How to pay international contractors in Indonesia [2025]

Indonesia stands as an excellent choice for global companies seeking to access talent from abroad. Once you've decided to hire independent contractors from this country, ensuring timely and reliable payment becomes crucial.

Beyond just agreeing on payment terms, you must also grasp the various aspects of compensating international contractors in Indonesia. This includes understanding worker classification, streamlining onboarding procedures, and selecting appropriate payment methods—all while fully complying with Indonesia's employment laws and labor laws.

In this comprehensive guide, we'll take you through the entire process of paying your contracted Indonesian talent, from start to finish. Let's begin!

Step #1: Classify your workers in Indonesia

Indonesian law recognizes two distinct categories of workers: full-time employees and independent contractors or freelancers. 

Now, misclassifying employees or contractors, whether intentionally or unintentionally, can lead to severe consequences in the country. This includes substantial penalties, fines, lawsuits, and back payment of employee benefits. It also puts your intellectual property protection at risk if the worker's classification is challenged.

But there's good news: There are steps you can take to avoid misclassification.

Indonesia differentiates between workers based on several critical factors:

• Legal coverage: Employees are entitled to the protections offered by Indonesian employment and labor laws, while contractors do not enjoy the same legal safeguards.

• Job dynamics: Employees work as subordinates to a single company, adhering to set working hours and a designated location. On the contrary, contractors are self-employed and can work for multiple employers.

• Tax responsibilities: Employers handle tax deductions, social insurance, and other employee benefits, whereas contractors are responsible for paying self-employment taxes and providing their own benefits.

• Payment flexibility: Employees typically receive a fixed monthly salary, whereas contractors have the flexibility to set their own payment rates and schedules.

To avoid misclassification risks and protect your IP and invention rights, understanding the essence of being an employee vs. a contractor is key. Here's a chart with indicators to help you clearly distinguish between the two categories of workers:

Step #2: Determine the best way to pay your contractors in Indonesia

The next step to pay contractors in Indonesia is figuring out how to do it. With global workforces and remote work on the rise, you now have several choices to clear the invoices of your Indonesian contractors. Here are some options you can consider:

• Bank transfers: You can either open an Indonesian bank account to deposit funds directly into the contractors' accounts or use your own bank to send a global wire transfer to pay them.

• International money orders: While this old-school method works, it can be slow and come with fees and (not-so-great) exchange rates. Plus, you've got to physically purchase the money order, and your contractors have to do the same for depositing it.

• Digital wallets or payment platforms: The other option is using digital payment platforms like Wise and PayPal for cross-border money transfers. But, keep in mind that not all platforms might be available in Indonesia. Also, exchange rate fluctuations can mess with your expense calculations.

• Global payroll services: It isn't necessary to include contractors in regular payroll because they don't get the same withholdings as employees. Instead, they send invoices for their services, and you manage them through accounts payable. But guess what? With Rippling, you can compliantly pay Indonesian contractors alongside the rest of your global workforce.

Step #3: Use global payroll software to process payments for Indonesian contractors 

Evidently, you have many options to pay your contracted workers in Indonesia. But if you're wondering about the fastest and simplest way, there's a simple answer—using global payroll software. 

With Rippling, you can pay contractors around the world in one place. Here’s a preview of how Rippling’s global payroll system works:

Step #4: Ensure your Indonesian contractors have the right tax information

As an employer hiring independent contractors in Indonesia, you aren't required to deduct taxes from their paychecks. Instead, the latter is responsible for filing and submitting their income tax returns in their country. But, you may need them to fill out tax forms confirming their contractor status in your country.

Suppose you're a US-based company hiring Indonesian contractors. In this case, you'll have to follow the tax compliance regulations set by the IRS. This involves collecting Form W-8BEN from each contractor working outside the US. Additionally, you might need to complete the 1096 Form, which is used for reporting payments to independent contractors. 

Note that the IRS has also signed a treaty with Indonesia regarding taxes. Check it out here.

Effortlessly manage contractors around the world

Expanding your workforce globally has never been easier. Rippling lets you pay international contractors in Indonesia and around the world in one system.

Frequently asked questions about running payroll for contractors in Indonesia