Payroll Management in Indonesia

Having a business and employees involved to handle payroll every month. Payroll management in Indonesia can be complicated due to some mode of calculation. There are different aspects to take into consideration.

PAYROLL LEGAL ASPECT

A person is considered as an employee and under payroll if this person has a working contract under the company. Each employee under the company needs a working contract PKWT or PKWTT. Those 2 types of contract are fixed-term contracts and indefinite-term contracts. The working contract defines the day of the payroll. The common practice is to pay the salary the first day following the month worked by the employee.

The salary has to be paid on an Indonesian Bank account in Indonesian Rupiah.

MINIMUM WAGE IN INDONESIA

Minimum wage in Indonesia is defined by Kapubaten at the local level in each province. For example the minimum wage in Jakarta (Rp5,067,381 )and in Bali can be different but also between each Kapubaten in Bali.

• Badung Regency: Rp 3,318,628
• Denpasar City: Rp 3,096,823
• Gianyar Regency: Rp 2,928,713
• Tabanan Regency: Rp 2,913,164
• Jembrana Regency: Rp 2,813,672
• Karangasem Regency: Rp 2,813,672
• Klungkung Regency: Rp 2,813,672
• Bangli Regency: Rp 2,813,672

WORKING HOURS IN BALI AND INDONESIA

Indonesia authorizes employers to fix the working hours in two possible ways: either 7 days a week for 7 hours a day or 5 days a week for 8 hours a day. Additionally, the maximum authorized working hours must not exceed 40 hours per week.

Employers are authorized to request overtime from their employees with a maximum of 4 hours per day (18 hours per week). To compensate employees for their extra hours, the employer must pay the first hour 1.5 the hourly wage and 2 times the hourly wage for the overtime.

Sick Leave

Indonesia is very protective of employees, and sick employees can cost companies a lot. Employees who are sick or injured are forced to pay sick leave if the employee can provide a medical certificate. Employers can request a counter inspection. 

• First 4 months: 100% of wages.
• 5th to 8th month: 75% of wages
• 9th to 12th month: 50% of wages
• After 1 year until termination: 25% of wages

Maternity Leave and Paternity leave

Pregnant employees can get 3 months of fully paid maternity leave (1.5 months before giving birth and 1.5 after). 

Fathers can also get 2 days of paid leave for the birth of their child. Employees  are also able to get paid leaves for the following:

• 2 days for the circumcision or baptism of their child.
• 2 days for their child’s wedding.
• 2 days for the death of their child.

Annual leave

Indonesia is one of the countries with the highest number of public holidays. Each religious festive holiday is represented in the calendar. Employers in Indonesia must provide employees with at least 12 days of paid annual leave each year, in addition to all public holidays. The 12 days are granted after completing one year in the company. The number of leave days can be more than 12 days if the employer states it in the contract. Employees can also get additional leave days if they have spent more than six years in the company.

• Seventh year of service: One month of leave.
• Eighth year of service: Another one month of leave

13th Salary THR

In Indonesia, payroll management must account for unique cultural and legal aspects, such as defining an employee’s religion, which is necessary for calculating THR (Tunjangan Hari Raya). Religion is mandatory in Indonesia and influences employee benefits, including the 13th-month salary paid during major religious celebrations. Employers must integrate these factors into their payroll management Indonesia to ensure compliance and employee satisfaction. The full month is payable only if the employee has been in the company for 1 year (proportionally to the number of months in the company before one year).

Also read: Working contract in Indonesia: A guide for your agreements

Never worry about taxes and accounting again

Dealing with finances, taxes, and accounting can feel overwhelming, especially as a foreigner in Indonesia. Let us guide you through processes like tax calculation, payroll, personal or corporate tax, short-term investments, balance sheet analysis and much more.

With ILA by your side, nothing can go wrong. Schedule a free consultation today or learn more about our tax and accounting services.

CONTRIBUTION AND TAX IN PAYROLL MANAGEMENT INDONESIA

Indonesia requires employers to withhold tax and salary contributions before paying the employee the net. Employers must negotiate the Gross salary with their employees as the contribution can change depending on the employee’s marital status and the number of kids.

BPJS Kesehatan – Health insurance

BPJS Ketenagakerjaan – Pension and retirement

Effective Tax Rate and Income Tax

Since January 1, 2024, the Indonesian government has simplified the calculation of income tax Article 21 by introducing three categories, each with an effective tax rate applied.

Payroll management in Indonesia must consider varying tax rates for different employee types. The tax system treats monthly salaried employees differently from daily or non-monthly workers, such as non-permanent employees. Proper classification and understanding of these distinctions are crucial for effective payroll management in Indonesia. Moreover, ensuring compliance with tax regulations is key to maintaining smooth operations and avoiding potential legal issues.

The calculation applies from January to November while the employer still needs to calculate the Article 21 applicable to an individual taxpayer at the end of the year.

ETR for category A

The ETR below specifically applies to the monthly gross salary of an employee within category A. Furthermore, we recommend contacting us to learn more about the different tax rates applicable to each category.

Non-Taxable Income (PTKP):

The Penghasilan Tidak Kena Pajak (PTKP) exempts individuals earning below a certain amount from paying income tax on their salary. In 2024, the authorities set the amount at IDR 54,000,000 annually.

Also Read: Taxation In Indonesia: What Companies Need To Know

Progressive tax rate on Personal income tax in 2024

Employers still have to apply a reconciliation at the end of December by applying the progressive tax rate.

• Up to IDR 60,000,000: 5%
• IDR 60,000,001 – IDR 250,000,000: 15%
• IDR 250,000,001 – IDR 500,000,000: 25%
• IDR 500,000,001 – IDR 5,000,000,000: 30%
• Above IDR 5,000,000,000: 35%

When to pay the salary tax and contribution in Bali and Indonesia

Each month the employer needs to prepare the calculation and pay the income tax and all contributions to the different authorities such as the tax office and the BPJS.