An employer of record in Indonesia is a locally licensed company that legally employs a worker on your behalf, so you can pay and manage someone in Jakarta, Surabaya, or anywhere else in the country without first setting up your own PT PMA (foreign-owned limited liability company). The EOR signs the Indonesian employment contract, runs payroll in rupiah, registers the worker with BPJS Ketenagakerjaan and BPJS Kesehatan, and carries the compliance risk for Indonesia's Job Creation Law severance and benefit rules, while you direct the person's day-to-day work.
What changed under the Omnibus Law and the Job Creation Law
Indonesia's Job Creation Law (Undang-Undang Cipta Kerja, Law No. 11 of 2020), commonly called the Omnibus Law, rewrote large parts of the 2003 Manpower Act and was implemented in detail through Government Regulation No. 35 of 2021 (PP 35/2021). PP 35/2021 covers fixed-term work agreements (PKWT), outsourcing, working hours and rest periods, and termination of employment (PHK) in one consolidated regulation. For an employer of record, the practical effect is that severance, PKWT duration limits, and outsourcing rules now sit in a single implementing regulation rather than scattered ministerial decrees, which is what an Indonesia EOR is built to track and apply correctly on every contract it signs, including yours.
How Indonesian severance pay (pesangon) is calculated
Under PP 35/2021, statutory severance pay (uang pesangon) for termination without cause runs on a sliding scale tied to tenure: one month's wage for less than a year of service, rising a month at a time up to a maximum of nine months' wage at eight or more years of service. That pesangon figure sits alongside two further statutory components, uang penghargaan masa kerja (long-service reward pay) for workers with three or more years' tenure, and uang penggantian hak (compensation for unused leave, relocation, and similar entitlements), so the total payout is usually higher than the base pesangon table alone. Employers in genuine financial distress, closure, or bankruptcy may reduce the standard payout to half, with workers still entitled to a supplementary service award on top. An EOR in Indonesia is expected to run this calculation correctly on every exit, in rupiah, and defend it if challenged.
BPJS: Indonesia's mandatory social security contributions
Every employee in Indonesia must be enrolled in BPJS Ketenagakerjaan, the state social security body, which administers five programs: Jaminan Hari Tua (JHT, old-age savings), Jaminan Kecelakaan Kerja (JKK, work accident insurance), Jaminan Kematian (JKM, death benefit), Jaminan Pensiun (JP, pension), and Jaminan Kehilangan Pekerjaan (JKP, job-loss guarantee). For the old-age savings program, BPJS Ketenagakerjaan's own published rate has the employer contributing 3.7% of wages and the employee a further 2%, before the accident, death, pension and job-loss programs are layered on top; on a monthly salary of IDR 10,000,000 that employer-side 3.7% alone is IDR 370,000 a month for JHT, before the other four programs are added. Workers separately need BPJS Kesehatan health coverage. An EOR registers and pays all of this on your behalf so nobody is left uninsured.
Fixed-term (PKWT) versus permanent (PKWTT) contracts
Indonesian law splits employment into PKWT (perjanjian kerja waktu tertentu, fixed-term) and PKWTT (waktu tidak tertentu, permanent, open-ended). PP 35/2021 folds the rules for both into the same regulation as severance and outsourcing, and a PKWT that is used for genuinely temporary, seasonal, or project-based work still converts to PKWTT by operation of law if it is extended past its permitted limits or used to disguise ongoing, permanent work. Getting this classification wrong is one of the most common Indonesian employment mistakes a foreign company makes on its own, because a misclassified PKWT can leave the company owing the full permanent-employee severance schedule retroactively. A local EOR drafts the contract type correctly the first time.
THR: the mandatory religious holiday allowance
Indonesia requires THR (Tunjangan Hari Raya Keagamaan), a religious holiday allowance paid once a year around Lebaran or the employee's relevant religious holiday, and it is treated as a non-negotiable worker right rather than a discretionary bonus. Indonesia's Ministry of Manpower runs an annual enforcement posko (help desk) that opens roughly a week before the holiday specifically to take complaints about THR that has not been paid, or that an employer has tried to pay in installments rather than in full, which the Ministry treats as a reportable compliance problem. THR is separate from, and in addition to, the monthly salary; an EOR calculates and disburses it on the correct schedule so the obligation never becomes a Ministry complaint.
Entity versus EOR: the real trade-off
The alternative to an EOR is setting up a PT PMA, Indonesia's foreign-investment limited liability company, which takes weeks of licensing, a minimum capital commitment, and an ongoing obligation to run Indonesian payroll, tax, and BPJS compliance in-house indefinitely. That trade-off makes sense once headcount in Indonesia is large enough to justify a permanent local HR and finance function; for a first hire, or for a handful of people, an EOR is faster to start and carries the PKWT, BPJS, severance, and THR compliance risk on the provider's own Indonesian legal entity instead of yours. What to check in a provider: that it holds its own PT PMA rather than reselling someone else's, quotes pesangon and THR obligations transparently rather than folding them into a flat monthly fee, and can show its BPJS registration numbers on request.
Questions people ask about employer of record indonesia
Does Indonesia require a 13th-month salary?
Indonesia does not use a generic 13th-month model. Instead it requires THR, a religious holiday allowance equal to at least one month's wage for employees with a year or more of service, paid once a year in full ahead of the relevant religious holiday, not spread across the year or paid in installments.
What is the maximum severance pay in Indonesia?
Under PP 35/2021's base pesangon table, statutory severance tops out at nine months' wage for employees with eight or more years of service, plus separate long-service reward pay for tenure of three years or more and compensation for unused entitlements, so the full statutory payout on a long-tenured termination is higher than the pesangon figure alone.
Can a foreign company hire in Indonesia without a local entity?
Yes. An employer of record already holds its own Indonesian legal entity, typically a PT PMA, and uses it to employ the worker on your behalf, so you can pay and manage someone in Indonesia legally without registering your own company there first.
Is BPJS enrollment mandatory for every employee in Indonesia?
Yes. BPJS Ketenagakerjaan enrollment covering old-age savings, work accident, death, pension and job-loss programs is mandatory for employees, alongside separate BPJS Kesehatan health coverage; an employer of record registers and pays both on the worker's behalf.