Indonesian Employment Law: What Foreign Companies Must Change in Their HR Policies

Introduction

Expanding into Indonesia requires more than registering a company and hiring employees. Foreign employers must also establish HR policies that reflect Indonesian employment regulations, local working practices, and the legal obligations attached to each employment relationship.

A policy that works in Singapore, China, Australia, or Europe may not automatically meet Indonesian requirements. Differences in employment agreements, fixed-term contracts, working hours, overtime, leave, social security, termination procedures, and outsourcing arrangements can create compliance gaps when a company enters the Indonesian market. Companies hiring expatriates should also review RPTKA requirements in Indonesia to understand the additional obligations associated with employing foreign workers.

The regulatory framework has also continued to develop. Law No. 6 of 2023 established the Job Creation Law framework, while Government Regulation No. 35 of 2021 addresses fixed-term employment agreements, outsourcing, working time, rest periods, termination, and related employee entitlements. In 2026, the government introduced Minister of Manpower Regulation No. 7 of 2026 on outsourcing work, adding a specific reason for employers to review their outsourcing arrangements. The official regulations are available through the Ministry of Manpower’s legal database and the official text of Minister of Manpower Regulation No. 7 of 2026.

For foreign companies, the practical question is not simply whether a new regulation exists. It is whether employment contracts, internal policies, payroll processes, vendor agreements, and management practices still reflect the applicable rules.

This guide explains the key areas employers should review, how to prioritize policy changes, and how to build a more reliable HR compliance process in Indonesia.

What Indonesian Employment Law Means for Foreign Employers

Indonesian employment law is not contained in a single regulation. Employers need to consider the applicable provisions of the Manpower Law, amendments introduced through the Job Creation Law framework, implementing regulations, ministerial regulations, relevant Constitutional Court decisions, and any sector-specific requirements that apply to their business.

Three regulatory references are particularly important for a general HR review.

• Law No. 6 of 2023: Establishes the Job Creation Law framework, including amendments to employment-related legislation. Review the official regulation record.
• Government Regulation No. 35 of 2021: Covers fixed-term employment agreements, outsourcing, working time, rest periods, termination procedures, and related employee entitlements. See the official JDIH record.
• Minister of Manpower Regulation No. 7 of 2026: Establishes a more specific framework for outsourcing work, including the types of work that may be outsourced and related company obligations. See the official JDIH record.

Employers should not assume that every HR rule changed in 2026. Some obligations come from existing regulations, while others may need to be reviewed in light of newer requirements, judicial decisions, or changes in the company’s operations.

The right starting point is a documented compliance review that maps each policy to the rule applicable to the employer, employee category, and business activity.

Indonesian Employment Law: HR Policies Foreign Companies Should Review

Foreign employers should review the following policy areas before assuming that their existing employee handbook or global HR framework is sufficient for Indonesia.

1. Employment Contracts and Employee Classification

Employment contracts should accurately reflect the nature of the employment relationship. Employers need to distinguish between a fixed-term employment agreement, commonly called Perjanjian Kerja Waktu Tertentu (PKWT), and an indefinite-term employment agreement, or Perjanjian Kerja Waktu Tidak Tertentu (PKWTT).

A fixed-term contract should not be selected simply because it is easier to end than an indefinite-term arrangement. The type of work, applicable legal requirements, contract duration, documentation, and employee entitlements must be assessed under the relevant rules.

Under Government Regulation No. 35 of 2021, PKWT arrangements are subject to specific requirements, including rules concerning their duration and compensation. Employers should consult the official regulation before creating or renewing contract templates.

What HR should change:

• Review whether existing employees have been assigned the correct employment classification.
• Standardize contract templates while allowing for legally necessary differences between employee categories.
• Document contract start dates, end dates, renewals, and applicable compensation obligations.
• Establish a review process before a fixed-term agreement expires.
• Make sure the contract language reflects the actual working arrangement rather than merely copying a global template.

Business perspective: Incorrect classification can create unexpected employment costs, disputes, and administrative work. A clear contract process helps foreign employers plan their workforce while treating employees consistently.

2. Working Hours, Overtime, and Rest Periods

A global policy that refers to a standard 40-hour workweek is not enough on its own. Indonesian employers must assess the applicable working-time rules, rest periods, overtime requirements, and any special provisions relevant to their sector or working arrangement.

Government Regulation No. 35 of 2021 provides the regulatory framework for working time, rest periods, and overtime. HR teams should review the official text rather than relying exclusively on summaries or practices used in another country.

What HR should change:

• Define normal working schedules and weekly rest arrangements.
• Document how managers approve, record, and verify overtime.
• Establish a consistent process for calculating and paying eligible overtime.
• Check whether attendance systems and payroll records use compatible data.
• Review arrangements for shift workers, remote employees, and staff with different schedules.

A policy that allows managers to approve overtime informally, without reliable records, can make it difficult to demonstrate that working time and payments have been handled correctly.

3. Wages, Benefits, and Payroll Compliance

Foreign employers should confirm that compensation policies reflect the applicable wage requirements and employee entitlements. These may depend on the employee’s location, employment arrangement, working pattern, and other legally relevant circumstances.

A global salary band or benefits package should not be treated as proof of local compliance. Employers must assess the Indonesian requirements separately and ensure that their payroll calculations follow the applicable rules.

What HR should change:

• Review salary structures against applicable minimum-wage requirements.
• Check the treatment of fixed and variable compensation components.
• Confirm that payroll deductions are properly authorized and documented.
• Reconcile attendance, overtime, leave, and payroll data.
• Review applicable social security registration and contribution processes.
• Maintain clear payslips and payroll records.

Companies should also make sure that employee benefits are documented consistently. Where a benefit is required by law, the employer should not treat it as an optional global perk.

For operational support, businesses can review BigFish Global Consulting’s payroll services in Indonesia to understand how local payroll administration can fit into their HR compliance process.

4. Leave Entitlements and Employee Policies

Leave policies are another area where foreign companies often rely too heavily on headquarters templates. Indonesian statutory entitlements and applicable conditions should be reflected in local employee documentation.

HR teams should review annual leave, public holidays, sick leave procedures, maternity-related rights, and other leave categories relevant to their workforce. The exact entitlement and applicable conditions should be checked against the current legal framework and any valid company-level arrangements.

What HR should change:

• Create an Indonesia-specific leave policy.
• Document leave eligibility, request procedures, approval responsibilities, and recordkeeping.
• Check whether payroll and attendance systems correctly reflect leave taken.
• Ensure managers understand which decisions require HR review.
• Update employee handbooks when legal requirements or company arrangements change.

The aim is to give employees clear information while helping managers make consistent decisions. A policy should be practical enough to use every day, not merely included in an employee handbook for reference.

5. Termination Procedures and Employee Entitlements

Termination decisions can create significant legal and financial exposure if the company follows a global process without checking Indonesian requirements.

Government Regulation No. 35 of 2021 addresses termination procedures and related employee entitlements, including severance pay, long-service pay, and compensation for rights where applicable. Employers should assess the relevant grounds for termination, required procedures, and financial obligations before taking action.

What HR should change:

• Establish an internal review process before communicating a termination decision.
• Document the grounds for the proposed termination and the relevant supporting records.
• Calculate applicable employee entitlements before finalizing the process.
• Coordinate HR, payroll, legal advisers, and management where necessary.
• Retain records of notices, discussions, calculations, and final payments.

Employers should avoid treating termination as a purely administrative decision. The correct process depends on the circumstances and the applicable legal requirements, so individual cases may require legal advice.

6. Outsourcing and Third-Party Workforce Arrangements

Outsourcing deserves particular attention in 2026 because Minister of Manpower Regulation No. 7 of 2026 on outsourcing work is in force.

According to the official regulation record from the Ministry of Manpower, the regulation addresses the types of work that may be outsourced, the responsibilities of the relevant companies, licensing and agreement-related requirements, and labor inspection. The official BPK regulation database identifies fields that include cleaning services, food and beverage provision, security, drivers and worker transportation, operational support services, and specified supporting work in mining, oil and gas, and electricity.

Foreign employers should not assume that every position can be outsourced merely because a vendor offers the service. The proposed activity, contractual structure, provider qualifications, and applicable rules need to be checked.

What HR and procurement should change:

• Inventory all outsourced roles and service providers.
• Map each outsourced activity against the applicable legal categories.
• Verify provider qualifications, business licensing, and contractual documentation.
• Review responsibilities for wages, social security, occupational safety, and employee protections.
• Check existing agreements and determine whether adjustments are needed under the applicable transition provisions.
• Document how HR, procurement, and legal teams approve outsourcing arrangements.

Regulation No. 7 of 2026 provides a transition period of up to two years for existing agreements to adjust, as stated in the official regulation record. Employers should verify how that period applies to their specific arrangements rather than assuming every contract has the same deadline.

Expert insight: Outsourcing compliance should be assessed by the substance of the work and the actual arrangement, not just by the title of a vendor agreement. A contract labelled “service agreement” does not, by itself, establish that the arrangement meets all legal requirements.

7. Company Rules, Employee Handbooks, and HR Governance

Even where employment contracts are individually correct, the broader HR system can still be inconsistent. Employee handbooks, disciplinary procedures, grievance channels, and manager guidance should reflect the company’s actual obligations in Indonesia.

Foreign companies should determine which internal documents are required for their circumstances and whether any registration, approval, or consultation steps apply. Requirements can depend on company size, the existence of collective agreements, and other relevant factors.

What HR should change:

• Compare the Indonesian employee handbook with the company’s global policy.
• Identify provisions that conflict with local legal requirements or are unclear in practice.
• Define approval authority for disciplinary action, leave, overtime, and termination.
• Establish a process to communicate policy changes to employees.
• Keep version-controlled copies of policies and evidence of employee communication.

A well-designed policy system reduces the risk that individual managers make inconsistent decisions or unintentionally apply headquarters practices that do not fit Indonesian requirements.

How the 2026 Outsourcing Regulation Affects Foreign Companies

The introduction of Minister of Manpower Regulation No. 7 of 2026 makes outsourcing a priority review area for companies that use external providers in Indonesia.

The regulation should not be interpreted as a blanket prohibition on outsourcing. Instead, employers need to understand the permitted categories of work, the relevant responsibilities of the parties, and the conditions that apply to their arrangements.

Foreign companies should take three practical steps.

First, identify where outsourced work is performed. Build a list of outsourced roles and services, including work arranged through local vendors, regional procurement teams, and group companies.

Second, classify the actual activity. Compare the work being performed with the categories and requirements in the applicable regulation. Do not rely only on job titles or the wording of a commercial agreement.

Third, review provider and contract compliance. Check the provider’s relevant qualifications and licensing, the employment documentation used for its workers, the service agreement, and the division of responsibilities between the parties.

Existing agreements should also be reviewed against the regulation’s transition provisions. A planned review well before the applicable deadline gives the company more flexibility to amend contracts, change service arrangements, or seek specialist advice.

Companies should use the official text of Minister of Manpower Regulation No. 7 of 2026 as the primary reference when reviewing these obligations.

As workforce arrangements evolve, employers should also understand the regulatory developments affecting workers engaged through digital platforms. Although platform-based work differs from conventional employment and outsourcing arrangements, it is another area businesses may need to assess when reviewing their workforce model. Read our guide to digital platform workers in Indonesia for an overview of the relevant regulations and their business implications.

Common HR Compliance Mistakes Foreign Companies Should Avoid

Many compliance gaps emerge not because an employer deliberately ignores the law, but because local requirements are not incorporated into routine business processes.

Applying a Global HR Policy Without Local Review

A headquarters policy may be well designed but still omit Indonesian-specific requirements. Companies should localize the policy while preserving global standards that do not conflict with local obligations.

Using One Contract Template for Every Employee

Different employment arrangements may require different documentation and treatment. HR should confirm the appropriate classification before issuing a contract.

Treating Payroll as a Finance-Only Responsibility

Payroll depends on accurate HR data, including employment status, salary changes, leave, attendance, overtime, and termination information. HR and finance should operate with clearly defined responsibilities and regular reconciliations.

Assuming Every Outsourcing Arrangement Is Permitted

The availability of a vendor does not establish that every proposed role or activity can lawfully be outsourced. Companies should review the actual work, provider requirements, and contract structure.

Waiting Until a Dispute Arises

Reviewing contracts, policies, and records only after a complaint or termination dispute can limit the company’s options. A scheduled compliance review is more practical than relying on reactive corrections.

Updating Policies Without Updating Daily Processes

A new employee handbook will have limited impact if managers continue using old approval forms, payroll procedures, or vendor contracts. Each policy change should be linked to the relevant operational process, owner, and evidence of implementation.

A Practical Indonesian Employment Law HR Policy Review Checklist

Foreign companies can use the following checklist to begin a structured review. It is an operational starting point, not a substitute for assessing the requirements that apply to a particular company.

• Employment contracts: Check PKWT and PKWTT classification, contract terms, records, and relevant employee entitlements.
• Working time: Review standard schedules, rest periods, overtime approval, and attendance records.
• Payroll: Validate salary structures, applicable minimum-wage requirements, overtime calculations, deductions, and payslips.
• Leave: Confirm the local leave policy, eligibility rules, approval procedures, and payroll treatment.
• Social security: Review applicable employee registration and contribution processes.
• Termination: Confirm internal approval, documentation, procedural requirements, and employee entitlement calculations.
• Outsourcing: Inventory outsourced roles, assess permitted work categories, verify providers, and review agreements under Regulation No. 7 of 2026.
• Employee handbook: Compare global policies with Indonesian requirements and identify documents or procedures that need local review.
• Records: Establish consistent retention and access controls for contracts, payroll records, attendance, leave, and employment decisions.
• Governance: Assign owners and review dates for each compliance area, with escalation procedures for complex cases.

The checklist should be converted into an action plan that records each issue, its legal or operational significance, the person responsible, the required corrective action, and the target completion date.

A Business Perspective: Make HR Compliance Part of Market Entry

Employment compliance should be considered during market-entry planning, not only after a company has hired its first employee.

For example, a foreign company entering Indonesia with a small local team may initially focus on incorporation, office arrangements, and sales. As the team grows, the company may introduce fixed-term contracts, shift work, payroll incentives, outsourced operational services, and more complex termination procedures. Each change can create new HR obligations.

A practical approach is to build a compliance roadmap around the company’s operating model.

Before hiring: Confirm the employing entity, workforce structure, contract approach, payroll responsibilities, and applicable registration requirements.

During onboarding: Use approved contracts, communicate local policies, set up payroll and attendance processes, and maintain the necessary employee records.

During operations: Review policy implementation, reconcile payroll data, monitor contract deadlines, and assess changes in applicable regulations.

Before restructuring or outsourcing: Review the proposed arrangement, contractual responsibilities, employee impact, and any required legal steps before implementation.

This approach helps companies connect compliance work with business decisions. It also makes it easier to identify which issues can be handled internally and which require specialist support.

How BigFish Global Consulting Can Support HR Compliance in Indonesia

Foreign companies often need to coordinate several functions when establishing or improving their Indonesian HR operations. Employment documentation, payroll administration, employee records, outsourcing arrangements, and local compliance responsibilities can involve different teams and external providers.

BigFish Global Consulting supports companies operating in Indonesia through services that can help address these operational needs. Depending on the company’s circumstances, relevant support may include payroll services, HR outsourcing or hosting, and recruitment-related services.

For businesses reviewing their payroll processes, BigFish Global Consulting’s payroll services in Indonesia provide a relevant starting point for discussing local payroll administration requirements.

The right support model depends on the company’s workforce size, employing structure, internal HR capabilities, and the scope of work that can appropriately be delegated. Employers should confirm the specific services, responsibilities, and contractual arrangements before engagement.

For legal interpretation, complex employment disputes, or decisions with significant legal consequences, companies should obtain advice from qualified Indonesian employment counsel. Operational HR support can complement legal advice, but should not be treated as a substitute for it.

Conclusion: Review HR Policies Before Compliance Gaps Become Business Risks

Workplace compliance also requires employers to maintain safe working conditions and address risks that may affect employees during their daily activities. For a more detailed overview, read our guide to workplace protection in Indonesia, which explains occupational safety requirements and practical steps employers can take to manage workplace risks.

Indonesian employment law requires foreign employers to look beyond global HR templates and examine how employment decisions are made in their Indonesian operations.

Contracts, working hours, payroll, leave, termination, employee documentation, and outsourcing arrangements should all be reviewed against the applicable legal framework. The 2026 outsourcing regulation makes it particularly important for companies using third-party workforce providers to reassess their arrangements and confirm whether any changes are necessary.

The most effective response is a structured review rather than a wholesale rewrite of every policy. Identify the company’s actual workforce arrangements, verify the relevant legal requirements, prioritize the highest-risk gaps, and assign responsibility for corrective action.

By making HR compliance part of routine business planning, foreign companies can manage employment risks more consistently while building a stronger operational foundation for growth in Indonesia.

Next step: Review your current HR policies and identify the areas that require local assessment before implementing changes. BigFish Global Consulting can help businesses explore relevant HR and payroll support options, while legal questions should be reviewed with qualified Indonesian employment counsel.