Hiring and Payroll in Indonesia
Indonesia, Officially the Republic of Indonesia, is the world’s 4th most populous nation and Southeast Asia’s most powerful economy, with a GDP valued at over $3.5 trillion. The country also has a relatively young workforce, with the median age of an employee at 28 years old.
Apart from its large population, which presents employers with a wide choice of talent options, Indonesia’s minimum wage and cost of living make it an ideal choice for hiring remote talent. Additionally, most Indonesian university graduates have relatively high English proficiency, which makes Indonesia an excellent choice for global employers to hire and build a team.
In this article, you will learn the efficient method to hire a remote team and manage payroll in Indonesia.
Hiring employees in Indonesia
Indonesia has two major advantages that few countries can boast: it has the largest population and one of the most powerful economies in Southeast Asia, and a population of citizens who are highly educated and skilled. Though the employment rate in Indonesia fluctuated substantially in recent years, it increased substantially through the 2002–2021 period, reaching 64.71% in 2021.
The workforce is regulated by the Indonesian Manpower Law, which protects the rights and interests of both workers and employers. In 2020, Indonesia introduced Omnibus Law, which includes several revisions to The Manpower Law.
Indonesia’s comparatively low minimum wages, young skilled workforce, and English proficiency make it an ideal location for global employers to hire talent and expand into Indonesia.
How to hire employees in Indonesia
Hiring with an Employer of Record in Indonesia
An Employer of Record (EOR) Indonesia platform or a global Professional Employer Organization (PEO) Indonesia is a third-party platform equipped to help international companies build globally-distributed teams by hiring, paying, and managing teams on behalf of the organization. By partnering with an EOR, organizations can access new markets and hire remote teams across borders without opening a local entity or a subsidiary. An EOR simplifies the employment process by handling all legal complexities, processing payroll, benefits administration, and more in compliance with Indonesia’s employment laws and regulations. Each country has its employment laws, and partnering with an EOR is a streamlined option to gain rapid market entry and build a team quickly at a fraction of the cost.
Payroll in Indonesia
Processing payroll in Indonesia isn’t similar to processing payroll in your country. Some factors that influence payroll are leaves, overtime, bonuses, severance, benefits, taxes, and more. In Indonesia, employees and contractors must be paid according to the country’s employment and payroll standards. When processing payroll, employers must be informed about currency changes, local payroll, and tax laws. Failure to comply with the local employment laws and regulations when processing payroll can result in fines, penalties and lawsuits.
The next step is to determine the best way to pay your workforce. This can be done in several ways, including but not limited to:
Pay through a local entity
Businesses often open a local entity or a subsidiary to process payroll in Indonesia. However, to pay a team through a local entity, employers must register their business as a local employer in Indonesia, secure an office space, and hire a team for administration. These factors are money-intensive and involve a lot of human resources. Opening a local entity in Indonesia is a multi-step process that can take up to a year and put you on your way to bankruptcy.
Work with an Employer of Record (EOR) Indonesia platform
An Employer of Record (EOR) platform, like Skuad, provides a global payroll solution that automates the process of making prompt and accurate payments. Through Skuad’s platform, employers can process payroll in 100+ currencies for their globally-distributed team in compliance with Indonesia’s employment laws and regulations. The employer makes a single bulk payment, and Skuad ensures that the entire team is paid on time, accurately, and in compliance with Indonesia’s laws.
The Cost of Hiring an Employee in Indonesia
Indonesia is an excellent choice for organizations to tap into the country’s vast talent pool and expand their business. The costs to hire a remote team in Indonesia vary by employer and industry. While cost is an important consideration, employers often focus solely on salaries, ignoring other costs involved in the hiring process. These costs may entail the following:
- Registration cost for setting up an entity
- Lawyers and accountants to help you follow the low employment and tax laws of Indonesia
- HR recruiter and manager’s time spent on hiring tasks
- Fees for a hiring agency if you choose to outsource
- Cost to host or attend hiring events
- Job advertisement costs
- Travel costs for any recruiters traveling to Indonesia
- Relocation costs for new hires, if applicable
- Cost to conduct background checks through a third-party provider
An Employer of Record (EOR) Indonesia or a Professional Employer Organization (PEO) Indonesia, like Skuad, offers several benefits for companies looking to expand their operations and hire talent in the country. Skuad’s global employment and payroll platform handles payroll, taxes, and benefits and ensures compliance with Indonesia’s employment laws.
An EOR ensures that global organizations encounter no issues in their employment plans to hire and carry out business operations in Indonesia.