Indonesia Labor Law: What Employers Need to Know

If you hire employees in Indonesia, you need to follow local employment law from the start.

Indonesia approved a new Labor Protection Law in October 2026, but the current rules still apply until the new framework takes effect.

In this article, we will walk you through the requirements employers need to follow today and the main changes ahead.

Main Labor Laws in Indonesia

Indonesia's employment framework is based on Law No. 13 of 2003 on Manpower, as amended by Law No. 6 of 2023 on Job Creation. These laws establish the main rights and obligations of employers and employees.

Government and ministerial regulations provide the detailed rules for how companies must apply them.

Employers can offer better terms than the statutory minimums, but they cannot remove rights guaranteed by law. If a contract provides less than the legal minimum, the employee remains entitled to the statutory benefit.

Foreign companies also need to consider how they employ staff in Indonesia. You can hire directly through your own Indonesian legal entity or use an Employer of Record in Indonesia, which becomes the local legal employer.

Employment Contracts in Indonesia: PKWT and PKWTT

Indonesia recognises two main types of employment contracts.

A PKWT (Perjanjian Kerja Waktu Tertentu) is a fixed-term employment contract. It is intended for work that is temporary or has a defined completion point.

A PKWTT (Perjanjian Kerja Waktu Tidak Tertentu) is an indefinite-term contract used for ongoing employment.

The appropriate contract depends on the nature of the work. Employers cannot use a fixed-term contract simply because they prefer a shorter employment commitment.

Probation Periods

Probation is only permitted for employees hired under a PKWTT. The maximum probation period is three months.

A PKWT cannot include probation. If an employer adds a probation clause, that clause is void and the employee's service still counts from the start of employment.

Employers must also follow the registration and end-of-contract compensation requirements that apply to PKWT agreements.

Our guide to employment contracts in Indonesia explains the differences and when each contract should be used.

Minimum Wage in Indonesia

Indonesia does not have a single minimum wage that applies across the country. Minimum wages are determined by location, and certain industries have additional sector-specific wage requirements.

There are three main categories:

• Provincial Minimum Wage (UMP): the minimum wage set for a province.
• City or Regency Minimum Wage (UMK): a local minimum wage that applies where a city or regency has established its own rate.
• Sectoral Minimum Wage (UMS): a higher minimum wage for designated industries.

Where a city or regency has its own minimum wage, that rate generally replaces the provincial minimum. If a sectoral minimum also applies, the employer must follow the relevant higher rate.

Who Is Covered by the Minimum Wage?

The statutory minimum wage primarily applies to employees with less than 12 months of service.

For employees with at least one year of service, employers must follow a wage structure and scale that takes factors such as position, qualifications, performance, and length of service into account.

Salaries must also be paid in Indonesian rupiah, even where the compensation package is discussed in another currency.

Indonesia updated its wage-setting rules through Government Regulation No. 49 of 2025, which applies to the 2026 minimum wages.

Before making an offer, check the rate that applies to the employee's actual work location and industry.

Our Indonesia minimum wage guide provides the current regional rates.

THR Religious Holiday Allowance

The Religious Holiday Allowance, or THR (Tunjangan Hari Raya), is a mandatory annual payment made before an employee's religious holiday.

THR is not a discretionary bonus. Employees become eligible once they have completed at least one month of continuous service, whether they are employed under a PKWT or PKWTT.

The amount depends on the employee's length of service:

• 12 months or more: one month's wage.
• One to less than 12 months: a prorated amount based on service.

For employees who have not completed a full year, the calculation is:

THR = Months of service ÷ 12 × One month's wage

For example, assume an employee earns IDR 10,380,000 per month and has completed five months of service.

The wage used for this calculation generally includes basic salary and fixed allowances.

When Must THR Be Paid?

Employers must pay THR at least seven days before the employee's religious holiday.

If payment is late, the employer can face a fine of 5% of the outstanding THR amount. The fine does not replace the obligation to pay the allowance.

For companies with employees observing different religious holidays, this means THR payments may fall at different points throughout the year.

Our THR guide for Indonesia covers eligibility, calculations, and payment deadlines.

Working Hours in Indonesia

Standard working hours in Indonesia are limited to 40 hours per week.

Employers can generally arrange those hours across either five or six working days.

Employers must provide the required rest periods. Certain businesses and types of work may also be subject to special working-time arrangements.

Overtime Pay

Employees who work beyond their normal hours are generally entitled to overtime pay.

Under the current rules, overtime on ordinary working days is limited to four hours per day and 18 hours per week. Overtime performed on weekly rest days and public holidays is treated separately.

Employers must also obtain the employee's written or electronic consent before overtime is performed.

The standard hourly overtime rate is calculated by dividing the monthly wage by 173.

For overtime on an ordinary working day:

• The first hour is paid at 1.5 times the hourly rate.
• Each subsequent hour is paid at 2 times the hourly rate.

For example, consider an employee earning IDR 10,380,000 per month.

Their hourly overtime rate is:

IDR 10,380,000 ÷ 173 = IDR 60,000

If the employee works three overtime hours on a normal working day:

Overtime on weekly rest days and public holidays is calculated differently, with multipliers that can reach four times the hourly rate.

Are Managers Exempt From Overtime?

Certain senior employees can be exempt from statutory overtime where their responsibilities mean their working hours cannot be fixed and they receive a higher wage.

However, the exemption is not automatic. The relevant positions must be identified in the employment agreement, company regulations, or collective labor agreement.

A contract stating that an employee's salary includes all overtime does not remove the entitlement unless the role qualifies for the statutory exemption.

BPJS Social Security Contributions

Employers must register eligible employees with Indonesia's mandatory social security system.

There are two main agencies:

BPJS Kesehatan provides national health insurance. BPJS Ketenagakerjaan administers employment-related protections, including old-age savings, pensions, work accidents, death benefits, and job loss protection.

Foreign employees working in Indonesia for at least six months must also be enrolled in the applicable programs.

BPJS Contribution Rates in 2026

The JP pension contribution wage cap increased to IDR 11,086,300 per month from March 2026. BPJS adjusts this limit annually, so employers should check the applicable cap when processing payroll.

How the JKP Program Works

The Job Loss Security program, or JKP (Jaminan Kehilangan Pekerjaan), provides eligible employees with temporary financial support after certain qualifying terminations.

Under Government Regulation No. 6 of 2025, JKP is funded at 0.36% of covered wages:

• 0.22% is funded by the government.
• 0.14% is reallocated from the employer's existing JKK contribution.

This means JKP does not create an additional contribution on top of the employer's standard JKK rate.

Eligible employees can receive a cash benefit equal to 60% of their covered wage for up to six months, subject to the program's conditions and wage ceiling.

BPJS and Payroll Deadlines

Employers must calculate and remit BPJS contributions each month. BPJS Kesehatan contributions are generally due by the 10th of the relevant month, while BPJS Ketenagakerjaan contributions are due by the 15th of the following month.

In addition, employers must calculate and withhold employee income tax, known as PPh 21, as part of the monthly payroll process.

Our Indonesia payroll guide explains how the monthly calculations and reporting work. You can also use our Indonesia salary and income tax calculator to estimate take-home pay and employer costs.

Statutory Leave in Indonesia

Indonesian labor law provides employees with several types of paid leave. The minimum entitlement depends on the reason for the absence and, in some cases, the employee's length of service.

Maternity and Paternity Leave

Law No. 4 of 2024 on Maternal and Child Welfare strengthened employment protections for parents.

Employees are entitled to at least three months of maternity leave. An additional period of up to three months can apply where qualifying medical conditions exist.

Where the extended leave applies, the employee receives full wages for the first four months and 75% of wages for the fifth and sixth months.

Fathers are entitled to two days of paternity leave, with up to three additional days subject to agreement with the employer.

Employers cannot dismiss an employee because she exercises her statutory maternity rights.

Public Holidays and Collective Leave

Employees are also entitled to national public holidays.

Indonesia publishes annual public holiday and collective leave schedules. Collective leave, known as cuti bersama, can affect employees' annual leave balances depending on the applicable rules and the employer's arrangements.

Our guide to employee benefits in Indonesia explains the statutory benefits and additional benefits employers commonly provide.

Termination of Employment in Indonesia

The termination process depends on the employee's contract type and the reason employment is ending.

A fixed-term contract normally ends when its agreed period expires or the specified work is completed. A permanent contract has no predetermined end date, so the employer must follow the applicable termination grounds and procedures.

Severance Pay for Permanent Employees

Permanent employees can be entitled to several forms of compensation when employment ends.

• Severance pay (uang pesangon) is calculated using the employee's length of service and the multiplier applicable to the reason for termination.
• Long-service pay (uang penghargaan masa kerja) applies in qualifying cases and generally starts once an employee has completed three years of service.
• Compensation of rights (uang penggantian hak) covers qualifying accrued entitlements, including unused annual leave and other rights provided by law or the employment agreement.

The final amount depends on the termination ground. A resignation, redundancy, business closure, retirement, or dismissal for another legally recognised reason can produce different obligations.

Termination Procedure

For permanent employees, the employer generally needs to provide written notice stating the reason for termination.

If the employee disputes the decision, the parties must first attempt to resolve the matter through direct negotiations. Unresolved disputes can proceed to mediation and the Industrial Relations Court.

Employers should not assume that paying severance automatically makes a termination lawful. The legal reason and procedure matter as well.

Our Indonesia severance pay guide explains the different payment components.

Outsourcing Employees in Indonesia

Indonesia introduced additional outsourcing restrictions through Ministry of Manpower Regulation No. 7 of 2026, effective 30 April 2026.

The regulation limits the supply of outsourced workers to specified supporting activities. These are:

1. Cleaning services
2. Food and beverage provision
3. Security services
4. Drivers and employee transportation
5. Operational support services
6. Supporting work in mining, oil and gas, and electricity

Companies engaging outsourced workers must use a written agreement with the outsourcing provider.

The agreement must address the work being outsourced, the contract period, work location, number of workers, and employee protections.

The outsourcing company must also register the agreement with the relevant local manpower office within three working days after it is signed.

Existing outsourcing arrangements have a transition period to align with the 2026 regulation.

For foreign companies using an Employer of Record, the legal structure also matters. An EOR acts as the local employer, but that does not automatically exempt an arrangement from Indonesian outsourcing restrictions. The provider's licensing, contractual structure, and actual employment arrangement should be assessed against the applicable rules.

What Changes Under Indonesia's New Labor Protection Law?

Indonesia's parliament approved a new Law on Labor Protection (Undang-Undang Pelindungan Ketenagakerjaan) on 6 October 2026.

The law was developed following Constitutional Court Decision No. 168/PUU-XXI/2023, which called for labor provisions to be separated from the Job Creation Law.

It contains 313 articles across 23 chapters and covers employment contracts, wages, outsourcing, termination, social protection, and other employment matters.

However, the promulgated law text and its implementation timeline had not been confirmed in the official records checked for this update. Employers should not treat reported changes as operative requirements until the final legal position is established.

Main Changes Reported Under the New Law

Government and parliamentary statements surrounding the approval identified several potential changes.

These changes should be treated as reported provisions until the promulgated text and implementing measures can be checked.

What Should Employers Do Now?

There is no need to replace existing employment contracts based only on the announced changes.

Employers should continue following the current rules while reviewing the areas most likely to be affected.

For example, companies using long fixed-term contracts should identify agreements that may need to be handled differently under the future framework. Employers with significant severance exposure should also assess how a mandatory reserve requirement could affect their employment costs.

If your company uses outsourcing, check the current 2026 restrictions separately rather than waiting for the new law. Those rules are already effective.

The most useful preparation is to know where your existing arrangements may need changes, then update them once the new requirements and transition rules are clear.

Hire Employees in Indonesia with RecruitGo

RecruitGo helps international companies hire and manage employees in Indonesia.

If you already have a local entity, our Indonesia payroll service can manage:

• Monthly salary calculations and payslips
• PPh 21 withholding and reporting
• BPJS registration and contributions
• THR, overtime, and statutory leave calculations
• Payroll administration during contract renewals and terminations

If you do not have an Indonesian entity, our Employer of Record service allows you to hire through our local employment structure. We handle the employment contract, payroll, statutory benefits, and local employer obligations while you manage the employee's day-to-day work.

Talk to our team about hiring and payroll in Indonesia.

Official Sources

• Law No. 13 of 2003 on Manpower, as amended by Law No. 6 of 2023 on Job Creation.
• Government Regulation No. 35 of 2021, as amended by Law No. 6 of 2023 on Job Creation.
• Government Regulation No. 36 of 2021 on Wages, as amended by Government Regulations No. 51 of 2023 and No. 49 of 2025.
• Ministry of Manpower Regulation No. 6 of 2016 on Religious Holiday Allowance.
• Ministry of Manpower Regulation No. 7 of 2026 on outsourcing.
• Law No. 24 of 2011 on BPJS and its implementing regulations.
• Law No. 4 of 2024 on Maternal and Child Welfare.
• Government Regulation No. 6 of 2025 on Job Loss Security.
• BPJS Ketenagakerjaan Circular No. B/1226/022026, dated 25 February 2026, on the pension contribution wage cap effective March 2026 (hosted copy).
• DPR RI: Parliamentary update on the 2026 Labor Protection Law