Is EOR Legal in Indonesia? What Makes It a Genuine Employer
Is EOR legal in Indonesia? What makes an employer of record a genuine employer, and the duties MAM carries as the legal employer of your team.
- UU No. 13 Tahun 2003 (Manpower Law), Article 42, as amended by UU No. 6 Tahun 2023 Pasal 81 angka 4, read with Constitutional Court Decision No. 168/PUU-XXI/2023 — only a company may employ a foreign worker, for a specific role and a specific term
- UU No. 13 Tahun 2003, Articles 58 and 60(1) — probation of at most three months, on an indefinite contract only
- PP No. 35 Tahun 2021, Articles 14(1) and 15 — a fixed-term contract registered within three working days, and compensation when it ends
- UU No. 24 Tahun 2011 (BPJS Law), Article 15(1) — the employer's duty to register itself and its workers with BPJS
- Peraturan Menteri Keuangan No. 168 Tahun 2023, Article 2(2)(a) — who withholds Article 21 income tax
- PP No. 34 Tahun 2021, Articles 1(4), 3, 4(1), 6(1) and 14(6) — who may employ a foreign worker, the approval to employ one (RPTKA) for a specific position and term belongs to the employer, and it is the recommendation for the work visa
- Permenkumham No. 22 Tahun 2023, Article 34(1)(b) — a work visa is applied for with proof of sponsorship from the sponsor who is the foreign national's employer
Is EOR legal in Indonesia? For a foreign company, the real question is whether an employer of record arrangement makes someone a genuine employer, or is only a workaround. An employer holds the employment agreement, registers the worker, withholds and pays what is owed and, for an expatriate, sponsors the permit. Through employer of record (EOR), MAM does each of these as your team’s legal employer. This article sets out those duties.
Is EOR legal in Indonesia? What the law asks of an employer
Indonesian employment law places its obligations on the employer, whoever that is. For a foreign worker, the employer must be a company; an individual cannot employ one (Manpower Law, Article 42(2)). Without a company of its own in Indonesia, a foreign business has no local employer to carry these duties, and an employer of record carries them instead.
The contract itself
MAM’s employment contracts are written and bilingual.
- A local employee can be on a fixed-term contract (PKWT) or an indefinite one, whichever you choose.
- An expatriate can only be on a fixed-term contract, for a specific role and a specific period (Article 42(4), as read by Constitutional Court Decision No. 168/PUU-XXI/2023).
- Registration. MAM registers a fixed-term contract with the Ministry of Manpower within three working days of signing (PP No. 35 Tahun 2021, Article 14(1)).
- At the end of a contract. When a local fixed-term contract ends, MAM, as the employer, pays the compensation the law requires, and it is included in your invoice (Article 15).
- Probation of up to three months applies only on an indefinite contract; a fixed-term contract carries none (Articles 58 and 60(1)).
Registering the team, and paying what is owed
MAM registers every employee with BPJS (Badan Penyelenggara Jaminan Sosial), the state social security body covering health and employment, as any employer must (UU No. 24 Tahun 2011, Article 15(1)). MAM also withholds Article 21 income tax (PPh 21) from each month’s pay (Peraturan Menteri Keuangan No. 168 Tahun 2023, Article 2(2)(a)). What a given salary costs once the employer’s own contributions are added is on the cost of an employee calculator.
For an expatriate: the permit follows the employer
The approval to employ a foreign worker, the RPTKA (Rencana Penggunaan Tenaga Kerja Asing), is filed by the employer for a specific position and term (PP No. 34 Tahun 2021, Articles 1(4), 4(1) and 6(1)). That approval is also the Ministry’s recommendation for the work visa and stay permit (Article 14(6)). The sponsor of the visa is the person’s employer, under Permenkumham No. 22 of 2023, the regulation on visas and stay permits (Article 34(1)(b)).
Under EOR, MAM is that employer, so MAM holds the RPTKA and is the sponsor. The work permit and stay permit (KITAS) page sets out how that process runs.
Your role, and MAM’s
You direct the employee’s work day to day. Everything that comes with being the employer stays with MAM.
Where tax presence comes in
Through EOR, the foreign client does not employ anyone in Indonesia itself. MAM is the legal employer, and we look at each client’s activities in Indonesia so the arrangement stays that way.
A foreign company’s own activities in Indonesia are a separate question from who employs its people. Permanent establishment in Indonesia explains that question, and MAM reviews the two together as your plans develop.
What this means for you: through EOR, the employer’s duties are held by an Indonesian company whose business is carrying them, and you keep control of the work itself.