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Employee Compensation Benefits: Indonesian Regulations

Important relevant regulations that affect employee contracts and budgeting

Updated March 2018

Doing business in Indonesia requires basic knowledge about its regulations. Each employee’s 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 31/PJ/2012 regarding How to withhold income tax and report

In 2015, the Government of Indonesia regulated that companies must join with National Health Insurance and Pension Program which increases the employment costs. These benefits must be paid whether the employee is part-time or full time. Below are some important points that you may want to consider in calculating your company’s budget for hiring employees in Indonesia:

  • There are minimum wages that are determined by province each year by the provincial governor. This is applicable for hiring non staff such as office boys, security guards, operators, etc.  Based on the Manpower Law, the fixed salary should be at least 75% of the total monthly compensation benefit.
  • Besides a monthly salary, there is a 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 of their religion. If a person has been hired less than a year before, but for more than one month this allowance will be calculated proportionally.
  • Based on the Social Benefit law, the employer should pay an Old Age Security amounting 3.7% from the 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 the Pension Program which was issued in June 2015, employers should pay an additional Pension premium of 2% from the salary with a maximum salary of Rp 8,094,000 or the maximum premium of Rp 161,880, while the employee will contribute 1% from his/her salary or the maximum premium of Rp 80,940. This total 3% will be valid for at least 3 years and gradually can be increased up to 8%.
  • The difference between Old Age Security and Pension, the employee will receive the accumulated Old Age Security, when he/she retires 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 retires.
  • 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 a maximum of one 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, although this program was delayed in the first semester in 2015, the employer should register all employees in the National Health Insurance. The cost of this program is 4% from the salary to a maximum salary of Rp 8,000,000 or a maximum premium of Rp 320,000 per month. With increasing the non-taxable income, the maximum premium will be Rp 420,000 per month. The employee contributes 1% of his/her salary to participate in the National Health Insurance. Although there are many good stories about the benefits of this program, I find a lot of things should be improved in administrating the National Health Insurance including simplifying 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 current tax rates (2018) which are based on annual Income after the deduction of non-taxable income (PTKP).

Current Tax Rates (March 2018)

Annual income after deduction of non-taxable  income

Tax rate

Rp 0 up to Rp 50.000.000


More than Rp 50.000.000 up to Rp 250.000.000


More than Rp 250.000.000 up to Rp 500.000.000


More than Rp 500.000.000


Non-taxable Income 2015
Non-taxable Income 2016

Tax status

Rp 36,000,000

Rp 54,000,000


Rp 39,000,000

Rp 58,500,000


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 over 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 March 21, 2018