Employee vs. Independent Contractor in Indonesia: What’s the Difference?

Running and growing your business requires you to have the right people from the beginning. This is why you have to have sufficient knowledge of the different employment types in Indonesia to decide which one will best serve your organisation.

Common Types of Workers in Indonesia

Employees and independent contractors are two common types of workers for company employment in Indonesia. Which to hire depends much on your business requirements, risk tolerance, and current financial and business circumstances.

Employees

Employees are hired full-time or part-time in a company. They can also serve at a company on a permanent, temporary, flexible, or fixed-term basis. However, the company will still specify a minimum number of work hours for them which they have to comply with and their job is not transferable.

In return, employers will have to provide employees with a guaranteed monthly salary and other employment benefits. If an employee wants to quit their position in a company, they will have to give the company a particular amount of notice before they can officially leave. Based on the employment contract, both employers and employees carry their sets of obligations, rights, responsibilities.

For example, employers will have to take on potential financial responsibilities risks regarding their employees including monthly salary, minimum wage, social insurance, tax deduction, paid holidays, labour protection, pension, and termination compensation.

Independent Contractors

In Indonesia, businesses also refer to independent contractors to self-employed individuals or consultants. Independent contractors either have their independent companies or are sole traders, who do businesses with employers in the form of service and product provisions.

Independent contractors are usually more flexible and their working hours can be arranged and agreed in advance, depending on the project they are involved in. Their income is based on profits they get from the services or products they sell. Self-employment tax applies to independent contractors.

Unlike full-time employees, if you hire an independent contractor, in general you cannot control how they will complete your project. You can only control the outcome once the project is completed.

Employment Contract is Required for Both Employees and Independent Contractors

An employment contract is pivotal for both employees and independent contractors in Indonesia. What many businesses don’t fully understand about an employment contract is that it has a legally binding effect in an employment relationship through terms and conditions. Drafting an employment contract is not only a law but also a security and protection for both employees and employers.

Yet, having an employment contract is not enough. Most employment contracts in Indonesia are still inadequate or poorly written and inadequate and they may become ineffective. For this reason, you will require a professional of employment contract drafting to help you define all necessary terms that will become legally binding.

How Cekindo can Assist with Recruitment and Employment Contract in Indonesia

Cekindo’s specialised business solutions provide a variety of support relating to recruitment and employment in Indonesia. These cost-saving services range from recruitment outsourcing to employment contracts, on-boarding services to consultancy.

Our recruitment and contract drafting legal team puts their focus on dedicated disciplines, thus they will have a detailed understanding of your employment requirements.

Our solution ensures company positions are staffed on-time within budget, and all contracts and agreements are drafted compliantly – mitigating potential employment litigations.

Cekindo wants to see you have successful employment in Indonesia. Learn more by sending us a message today via the form below.