Employer of Record: Complete Guide To Establish Business in Indonesia

Business expansion is a time-consuming process that involves a lot of paperwork, regulatory compliance, and complex payroll procedures. 

The ideal approach to recruit abroad, in the past, was to establish a local business, or subsidiary company, in another country. 

However, many businesses have recently opted for a faster and more affordable technique of worldwide hiring: using an Employer of Record (EOR).

In Indonesia, the number of foreign companies working with Employer of Record (EoR) service providers has continuously increased. This is due in large part to Indonesia’s huge working-age population and lower wage rates when compared to its neighbors. 

EoR services are particularly useful when a foreign company wants to see if the Indonesian market is right for them (before officially establishing a presence).

EOR services help businesses avoid the bureaucratic stumbling blocks of global hiring, comply with local labor regulations, and relieve the burden on HR and legal–all while improving employee satisfaction. 

Before looking at these more closely, it’s important to understand:

  1. What an Employer of Record is and what it isn’t?
  2. Why is it Important?
  3. Why is the most effective legal solution for foreign companies planning to expand/hiring in Indonesia?


Take a look at Abhitech EOR Service EOR 

What is Employer of Record

Simply put, an employer of record is a company that manages payroll taxes, workers’ compensation insurance, and other employee benefits while employees work for another company.

Consider it a payroll and compliance department that is outsourced.

Employer of record corporations are in charge of payroll and many of the responsibilities that a regular employer would have. This includes ensuring that all payroll, workers’ compensation, and other benefits are in accordance with federal and state labor laws.

Despite different definitions for each term, EoR is also known as Professional Employer Organization (PEO), Foreign Enterprise Service Company (FESCO), Local Employer, or Back-office Staffing.

Employer of record services:

  • Hire worldwide employees on your behalf
  • Generate locally compliant employment contracts
  • Run background checks
  • Register and file employment taxes
  • Process and distribute payroll
  • Administer benefits and perks to global employees
  • Onboard new hires
  • Terminate and re-hire employees

Why EoR is important for your business?

  • Testing the Indonesian market (before officially establishing a presence).

Why limit your business by only hiring staff from one area when talent knows no limits? In fact, diverse perspectives and work experiences from your staff could be the key to realizing your full potential and getting your company to where you want it to be.

Understanding your position in the business lifecycle just might help you stay a bit ahead of the game here and defy the odds, as you anticipate the potential challenges and obstacles that are upon you or are on the way depending on what phase you are in or about to transition to.

  • The Benefits of Recruiting International Talent

Why limit your business by only hiring staff from one area when talent knows no limits? In fact, diverse perspectives and work experiences from your staff could be the key to realizing your full potential and getting your company to where you want it to be.

Allowing your staff to work from anywhere they wish will make you a more attractive employer and attract top talent from across the world. 

Indonesia will soon enjoy a demographic bonus. This makes the productive age group the majority population in Indonesia

The National Population and Family Planning Board (BKKBN) estimates the nation’s young age population will likely peak between 2025 and 2035, when the productive age population outnumbers the elderly and children. 

Around 60 percent of Indonesia’s population of about 250 million population is in the working-age of 15 to 64 years old. Such a youthful population is attracting companies abroad to tap into Indonesia’s potential labor pool.

Increase your employees’ flexibility and independence to keep them motivated!

Finally, recruiting global talent makes it much easier to enter new markets and helps you to quickly scale your business to respond to global trends.


The Challenges and Best Solution of International Expansion

Unfortunately, employing workers from another countries is not always simple. 

If you recruit a new employee, you are legally obligated to pay their taxes as well as social security benefits such as health insurance, retirement payments, and unemployment insurance.

The trouble is that if your new hire doesn’t live in your country, you’ll have to make these payments in their home country—which is frequently only doable if you own a legal company in that country, which requires a lot of paperwork and money.


Solution: Employer of Record

Working with a third party that provides an international employment solution helps you to avoid the stress of figuring out how to hire global talent. 

Employer of Record will act as the legal employer, while you retain control over your new employee’s day-to-day operations.

The employer of record ensures that your new employee meets all local legal obligations, including paying taxes and receiving social security benefits.


  1. There is no need to set up a local business.

It comes as no surprise that the procedure of creating a company differs from country to country. 

Three major aspects should be considered by foreign investors and companies establishing a business in Indonesia.

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

When you consider the cost, time, and resources required to manage the mentioned processes, the advantages of using an EoR service for organizations looking to hire Indonesian workers become obvious.


  1. Compliance of Indonesian labor laws and regulations

In Indonesia, an EoR service provider complies with all federal, state, and provincial regulations. 

Corporate compliance can become a big obstacle if a company is unfamiliar with Indonesia’s company law and investment law, especially as the country’s labor and immigration rules are being reformed. 

To avoid legal consequences, an employer might delegate all employment responsibilities and duties to an EoR service provider.


  1. Outsourcing HR Functions So You Can Focus On Your Core Business

Only Indonesian citizens are eligible to work in human resources, locally-based employees must have their payroll issued by an Indonesian company, and’remote payroll’ – compensation sent from a company’s home country – is not permitted in Indonesia. 

As a result, an EoR service provider handles all areas of human resource management.


Abhitech 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


Abhitech as your Indonesian Employer of Record Provider

Recent regulatory reforms designed to improve Indonesia’s investment climate are rapidly evolving, making it difficult for entrepreneurs to stay up. 

Abhitech delivers over three decades of experience or 30 years doing business in Indonesia to our clients as a market-entry consulting firm, and EoR is one of many business process outsourcing services we can advise and implement.

Expand and Test Your Market in Indonesian now!

Fill out the form here with a brief explanation of your EoR inquiry, and one of our consultants will contact you as soon as possible.


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