Is EOR Legal in Indonesia? What Makes It a Genuine 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 in Indonesia (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 sets out what an employer must do. For a foreign worker, an individual cannot be the employer (Manpower Law, Article 42(2)). A foreign business with no company of its own in Indonesia can use an employer of record to carry these duties.

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; fixed-term contracts are for work that is not permanent in nature (PP No. 35 Tahun 2021, Article 4(2)).
• An expatriate can only be on a fixed-term contract, for a specific role and a specific period (Manpower Law, 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 (PP No. 35 Tahun 2021, Article 15).
• Probation of up to three months applies only on an indefinite contract; a fixed-term contract carries none (Manpower Law, Articles 58 and 60(1)).

Registering the team, and paying what is owed

MAM registers its employees with BPJS (Badan Penyelenggara Jaminan Sosial), the state social security bodies for 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 the 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 plan to employ a foreign worker, the RPTKA (Rencana Penggunaan Tenaga Kerja Asing), must be approved by the Ministry and held 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)). A work visa is applied for with proof of sponsorship from a sponsor who 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 approved 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. MAM, as the legal employer, carries the employer’s duties described above. How that differs from a PEO, where two employers share the role, is set out in EOR vs PEO.

Whether a foreign company has a taxable presence in Indonesia is a tax question, covered in Permanent establishment in Indonesia. MAM looks at your activities in Indonesia, as the box above says.

What this means for you: through EOR, MAM, an Indonesian company, holds the employer’s duties, and you direct the work day to day.