Indonesia, with its growing economy, offers vast opportunities for business. This attracts foreign investors and entrepreneurs — many seek to start a business in Indonesia, recognizing the country’s rich potential. In previous articles, we’ve discussed how to register a company in Indonesia. In this article, we’ll explore the essential aspects of hiring employees in a foreign-owned company: what requirements exist, what regulations apply, and what the employment process looks like.
One of the key requirements for running a business in Indonesia is the employment of local workers. Indonesian labor law strictly regulates employment relationships and prioritizes hiring Indonesian nationals. This ensures job creation for the local population and helps reduce unemployment. When hiring local staff, companies must comply with the following:
✓ Ratio of local to foreign employees
Previously, Indonesian law mandated a ratio of at least 10 local employees for every foreign worker. However, this requirement was officially repealed in 2015. Since then, no fixed ratio is legally enforced.
Nevertheless, in practice, authorities often expect a favorable local-to-foreign worker ratio, especially depending on the industry and location. A common informal guideline is 1:3—one foreign hire per three Indonesian employees.
✓ Mandatory BPJS registration
All local employees must be registered in the national social security system (BPJS Kesehatan for health insurance and BPJS Ketenagakerjaan for labor insurance).
✓ Compliance with labor laws
Employers must pay at least the regional minimum wage and comply with standards for working hours, leave, and compensation.
Benefits of hiring local staff include:
1. Better understanding of the local market and culture.
2. Simplified onboarding, as no special permits or visas are required.
3. Lower costs compared to hiring expatriates.
Failure to comply with these rules may result in heavy fines or even revocation of the company’s business license.
If a foreign national who is a shareholder wants to perform work within their company without the proper permits, it is not allowed. Here’s why:
1. Indonesian law clearly separates the roles of investor and employee.
2. Even if the shareholder participates in managing the business, working without a valid work visa (KITAS) and employment permits (IMTA/RPTKA) is considered illegal employment.
3. The law prioritizes local employment, so shareholders, especially foreign ones, cannot occupy positions that could be filled by Indonesians.
4. Dividends are taxed as investment income, while salaries are subject to personal income tax. Mixing these roles can lead to tax complications.
Engaging in any work-related activity without proper permits may result in fines, deportation, or cancellation of the company’s license.
Hiring foreign specialists in Indonesia is allowed, but certain legal procedures must be followed:
1. Foreigners may only be hired for managerial or specialized positions, such as general manager, technical advisor, or consultant. Manual labor positions are strictly reserved for locals.
2. Employers must obtain the following:
✓ RPTKA (Rencana Penggunaan Tenaga Kerja Asing)
A foreign manpower utilization plan that must be approved by the Ministry of Manpower. It outlines the reason for hiring a foreigner and their qualifications.
✓ Work visa (KITAS)
This visa must be issued for the employee; without it, working in the company is illegal. To obtain KITAS, employers must submit required documents, pay the government fee (DPKK), and register the visa in the immigration office. KITAS is valid for up to 2 years and can be extended.
3. If the foreign employee stays in Indonesia for more than 6 months, the employer must register them with BPJS and provide social security coverage.
4. Foreigners are not allowed to work in certain sectors, such as retail and small businesses. These restrictions are detailed in the Negative Investment List (DNI).
5. Employers are also required to train local employees to eventually take over the role held by the foreigner.
In summary, hiring employees in Indonesia involves specific regulations, requirements, and procedures. It's important to manage documentation carefully and remain compliant with local labor laws. The process may involve legal complexities and administrative delays.
To save time and avoid unnecessary issues, it's best to rely on professionals. With Good Luck Group, you can access comprehensive business support services in Bali and across Indonesia. Contact us to receive expert assistance and effective solutions tailored to your business needs!
