Bali is like an "elite psychiatric clinic." Everyone smiles at you, is always friendly, and this greatly relaxes our stressed minds that are worn out from constant pressure.
After some time living on the island—after about a year—you start to adapt to this new norm of communication. Friendliness becomes mandatory, a smile rarely leaves your face, and making new acquaintances comes surprisingly easy.
It seems that for business, you need exactly such employees—always friendly, open, and ready to help… You are simply charmed by interacting with them; they become your friends. What could go wrong if you hire good people and provide them with an additional source of income?
The Myth of Needing to Hire Indonesians in Your Business
Let’s clarify this right away. You are not obligated to hire any number of Indonesian workers for your business..
You can read about how to open a business in Indonesia step by step here: https://bali-legal.com/en/osobennosti-biznesa-polnyij-gajd-2024-en.
The only situation where you may be required to hire local employees is if you officially employ a foreigner in your company.
In that case, there is a requirement to hire at least 10 employees for each officially employed foreigner.
However, hiring 1-2 Indonesians for your company in roles such as:
Sales Manager: As the founder, you cannot sell your services directly to clients, so someone else must do it.
Advertising Placement: You also cannot engage in advertising while holding an investor's residence permit. What is an investor's residence permit? - https://bali-legal.com/en/kitas-company-en.
This way, you can address any potential scrutiny from the immigration authorities if it arises in the future.
How to Hire Balinese? Freelance Contract
Despite the openness and friendliness of the local population, in the workplace, they often:
Do not strive for development. You will need to show them pathways for growth and negotiate.
Learn slowly. This is often due to a lack of motivation.
Are not motivated by money. They can be quite envious of others' success and believe that if you have achieved something, “the island helped you, and you should share”.
Do not listen to foreign supervisors. Their main authority figures are local community leaders or managers from their own background.
Can easily leave work and disappear for 3 to 4 days, claiming that you hurt their feelings and that they no longer wish to have anything to do with you =);
Additionally, there are various holidays on Bali that celebrate the Gods, which you will need to take into account about half the year.
In conclusion, one side is friendliness and openness, while the other is immaturity, naivety, and even relative foolishness, which can be very difficult for someone with a European mindset to understand.
It is indeed hard to accept that for a Balinese worker:
Everything that happens is given by the Gods, the island, but NOT by their own efforts.
Your business will always be ranked 4th or 5th after the temple, family, and themselves. Therefore, no amount of coercion or manipulation will work.
It is easier for them to leave a place where they feel “offended” than to endure humiliation. Anything can be perceived as an insult.
A supervisor cannot speak to them in a commanding tone. It is better to adopt a more inquiring, gentle approach. For example, “Could you try doing it this way? Do you like this idea?”.
All of this is because Balinese people are, in fact, LARGE CHILDREN. Due to the peculiarities of local life laws, they remain teenagers at heart, even at a very mature age. This results in a lower quality of services, yet it also leads to genuine smiles and a fundamentally different understanding of the laws of life.
To fill positions in your business and avoid making mistakes right away, start hiring not with official employment (which I will discuss below) but with a freelance contract.
ADVANTAGES:
It can be easily terminated by either party at any time.
You pay a fixed tax of 3% on payments.
It has a limited duration and can be made for as little as 1 month, allowing you to better get to know the employee and their professional qualities.
It clearly outlines what the employee should do and during which hours.
DISADVANTAGES:
This contract gives quite a bit of freedom to the hired employee.
Employment Contract
You can only terminate someone who is officially employed. Here are the figures related to official employment:
You pay income tax ranging from 5% to 35% (progressive scale). On an average salary of around 1,000 USD, approximately 80 USD will go to taxes. You can find more about taxes here - https://bali-legal.com/en/nalogi-v-indonezii-en.
You contribute around 6% to the pension fund and social security fund.
You must pay a mandatory bonus equivalent to 13 months' salary to the employee at the end of the calendar year.
You fall under the requirements for the employee termination process.
The employment contract can be fixed-term (for example, for 3 months) or indefinite (for at least 1 year).
ADVICE:
Always start official employment with a fixed-term contract that includes a probation period.
ADVANTAGES:
You do not have to pay mandatory bonuses at the end of the year.
If the employee is not suitable, you can simply wait until the contract ends and choose not to renew it.
The employee is at your disposal for the entire working day.
DISADVANTAGES:
It is still an employment contract, which means you either have to wait for it to end or terminate the employee during the contract period.
How to Terminate Employees in Bali?
Terminating Balinese employees is a very sensitive process for them. It often starts with you or your foreign employee saying something thoughtless, like “I need you to do this faster and better.”
And the next day, no one shows up for work. And the day after that, and the day after that.
It’s clear that the relationship is already damaged, and such an employee, feeling deeply offended and hurt, will no longer benefit the company. But, essentially, what did you actually do?
Unfortunately, local legislation often protects the interests of employees and favors their side, stipulating the following termination procedure (step by step):
1 - Mandatory Official Notification: The employee must be officially notified of the intention to terminate their employment. This preliminary notice is sent via email or messaging app one month before the planned termination date.
2 - Support for Improvement: After the preliminary notice is sent, the company has two weeks to assist the employee in improving their performance by implementing a series of measures. These may include:
Registration for training sessions;
Joint workshops;
Master classes, etc.
3 - Official Termination Letter: After two weeks, if the employee's performance remains low, an official termination letter is sent. This is done approximately two weeks before the termination date, also via email or messaging app.
In this case, upon termination, the business is required to:
Compensate the employee with at least one month’s salary;
Provide a full settlement for all time worked from the date of hire to the termination date according to the employment contract.
Disputes over employee terminations in Bali can be quite heated, and there are instances where businesses have compensated up to 12 months salary because the employee felt outraged and deeply insulted by the treatment they received, as well as due to violations of immigration and tax legislation that were known to the employee.
If you need advice on hiring or terminating employees, CONTACT US via TELEGRAM OR WHATSAPP for quick communication.
Together, we will make life on the island comfortable and legal!
