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Employer of Record in Indonesia

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​​​​​​​​​​​​​​​​​​​​​​​​​​​published on 22 November 2024 | reading time approx. 3 ​minutes


An Employer of Record ("EoR") is a third-party organization that assumes legal responsibilities of hiring and employing employees on behalf of another company. An EoR scheme allows companies to hire employees without establishing a local legal entity. 

In recent years, we have seen more traction in the Indonesian market for the demand of EoR arrangements. In addition, more services providers are offering EoR services. Such trend is, however, not (yet) followed by a clear policy from the Indonesian government. 

We would anticipate that the new Indonesian administration would eventually recognize such evolving global work environment, where global hiring and workforce mobility are becoming central topics of discussion, and would address it with a clear(er) regulatory framework.


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Is the concept of ​EoR known in Indonesia and is there a law governing it?​

Indonesian law does not officially recognize the term and the concept of EoR. EoR arrangements, however, possess similar characteristic with that of an outsourcing (alih daya) arrangement. Outsourcing arrangements entail the engagement of an outsourcing company by a client (the "Client") for the provision of employee(s) with certain qualification(s) to carry out specified works. For this service, the Client will pay the agreed fees to the outsourcing company. These fees usually include salaries and benefits (statutory or ancillary) of the hired employee(s), plus a margin (or management/handling fee) for the benefit of the outsourcing company. Therefore, no payment will be made by the Client directly to the employee(s) provided by the outsourcing company.​

As an EoR arrangement promises more flexibility and compliance without the pre-condition of having a local legal entity in Indonesia, foreign companies located outside of Indonesia may have more reasons to engage in this type of service.​

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Is the concept of EoR similar to employee leasing in Indonesia?

In Indonesia, an EoR company is currently regarded as equivalent to an outsourcing company and must comply with the same regulatory requirements, i.e. (i) it must be a legal entity incorporated in Indonesia, (ii) it must have a proper business license under the prevailing laws and regulations, and (iii) it will be the legal employer of employees hired to work for the Client.

The Indonesian manpower law does not specify what are the legal consequences in the event that the outsourcing company does not hold a proper business license or meet other requirements abovementioned.  
As it currently stands, we would assume that failure to satisfy abovementioned requirements by the outsourcing company should not create an employment relationship between the company client and the hired employee(s). However, we have to wait for the implementing regulations that may address this question.

There is no specific license/permit requirement applicable to the Client to engage an EoR Company.

As explained above, it is possible that the EoR company hires the employee(s) (on behalf of the  Client) based on temporary employment or permanent employment. However, because the purpose of an EoR arrangement relies primarily on its flexibility in terms of the provision of manpower, it is unlikely that EoR companies would opt to hire employee(s) on a permanent basis.

The employment conditions of employees under an EoR arrangement should be in compliance with the Indonesian manpower laws and regulations. An EoR company, as the legal employer, is responsible for the employee(s)' protection, wages, welfare, and working conditions.

What are the tax implications of the EoR concept in In​donesia?

​​​In the context of Indonesia manpower regulations, an EoR company shall be regarded as an outsourcing company, which provides service to its client. 

As the EoR company is independent from a Client, an EoR company should – in principle – not undertake activities of a dependent agent (i.e., to act for and on behalf of a Client in dealing with Client’s customers in the context of the provision of services or sales activities). We would therefore consider the risk for a Client to create a permanent establishment as rather low. 

In general, the double taxation agreement does not specifically provide for employment under EoR arrangement.  Hence, taxation rules for the employees under EoR arrangement shall follow the domestic taxation rules where such employment is conducted.

​How do you anticipate the concept of EoR evolving in your country from your perspective?

​We observe an increasing number of firms offering EoR services in Indonesia. Consequently, the number of employees engaged under EoR arrangements is also expected to rise. It remains to be seen how the Indonesian government will react to the increasing numbers of EoR services. We would believe that the Indonesian government would (i) ensure that the high level of protection that Indonesian employees enjoy would also remain applicable to Indonesian employees under EoR arrangements and (ii) limit the use of EoR arrangements aiming at replacing Indonesian employees by foreign employees under EoR arrangements.  

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Employer of Record

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Vita Surya Nirmala

Senior Associate

+62 21 5056 0405

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Tom Pagels

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+62 21 5056 0405

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