This study examines the impact of employment types through formal employment rates on non-performing financing (NPF) in small Islamic banks (BPR Syariah) in Indonesia. This study analyzes panel data from 2019 to 2023 obtained from the quarterly financial reports of small Islamic banks published by the Financial Services Authority (OJK). Using the purposive sampling method, the dataset consists of 831 small Islamic banks listed in OJK, with 1 bank not issuing financial statements, resulting in an adjusted total of 830 banks. Multiple linear regression with the Fixed Effect Model is used to examine the relationship between formal employment rates (FER) and NPF, with data processing conducted using Stata 14. The results show that the formal employment rate (FER) has a significant negative effect on NPF. Robustness checks using the FD-GMM and SYS-GMM model confirm this finding. These results suggest that higher formal employment levels reduce the risk of non-performing financing in small Islamic banks.