Indonesia is one of Southeast Asia’s most promising markets — with a large, young workforce, competitive labor costs, and expanding digital infrastructure. It’s no surprise that many global businesses are looking to hire talent or outsource operations here.
However, one key question often arises:
“Is it legal to use an Employer of Record (EOR) in Indonesia?”
In short — yes, it is legal if the EOR is a properly licensed Indonesian entity and the arrangement complies with local manpower, tax, and immigration regulations. Let’s break down what this means and how to stay compliant.
What Is an EOR in Indonesia?
An Employer of Record (EOR) is a locally registered Indonesian company that legally employs staff on behalf of a foreign business.
While your company manages daily operations and assigns work, the EOR handles all legal obligations — such as employment contracts, payroll, taxes, and BPJS (social security). This allows foreign companies to hire in Indonesia without creating their own local entity.
To be lawful, the EOR must:
- Be a registered Indonesian legal entity (PT or PT PMA)
- Hold valid business licenses under Indonesian law
- Manage employment, payroll, and compliance for all hired staff
Read more : 9 Reasons to Hire Employee in Indonesia Fast
Is an EOR Prohibited Under Indonesian Law?
No. Indonesian law does not explicitly prohibit EOR arrangements.
However, it requires that employment relationships, payroll, and tax obligations are handled by a legal employer based in Indonesia.
Foreign companies cannot directly hire Indonesian employees without a local entity — that’s where an EOR comes in.
By partnering with a compliant EOR, your hiring structure aligns with Indonesian labor law.
When Is an EOR Arrangement Legal?
To ensure your setup is compliant:
- The EOR must be a legitimate Indonesian entity with appropriate licenses.
- Employment contracts must follow Indonesian labor law (written in Bahasa Indonesia or bilingual, including benefits and termination clauses).
- The EOR must handle BPJS registration, income tax (PPh 21), and monthly payroll compliance.
- For foreign employees, the EOR must process work permits (RPTKA, IMTA, KITAS).
- A transparent service agreement must define responsibilities between your company and the EOR.
What Are the Legal Risks of an Improper EOR?
If the EOR arrangement isn’t properly structured, risks include:
- Employee misclassification leading to back payments or penalties
- Tax and social security liabilities for unregistered employers
- Work permit violations for foreign hires
- Termination disputes under strict Indonesian severance laws
- Permanent Establishment (PE) risk, triggering corporate tax exposure
Always verify that your EOR follows all local regulations.
Can Foreign Companies Hire Indonesians via EOR Without a Local Entity?
Yes. That’s the main advantage of the EOR model — it enables hiring local Indonesian talent without setting up a PT or PT PMA.
For foreign nationals, however, proper visa sponsorship and work permits are still mandatory and must be handled by the EOR.
How to Verify an EOR’s Legality
Before choosing an EOR provider, check:
- Legal registration and valid business licenses
- BPJS and tax registration capability
- Bilingual employment contracts (Bahasa Indonesia & English)
- Compliance with outsourcing regulations (Articles 64–66 of Manpower Law)
- Transparent service agreements and audit readiness
Who Should Use an EOR in Indonesia?
An EOR is ideal for:
- Companies hiring a small team (1–10 employees) to test the market
- Businesses that want quick hiring without entity setup
- Firms needing flexibility for short-term or remote projects
- Companies planning to transition to a full PT PMA later
If you’re building a long-term presence or manufacturing base, setting up your own entity may be more suitable.
Staying Compliant While Using an EOR
To minimize legal risk:
- Conduct due diligence on your EOR provider
- Keep clear contracts and documentation
- Monitor regulatory updates regularly
- Ensure tax, BPJS, and payroll compliance every month
- Engage local legal counsel for complex arrangements
Yes — an EOR is legal in Indonesia when structured correctly.
Your EOR must be a legally registered Indonesian entity that assumes full employer responsibilities while your company manages daily operations.
By choosing a compliant provider and maintaining transparent governance, your business can hire safely, enter the market quickly, and remain compliant with Indonesian labor laws.
Thank you for reading this article. If you need more information on how and what tax regulations in Indonesia, WeSrve provides tax and accounting services that will help you to simplify your work tasks.
To learn more about our company and our services, visit our website or contact us through email: support@wesrve.co.id and WhatsApp.
We look forward to serving you and helping you achieve your goals.
