Hiring in Indonesia: BPJS, severance, and the Omnibus reset.
Southeast Asia's largest economy, a workforce of 140 million, and a labour code that protects employees more aggressively than almost anywhere in Asia. Here's what founders need to know before hiring in Indonesia in 2026.
Indonesia is the fourth-largest country in the world, an emerging offshore market for engineering and customer support, and the most employee-protective labour regime in Southeast Asia. The big policy reset came with the Job Creation Law (UU Cipta Kerja, 'Omnibus Law', 2020) and its 2023 update — designed to make Indonesia more investment-friendly while keeping core protections intact. The result: still complex, but materially easier to operate in than five years ago.
The legal stack — Manpower Law + Omnibus + Government Regs
The core statute is Law No. 13 of 2003 on Manpower, substantially amended by the Job Creation Law (No. 11/2020, revised by Perppu 2/2022 → Law 6/2023). The implementation details live in Government Regulations — PP 35/2021 (fixed-term, outsourcing, severance), PP 36/2021 (minimum wage), and others. Bookmark all three; they are the documents your local lawyer will quote.
Employment contracts — PKWT vs. PKWTT
- Maximum 5 years total (including extensions).
- Only for work that is genuinely time-bound or project-based.
- End-of-contract compensation required (PP 35/2021).
- Cannot be used for permanent operational roles.
- Default for permanent roles.
- Probation up to 3 months allowed.
- Termination requires lawful grounds + severance.
- Stronger protections; harder to exit.
BPJS — two mandatory social security programs
- BPJS Kesehatan (health): 5% of monthly wage — 4% employer, 1% employee. Wage ceiling currently ₨12,000,000.
- BPJS Ketenagakerjaan (employment): four sub-programs — JKK (work accident, 0.24–1.74%), JKM (death, 0.30%), JHT (old age, 5.7% total: 3.7% employer / 2% employee), JP (pension, 3% total: 2% employer / 1% employee, with wage ceiling).
- Employer total burden across all BPJS programs: roughly 10–13% on top of gross wage.
Minimum wage — provincial and city-level
Indonesia sets minimum wages at the provincial (UMP) and city/regency (UMK) level, updated annually around November for the following year. Jakarta's 2025 UMP is meaningfully higher than rural Java or Sumatra. Always verify the current UMP/UMK for the specific city where your employee works before setting offers.
Termination and severance — the part everyone underestimates
Post-Omnibus (PP 35/2021), severance for termination of an indefinite (PKWTT) employee is a formula of three components: uang pesangon (severance pay), uang penghargaan masa kerja (long-service pay), and uang penggantian hak (rights compensation). The multipliers depend on the reason for termination — efficiency, restructuring, bankruptcy, retirement, misconduct each have different multipliers ranging from 0.5× to 2× the base formula. A long-tenure (8+ year) employee terminated for redundancy can be entitled to ~9 months of total severance. Build this into your runway model.
Working hours, leave, religious holidays
- Working hours: 40/week (either 7×6 or 8×5). Overtime at 1.5× first hour, 2× thereafter.
- Annual leave: minimum 12 days after 12 months of service.
- Religious holiday allowance (THR): mandatory — 1 month's wages, paid before Eid al-Fitr (or the relevant religious holiday). This is not optional and is heavily enforced.
- Maternity leave: 3 months paid (1.5 before + 1.5 after birth). New 2024 amendments extended this in certain cases up to 6 months.
Outsourcing and contractors — narrow lane post-Omnibus
Outsourcing (alih daya) is legally permitted but restricted to specific categories defined by government regulation, and outsourced workers' rights transfer between vendors. Engaging individuals as 'consultants' to bypass employment is risky — Indonesia's Manpower Ministry actively investigates misclassification. Use a proper EOR for foreign companies hiring small teams, or set up a PT PMA (foreign-investment company) for serious scale.
Take this home — the founder's Indonesia hiring checklist
- Pick PKWT or PKWTT carefully; misuse of PKWT for permanent roles converts it to PKWTT by operation of law.
- Register for BPJS Kesehatan and BPJS Ketenagakerjaan before the first payroll.
- Pay THR (religious holiday allowance) — full month's wages — every year. Non-payment triggers fines.
- Reserve 6–9 months of severance per long-tenure employee in your operating model.
- Use EOR (Deel, Remote, Multiplier) for sub-20 hires; PT PMA for entity-based scaling.
- Verify current UMP/UMK for every city you hire in — they reset every January.
Before you act — read this
Official sources to verify (keep this list bookmarked)
HR & Operations leader scaling global remote teams across Nepal, the Philippines, Australia, and the US. Tech-leaning writing lives on Medium.