, and speedy execution.

However, adding new employees is a challenge to most International companies due to the local’s high demand and unemployment. In this blog, we are going to share some highlights and tips on how to effectively hire employees in Indonesia.

Indonesia is the largest economy in Southeast Asia and has a booming population, ranking 4th in the world. A large proportion of the workforce is young, talented, and dynamic. Whether you’re an employee planning to work in Indonesia or an employer expanding in Indonesia, you should understand the recruitment and staffing-related nuances of the country.

Indonesia GDP Growth Rate, 2017-2022

In 2022, the country anticipates 5.1% economic growth. According to PricewaterhouseCoopers, the country could become the world’s 4th-largest economy in terms of purchasing power by 2050. Indonesia aspires to be a high-income country by 2045 through its Master Plan for Acceleration and Expansion (MP3EI), which is divided into five-year segments and runs until 2025.

The current five-year plan prioritizes infrastructure and social services such as education and health care. Because of improvements in public health, unemployment has dropped to 5.83%. Although some factors, such as uncertainty about the new COVID-19 waves, rising inflation, and the general global economic situation, could slow the economic recovery.

Employment in Indonesia

Workforce in Indonesia, 2016-2021

Unemployment in Indonesia

Unemployment Rate (%) in Indonesia, 2016-2027

Skilled and experienced professionals are in demand. According to the government, digital technologies could add between 20-45 million new jobs in the long term.

Among the sectors that saw growth despite (or because of) the pandemic are transportation and warehousing, FMCGs, and healthcare services. The reskilling program launched by the government is helping the country improve the availability of skilled workers.

Internet Reach in Indonesia

Internet Penetration Rate (%) in Indonesia , 2017-2026

The growth of e-commerce and technology, including fintech, automation, and artificial intelligence, is creating demand for a wide range of qualified candidates. Hiring will also be active in banking, engineering, and the renewable energy sector. Green energy is expanding, and skilled professionals in this field will be sought.

Foreign Employee in Indonesia

Number of Foreign Workers in Indonesia Based on their Position

Visa Type of Foreign Employee in Indonesia

Temporary Stay Visa Issuance Type For Foreign Employee (Number)

Definition of Labour and Workers

The law defines manpower as the individuals required to perform a job before, during, and after the work is completed. The term worker is referred to as ‘Pekerja’, whereas a job is referred to as ‘Tenaga Kerja. He or she is compensated for the services provided, such as wages.

This definition is critical when applying for the correct visa. A person with a business visa cannot work in the country because receiving compensation is prohibited.

Duties of an Employer

While employers have the right to expect accurate and timely service from their employees, they must also perform their duties faithfully. We are highlighting a few:

  • Discrimination of any kind is prohibited, and Indonesians and expatriates are treated equally.
  • Increase worker competence by providing or encouraging on-the-job training.
  • Follow the termination procedures (Terminating an employee in Indonesia can be a long, tedious, and expensive process.)
  • Respect the working hours, holidays, and overtime policies.
  • Provide employees with mandatory benefits such as social security and health insurance.
  • Only withhold the appropriate amount of income tax on behalf of the employees.
  • Follow the law’s guidelines for wages and other benefits.
  • Process foreign employees’ work permits

Certain regulations, however, do not apply to foreign workers, and the law does not expressly state such distinctions. As a result, organisations must rely on other laws. The Ministry of Manpower and Transmigration, for example, issued Regulation No. 35 issued in 2015. It describes how expatriate workers are used. The same ministry’s Decision No.40 from 2012 specifies the positions that foreign employees are not permitted to hold.

Types of Employment in Indonesia

Local employees in Indonesia can work for either a definite or an indefinite period of time. The definite-period arrangement means that the contract can end at any time or under any conditions. According to the law, this is only permitted when the work is seasonal. It can also be used when the job is temporary or during the product development phase. The contract should state the date or circumstances under which it can be considered complete.

Employers can only renew such a contract once. The duration can be up to two years, and the job cannot be completed within the time frame specified in the agreement. However, there must be a month’s gap between the implementation of the new contract and the old agreement.

Expatriate workers, on the other hand, are usually in a unique situation. They are technically under contract because of their work permit, but the employer cannot immediately extend or renew the contract. Foreign nationals must renew their work permits, which are only valid for 1 year.

Full-time employees are also entitled to all of the benefits outlined in the law. Local part-time and fixed-term workers have the same rights and benefits as full-time employees. A company can also hire a staffing agency to outsource the workers.

Requirements To Hire Employees In Indonesia

Many Asian countries have complicated employment and payroll laws and regulations. Indonesia has a surprisingly well-defined employment and legal framework, but the nuances must be understood in detail.

Although the laws are well-defined, there are numerous applications at both the national and provincial levels. The law also provides significant rights and benefits to all contracted employees, which must be appreciated.

The requirement that all documentation be in Bahasa Indonesia is understandable and expected, but it is frequently a stumbling block for foreign companies.

You would need a representative office or a PMA company to hire employees in Indonesia. This company or Representative Office and any local employee must sign a contract for either a fixed-term or an open-ended term. The company will then handle payroll, and taxes will be remitted directly to the government.

Overview of Employee Hiring Options in Indonesia

For an international company, establishing a PMA company in Indonesia is costly and time-consuming. There are two types of companies that can be formed:

  • To establish a foreign investment company, a significant investment plan is required, as well as a minimum paid-up capital of 2.5 billion rupiahs (USD 166,000). It can also take several months to get up and running.
  • A Representative Office is easier and less expensive to establish, but its scope is limited. It is unable to engage in commercial activities, issue invoices, or sign contracts.

Using a local Professional Employment Organization (PEO) on your behalf is an alternative to establishing a local company. A company of this type will hire employees and manage contracts, benefits, and payroll. This can be used instead of or in addition to forming a corporation.

Why establish a foreign investment company in Indonesia

Indonesia has two major advantages that only a few countries can boast: it has the most people in Southeast Asia and a population that will remain young for the foreseeable future.

Indonesia’s economy is also reliant on foreign investment to meet its growth targets. That is why businesses want to expand into this country.

However, when it comes to expansion, you will need to hire local employees sooner or later. Hiring in Indonesia, whether for locals or expatriates, comes with a set of rules that every company must follow, and establishing a PMA company is one of them. There are startups, such as Talent’d by WorldRef, that make it easier for businesses to hire and staff employees without having to set up a Permanent Entity.

The views expressed in this article are the author’s own and do not reflect Talent’d’s views, opinions or policies.

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