As Southeast Asia’s largest economy, Indonesia is an appealing place for companies looking to grow their global influence. Indonesia presents numerous prospects for businesses in a variety of industries due to its increasing middle class, youthful and dynamic labor force, and advantageous location. However, accessing this market necessitates a thorough understanding of its employment ecosystem, which can be complicated and difficult for international companies. The main factors for growing into Indonesia will be covered in this post, including labor regulations, work permits, and policies for remote employment.
Understanding Work Permits and Visa Requirements
Understanding the work permit and visa regulations of Indonesia is one of the first challenges faced by companies looking to expand there. Indonesia has strict laws controlling the hiring of foreign workers, protecting its own workforce while enabling businesses to access knowledge that may not be easily acquired locally. The Limited Stay Permit (KITAS) and the Expatriate Placement Plan (RPTKA) are the two main permits needed for foreign workers.
The RPTKA is a document that must be approved by the Indonesian Ministry of Manpower before a company can hire foreign workers. It outlines the positions that will be filled by expatriates and justifies the need for hiring them instead of local workers. Once the RPTKA is approved, the company can apply for a work permit (IMTA) and the KITAS, which allows the foreign employee to live and work in Indonesia.
The process of getting these permits can be time-consuming and complicated, often need legal assistance to manage the many bureaucratic procedures. Penalties, including as fines and the deportation of the foreign worker, may arise from breaking these restrictions. This process can be made much simpler by working with a local expert or an EOR, who can make sure that all required permits are received in accordance with Indonesian legislation.
Navigating Indonesia’s Labor Laws
Indonesia has extensive labor regulations that are intended to safeguard employees’ rights. These laws address a wide range of employment issues, including minimum wage requirements, working hours, overtime compensation, leave benefits, corporate taxes on labor and termination procedures. Compliance can be difficult with these requirements if you want to start a company in Indonesia, especially when labor laws varies across the country.
Minimum Wage and Overtime
The minimum wage is a significant component of Indonesian labor legislation, which is set by the government and varies by province. Paying employees less than the minimum wage is against the law, and there are severe consequences for employers who don’t comply. (See here to see the complete information about the minimum wage in Indonesia for 2024). Furthermore, Indonesian law establishes specific working hours—usually 40 hours per week—and requires businesses to pay overtime for any additional hours performed.
Paid Annual Leave and Contract Termination
Employees are entitled to a minimum of 12 days of paid annual leave, paid sick leave, and paid maternity leave following a year of service. However, leave rights are also rigorously regulated. Employers in Indonesia also need to use caution while terminating employees. Workers are strongly protected under the country’s labor laws, and unlawful termination can result in costly legal conflicts.
Given the complexity of Indonesia’s labor laws, many businesses choose to partner with an Employer of Record (EOR) provider. An EOR has in-depth knowledge of local regulations and can manage compliance on behalf of the company, reducing the risk of legal issues and allowing businesses to focus on their core operations.
Adapting to Remote Work Policies
The COVID-19 pandemic has accelerated the adoption of remote work globally, and Indonesia is no exception. While remote work offers flexibility and can be a cost-effective way to manage a workforce, businesses must still comply with local labor laws when employing remote workers in Indonesia.
Policies and Data Security
Remote workers in Indonesia are entitled to the same protections and benefits as office-based employees, including minimum wage, overtime pay, and leave entitlements. Additionally, companies must ensure that their remote work policies comply with Indonesia’s health and safety regulations, which may require providing remote workers with the necessary equipment and support to perform their duties safely and effectively.
Data security is another important consideration for businesses with remote workers in Indonesia. Companies must ensure that they have robust data protection measures in place, particularly given Indonesia’s strict regulations on data privacy. Partnering with an EOR can help businesses navigate these challenges by providing the necessary infrastructure and compliance support for remote employees.
Prime People Solutions as Your Go-To Partner
Partnering with Prime People Solutions can provide invaluable support during the initial stages of your expansion into Indonesia. Our services are specifically designed to assist small business owners and startups who may not yet be ready to commit to establishing a local entity. We offer comprehensive solutions that streamline the onboarding process, ensure compliance with local labor laws, and manage administrative tasks, allowing you to test the market and build your presence in Indonesia with minimal risk and investment.
By leveraging our expertise, you can navigate Indonesia’s employment landscape with confidence, knowing that you have a trusted partner to handle the complexities of local regulations and employment practices. This approach not only provides flexibility and cost-efficiency but also enables you to focus on growing your business and seizing the opportunities that Indonesia has to offer. Whether you choose to eventually establish a local entity or continue working with an EOR, Prime People Solutions is here to support you every step of the way, helping you lay a solid foundation for success in the Indonesian market.
