Converting contract workers to full-time employees in Indonesia offers numerous advantages for employers and employees. However, the process is complex and requires careful adherence to Indonesia’s legal requirements and obligations.
Labor regulations in Indonesia are constantly evolving, starting with the 2003 “Manpower Law,” updated regularly. Recent updates include the 2017 amendments protecting migrant workers, the 2020 Job Creation Law, the introduction of Indonesia’s first unemployment benefit program in 2021, and the 2022 mandates on employee benefits.
To ensure compliance, employers planning to transition contractors to full-time employees must stay updated on these regulations.
This article provides a step-by-step guide to converting contractors into employees in Indonesia, including legal requirements, processes, and benefits. It is relevant for companies with or without an established Indonesian legal entity.
Key Takeaways
-
Employers in Indonesia must comply with regulations issued by the Ministry of Manpower (Kemnaker).
-
Companies with a legal entity in Indonesia can directly convert contractors to full-time employees by following specific steps, such as registering with authorities and setting up payroll and social security contributions.
-
Companies without a legal entity can partner with a Professional Employer Organisation (PEO) offering Employer of Record (EoR) services. The PEO assumes responsibility for payroll, benefits, and compliance.
8 Steps to Convert Contractors to Employees with a Legal Entity
1. Review Legal Requirements: Comply with Indonesian labor laws, including the latest updates under the Manpower Law, ensuring employees receive required benefits such as severance pay and social security.
2. Negotiate with Contractors: Discuss new employment terms, including job responsibilities, compensation, and benefits changes.
3. Prepare Employment Contracts: Draft contracts that comply with legal requirements, including terms such as salary and benefits. Contracts must be registered with the local Ministry of Manpower office.
4. Transfer Contractors to Employees: Ensure the seamless transfer of employment contracts and benefits while providing necessary training to align employees with company policies.
5. Register with Authorities: Employees must register with the labor bureau, social security office, and tax authorities.
6. Set Up Payroll and Social Security Contributions: Establish a payroll system to calculate and remit taxes and contributions under Indonesia’s National Social Security System (SJSN).
7. Establish HR Policies: Develop HR procedures, including employee handbooks, performance reviews, and career development plans.
8. Provide Employee Benefits: In compliance with Indonesian labor laws, offer benefits such as health insurance and retirement plans.
5 Steps to Convert Contractors Without a Legal Entity
Companies without a legal entity in Indonesia can convert contractors to employees through a PEO offering EoR services. Here’s how:
1. Choose a Reputable PEO: Select a PEO with local expertise and a strong track record in Indonesia.
2. Provide Employee Information: Share employee details such as names, addresses, and job titles with the PEO.
3. Notify Employees: Communicate the transition process, including new benefits like health insurance and job security.
4. Transition Employees: The PEO will handle the legalities and paperwork to transition contractors to full-time employees.
5. Monitor Progress: Regularly communicate with the PEO to ensure a smooth transition.
How Verla Services Can Help
Converting contract workers to full-time employees in Indonesia can boost the stability and satisfaction of your workforce. However, navigating Indonesia’s dynamic labor laws requires expertise.
Verla Services offers end-to-end support as a reliable PEO and EoR for companies without a local legal entity. From compliance and payroll to employee benefits, we manage every aspect, enabling you to focus on your core business operations.
Partner with Verla Services to ensure a seamless, compliant transition for your employees while demonstrating your commitment to ethical business practices. Contact our team to learn more about how we can support your business expansion in Indonesia.
