Reasons Foreign Companies Need An Employer of Record Service in Indonesia

The number of foreign companies engaging with Employer of Record (EoR) service providers in Indonesia has been steadily increasing. And this is largely due to Indonesia’s large working-age population, and lower wage rates when compared to its neighboring countries. EoR services are especially helpful in 2 use cases:

1. When a foreign company is testing the Indonesia market (before officially establishing a presence).
2. When a company is expanding its distributed workforce to meet its growing global demands.

In this article, we attempt to explain an EoR service and why is the most effective legal solution for foreign companies planning to hire in Indonesia.

What Is An Employer of Records (EoR)?

An Employer of Record is an appointed company that is legally responsible for managing all or some of a company’s employees. This includes the full process from recruitment to payroll, and work permits. Employees hired under an EoR service becomes an employee of the EoR service provider. However, EoR service providers do not have supervisory functions. This means, your company is the decision-maker on compensation, job title, the scope of work, projects, and termination.

In summary, EoR service is an outsourced service that manages the complexities and administration of Indonesia’s labor law and regulations.  Companies planning to penetrate new markets or, when looking to expand their workforce in a cost-efficient manner find EoR most useful.

EoR is commonly referred to as Professional Employer Organization (PEO), Local Employer, Back-office Staffing, or Foreign Enterprise Service Company (FESCO).

Why Use An Employer of Record Service Provider in Indonesia?

1. No Need For Local Company Setup

It is needless to say, the approach of setting up a company differs from country to country. Foreign investors and companies setting up a company in Indonesia need to note 3 key factors.

1. The process to set up a foreign-owned company can be relatively quick, only if you have all the right documentation ready.
2. Based on Indonesia’s Positive Investment List, the business sector your company operates in must be fully open for foreign investments.
3. Human resource positions in Indonesia must be held by an Indonesian citizen.

Considering the cost, time, and resources required to manage the aforementioned processes, the benefits of an EoR service becomes evident for companies who need to hire from Indonesia’s labor force.

2. Complying with Indonesian Labor Law and Regulations

An EoR service provider in Indonesia complies with all federal, state, and provincial laws in the country. As Labor and immigration policies in Indonesia are undergoing reforms, corporate compliance can become a huge obstacle, if a company is unfamiliar with Indonesia’s company law and investment law. To mitigate any legal violations, EoR enables a company to transfer all employment responsibilities and duties to an EoR service provider.

3. Outsourcing HR Duties To Focus On Core Business Functions

In Indonesia, only its citizens are eligible to work in human resource, locally-based employees must have their payroll issued by a company registered in Indonesia, and ‘remote payroll’ practice – salary remitted by a company’s home country, is not permitted in Indonesia. Therefore, all aspects of human resource management are undertaken by an EoR service provider.

Cekindo’s Full EoR Services:

• Recruitment and Candidate Shortlisting
• Appointments and Employment Agreements 
• Payroll processing and Salary Adjustments
• Income Tax Calculations and Reporting
• Employee Benefits and Insurance
• Visas and local sponsorship applications

Cekindo as Your Employer of Record Provider in Indonesia

The recent regulation reforms to improve Indonesia’s investment climate are fast-changing and proving to be difficult for some new entrants to keep abreast. As a market-entry consulting firm, Cekindo brings to our clients over a decade of doing business in Indonesia, and EoR is one of many business process outsourcing services we are able to advise and execute on.

If you are looking to streamlined your business operations in Indonesia, fill in the form below with a brief description of your inquiry and one of our consultants will be in touch with you shortly.