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Employee Compensation Benefits: Indonesian Regulations

Important relevant regulations that affect employee contracts and budgeting

Updated January 2020

Doing business in Indonesia requires basic knowledge about its regulations. Each employee contract and company regulation/collective agreement should comply with Manpower/Labor Law UU no. 13 Year 2003. This law is one of the most important labor laws in Indonesia that should be implemented and complied with. Other important laws are:

  • UU no 21 Year 2000 regarding Labor Unions
  • UU no 02 Year 2004 regarding Industrial Relational Dispute Settlements
  • UU no 40 Year 2004 regarding National Social Security System and Government Regulation no 45 regarding Pension Program and 46 Year 2015 regarding Old Age Security Program
  • UU no 24 Year 2011 regarding Social Security Organizing Body and Presidential Regulation no 111 2013 regarding National Health Insurance
  • UU no 36 Year 2008 regarding Income Tax, and PER 16/PJ/2016 regarding Guidance to withhold income tax and report


In 2015, Government of Indonesia have imposed companies to join with National Health Insurance and Pension Program which increase the employment cost. Below are some important points that you may consider in calculating your company budget for hiring employees in Indonesia:

  • There are minimum wages that depend on the province and are determined every year by the local governor. This is applicable for hiring non staff such as office boys, security guards, operators, etc.  Based on Manpower Law, the fixed salary should be at least 75% of the total monthly compensation benefit.
  • Besides a monthly salary, there is religious holiday allowance or "13th month salary" which should be paid at least one week before the holiday of the employee's choice - either Eid al Fitri or Christmas. Many companies pay this holiday allowance before Eid al Fitri for all employees regardless their religion. If a person has been hired less than a year ago, but more than one months this allowance will be calculated proportionally.
  • Based on the Social Benefit law, the employer should pay an Old Age Security amounting 3.7% from salary and the employees will contribute 2% from their individual salary. The employer should also pay a work accident premium of between 0,24% up to 1,74% of the salary, depending on the type of industry and death during working premium amounting to 0,3% of the salary.
  • Based on Government Regulation no 45 2015, regarding Pension Program which is issued in June 2015, Employer should pay additional Pension premium 2% from salary with maximum salary Rp 8,512,400 or the premium is maximum Rp 170,248, while the employee will contribute 1% from his/her salary or the premium is maximum Rp 85,124. This total 3% may gradually be increased up to 8%.
  • The different between Old Age Security and Pension, the employee will get the accumulated of Old Age Security, when he/she retire or is terminated, while the employee will get a certain amount between Rp 300,000 up to Rp 3,600,000 per month, when he/she retire
  • If an employee works more than 40 hours a week, he/she will be eligible to obtain overtime allowance. The overtime allowance should be calculated based on Ministry of Manpower Decree No 102/Men/IV/2004 which is applicable for all companies except for oil and gas companies. Oil and gas companies should pay overtime allowance based on Ministry of Manpower Regulation No 4/2014.
  • Although the current health benefit allowance may vary amongst companies, the most common health benefits are maximum of a month's salary or a cap to a certain amount for higher level employees. Some companies appoint an insurance company to provide inpatient and outpatient insurance.
  • In addition, based on Presidential Regulation no 111/2013, the employer should register the employee to join with National Health Insurance. The cost of this program is 4% from salary with maximum salary Rp 12,000,000 (just change in 1 January 2020) or the premium is maximum Rp 480,000 per month. The employee contributes 1% of his/her salary to participate this National Health Insurance. Although there are many good stories about the benefit of this program, I found there were some progress in administrating the National Health Insurance, although there are still room for improvements to simplify the process. To improve the quality of health insurance the company may pay an additional premium to an insurance company that works together with BPJS Kesehatan.
  • When hiring employees, the employer should be aware of the expectation of employees to have their salary quoted in both 'net of tax' or 'gross salary' amounts and the employee needs to fully understand that their take home pay will have several deductions from the gross amount. If the salary is quoted in a net amount, the employer should gross up the amount to obtain the gross salary. It will be easier to develop a company budget based on the gross amount, because it is complicated to calculate a budget based solely on the net salary without taking into account the various deductions that need to be calculated.
  • Based on the latest tax regulations these are the tax rates which are based on annual Income after the deduction of non-taxable income (PTKP).

Current Tax Rates (January 2020)

Annual income after deduction of non-taxable  income

Tax rate

Rp 0 up to Rp 50.000.000

5%

More than Rp 50.000.000 up to Rp 250.000.000

15%

More than Rp 250.000.000 up to Rp 500.000.000

25%

More than Rp 500.000.000

30%


Non-taxable Income 2015
Non-taxable Income 2016

Tax status

Rp 36,000,000

Rp 54,000,000

Single

Rp 39,000,000

Rp 58,500,000

Married

Rp 42,000,000

Rp 63,000,000

Married with 1 child

Rp 45,000,000

Rp 67,500,000

Married with 2 children

Rp 48,000,000

Rp 72,000,000

Married with a maximum of 3 children

  • As the company operates for a long period of time, the employer needs to accrue the obligation of severance pay, reward pay, and compensation for housing allowance which is 15% from the total obligation of severance pay and reward pay for the employee when they retire.


As the regulations may be changed from time to time, you may contact Sutjipto at PT WPS for further information.

Our thanks to Sutjipto Budiman of PT Widya Presisi Solusi for sharing this information on Employee Compensation with the community.

Last updated January 24, 2020