• Payroll in Indonesia
Newsletter:

Payroll in Indonesia

09 January 2018

Each country in the world has a different economy system. Hence, it affects the labor remuneration system as well. Indonesia as a developing country is extremely vibrant and active, therefore, it is always a challenge for any foreign investors to keep up with the regulations. Especially with the amount of reports and financial details that need to be filed and submitted to the tax authorities. As one of the most important things in business operations, here are some primary rules associated with payroll:

1. Employee’s Basic Rights

  • The typical working hours for full-time employees are 40 hours per week and in average employees will work approximately 8 hours a day
  • Receive regional minimum wage, however it may vary according to province, district and industry
  • Receive government’s social security and health insurance program
  • Receive statutory payment when the employees do not take the annual leave, maternity leave, sickness, and personal leave based on the regulations
  • Receive religious holiday allowance based on the regulations
  • Receive overtime rates (this may vary depending on work and business industry)

2. Incentives

Incentive is the amount of financial reward that the employees receive, apart from the regular salary that they commonly receive. It can be given in the form of individual or group incentive. The most common incentives are overtime benefit and anyone who can reach a certain target set by the company.

3. Social Security

BPJS Ketenagakerjaan is mandatory for every employee to protect their security while working in the company. This social security includes work accident insurance, life insurance, provident fund benefit, and pension fund. The calculation of BPJS Keternagakerjaan is:

  • Occupational accident/work accident insurance which is 0.24% - 1.74% of the monthly salary that mist be paid entirely by the company
  • Death benefit/life insurance which is 0.3% of the monthly salary that must also be paid entirely by the company
  • Provident fund benefit, which is 5.7% of the monthly salary, that must be paid by both the company (3.7%) and the employee (2%). This can be withdrawn when the employee reach 55 years old or at any time after the employee quit working
  • Pension fund/old age insurance which is 3% of the monthly salary, that must be paid by both of the company (2%) and the employee (1%)

4. Health Insurance

BPJS Kesehatan is mandatory for every employee as well. This health insurance paid by both the employees and the employer. The maximum amount of money that should be paid by the employer is 4% of the maximum salary of IDR 8,000,000 and the minimum amount that should be paid by the employer is 1% of the employee’s minimum regional wage.

5. Tax Requirements

The company should pay and report the Employee Withholding Tax Article 21 (PPh 21) and it must be paid on the 10th of the following month at the latest and must be submitted to the tax office on the 20th of the following month at the latest. Any late payment and reporting will cause a penalty that is payable to the tax office.

6. Leave, Maternity, and Sick time

After one year of service, workers are entitled to at least 12 days of leave. New mothers are entitled to 3 months of paid maternity leave with no time-off consideration given to fathers. In addition, workers are allowed to take personal leave for weddings, deaths, and etc.

7. Salary Structure Submission

The Structure and Scale of the Salary is the composition of the wages from the lowest to the highest and vice versa, which includes the range of nominal wages for each class position / job position.

The Structure and Scale of the Salary shall be prepared by each company with regards to the grouping of positions, duration of employment, education and competence. This Structure and Scale of the Salary will need to be appointed by the management of the company in the form of company decree.

Each company shall arrange and implement the Structure and Scale of the Salary according to the regulations of the Ministry of Manpower Number 1 Year 2017 no later than 23rd of October 2017 for existing company. All new companies that are established after this date will be automatically required to prepare one as soon as the company is set up.

For more information how BDO Indonesia can help you navigate this change, please contact our technical team at: corsec.helpdesk@bdo.co.id