Operating a Business

flag Indonesia Indonesia: Operating a Business

In this page: Legal Forms of Companies | The Active Population in Figures | Working Conditions | The Cost of Labour | Management of Human Resources

 

Legal Forms of Companies

Perseroan Terbatas or PT (private limited company)
Number of partners: Minimum 2 shareholders. Must have a minimum of 1 director and 2 local Indonesian shareholders.
Capital (max/min): Minimum IDR 50 million
Shareholders and liability: Liability is limited to the amount contributed.
Penamam Modal Asing (limited company open to foreign investment - PT PMA)
Number of partners: Minimum 2 shareholders.
Capital (max/min): Investment plan of 10 billions IDR, of which 25% must be released when the company is founded.
Shareholders and liability: Liability is limited to the amount contributed.
Preum-Perusahaan Umum (public limited liability company)
Number of partners: Minimum 300 shareholders.
Capital (max/min): Minimum IDR 3 billions
Shareholders and liability: Liability is limited to the amount contributed.
 

Business Setup Procedures

Setting Up a Company Indonesia East Asia & Pacific
Procedures (number) 11.00 7.25
Time (days) 12.60 29.73

Source: Doing Business - Latest available data.

 
For Further Information
Consult the Doing Business Website, to know about procedures to start a Business in Indonesia.
ICL Directory
The Competent Organisation
To create a Perseroan Terbatas (PT), the competent organisation is the Bureau for the coordination of investments (BKPM). To create a Representative Office, the competent organisation may be, according to the sector of activity, the Ministry of Commerce, the Ministry of Finance, the Ministry of Public Works, or the Bureau for the coordination of investments.
 

Recovery Procedures

Principle
The request for discharge must be made to the tribunal which declared the bankruptcy, as set out in Law n°37 of 2004 on bankruptcy and suspension of payments.
Minimum Debt-to-Capital Ratio Triggering Liquidation
None
Bankruptcy Laws
It is Law n°37 of 2004 on bankruptcy and suspension of payments which is applicable.
Reorganization and Rehabilitation Laws
Law n°37 of 2004 on bankruptcy and suspension of payments sets out the formalities for discharge.

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The Active Population in Figures

201820192020
Labour Force 132,587,588135,802,879134,616,083

Source: International Labour Organization, ILOSTAT database

 
201720182019
Total activity rate 68.98%69.65%70.20%
Men activity rate 83.67%83.85%84.14%
Women activity rate 54.01%55.18%55.99%

Source: International Labour Organization, ILOSTAT database

 
Employed Persons, by Occupation (% of Total Labour Force) 2015
Agriculture, forestry and fishing 32.9%
Wholesale and retail trade; repair of motor vehicles and motorcycles 18.6%
Manufacturing 13.5%
Construction 7.1%
Education 4.9%
Accommodation and food service activities 4.6%
Transportation and storage 4.0%
Public administration and defence; compulsory social security 3.5%
Financial and insurance activities 1.5%
Human health and social work activities 1.3%
Mining and quarrying 1.1%
Administrative and support service activities 0.9%
Information and communication 0.5%
Arts, entertainment and recreation 0.4%
Professional, scientific and technical activities 0.3%
Real estate activities 0.3%
Water supply; sewerage, waste management and remediation activities 0.2%
Electricity, gas, steam and air conditioning supply 0.2%
 
For Further Statistics
The Indonesian Labor Market
For Further Information About the Labour Market
Portal for official information about Indonesia

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Working Conditions

Opening Hours
 
  • Legal Weekly Duration
The legal duration of work is 7 hours a day and 40 hours a week for 6 working days in a week, or 8 hours a day and 40 hours a week for 5 working days in a week.
  • Maximum Duration
After 4 successive hours of work, the employee must be given a rest period of half an hour.
  • Night Hours
If work must be done at night, or if it is dangerous for the health or safety of the workers, the work must not exceed 6 hours a day or 35 hours a week.
Working Rest Day
After a week's work, the employee must be given a day of rest.
Paid Annual Vacation
After a year's work, the worker has 12 days vacation. After six consecutive years' work, the employee has 2 months' long term vacation (to be taken during the 7th and 8th years).
Retirement Age
55
Child Labour and Minimum Age For Employment
Employing children (under 14) is prohibited.
Employing young workers (aged 14 to 18) is only authorized for daytime work. They are not allowed to work in mines or quarries, or to carry out tasks harmful to their health or safety.
Informal Labour Market
Work in the non-agricultural informal sector represents 78% of non-agricultural jobs (UNDP 2007/2008 Report)

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The Cost of Labour

Pay

Minimum Wage
On October 15, 2019, the Minister of Labor issued circular B-M 308, 2019, which mandates provincial governors throughout Indonesia to increase their provinces’ minimum wage by 8.51 percent from the current 2019 rate, starting from January 1, 2020. The minimum nominal annual wage was USD 2,619 (USD 1.26 nominal hourly wage)
NB: the minimum wage fluctuates a lot depending on provinces.
Average Wage
The average salary in the country is around 12,100,000 IDR per month (USD 862).
Other Forms of Pay
  • Pay For Overtime
1.5 times the normal hourly rate for one hour's overtime, then twice the rate for the following hours.
 

Social Security Costs

The Areas Covered
Comprehensive social security schemes covering worker social security and healthcare are administered by the Badan Penyelengara Jaminan Sosial (BPJS). The schemes are mandatory for Indonesian nationals and foreigners who have worked in Indonesia for more than six months.
Contributions
Contributions Paid By the Employer: 0.24%-1.74% for work accident protection; 0.3% for death insurance; 3.7% for old age savings; 2% for pension; 4% for healthcare. As of 1 March 2019, there is a monthly income cap for pension contribution of IDR8,512,400. As of 1 January 2020, maximum salary cap for health insurance is IDR12,000,000.
Contributions Paid By the Employee: 2% of gross monthly earnings for old age insurance; 1% of gross monthly earnings for health insurance. As of 1 January 2020, maximum salary cap for health insurance is IDR 12,000,000. The maximum contribution on pension insurance monthly earnings is IDR 8,512,400, as of 1 March 2019.
Competent Organization
National Manpower Security Agency – BPJS Ketenagakerjaan
National Healthcare Security Agency – BPJS Kesehatan

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Management of Human Resources

 

Recruitment

Method of Recruitment
Recruitment is taking place more and more using Internet. A hiring interview is most often planned, but relations, contacts or references are very important.
Recruitment Agencies
A list of recruitment agencies is available on the website Kelly search Asia
Recruitment Websites
JobDB, Asia-Pacific recruitment website
 

The Contract

Type of Contract
The work contract is essentially governed by the law and to a lesser extent by individual negotiation and collective agreements. Hiring conditions are strict and the formality of the work contract is rather rigid.

There are two types of contracts: fixed term and open-ended.

Breach of Contracts

  • Retirement
There are different forms of retirement: early retirement, retirement, leaving after an extension.
  • Dismissals
The law lays down restrictions concerning the dismissal of an employee who has worked more than three months in a company. If there is no agreement between the partieson the financial compensation, the employer must obtain an authorization from the Ministry of Labor.
  • Other Possible Methods
Redundancy, disciplinary dismissal, resignation, the contract reaches its term.
Labour Laws
NATLEX, the ILO website
Consult Doing Business Website, to obtain a summary of the labor regulations that apply to local entreprises.
 

Dispute Settlement

 

Conciliation Process

Cases of Dispute
Unfair dismissal, late or non payment of wages and violence are the most frequent work problems.
  • Legal Framework
Law n°2 of 2004 regarding settlement of industrial relations disputes.
  • Procedure
Before a dispute is taken to a special tribunal, two-party negotiation, mediation, conciliation or arbitration must be tried. If they come to an understanding, a written agreement must be drawn up by the parties in the form of a deed registered with a local tribunal.
 

Judicial Structures

  • Legal Framework
Law n°2 of 2004 regarding settlement of industrial relations disputes.
  • Competent Legal Body
Tribunal of Commerce
 

Social Partners

Social Dialogue and Involvement of Social Partners
We can mention the ASPEK Indonesia union.
Unionisation Rate
Less than 4% of the active population (formal and informal sectors) and 14% of the active population (formal sector).
Unions
National Front for the Indonesian workers' struggle (FNPBI)
Regulation Bodies
National Portal of Indonesia with information about work market and regulations
 
 

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Latest Update: May 2022