Employee Compensation Benefits: Indonesian Regulations

Important relevant regulations that affect employee contracts and budgeting

Updated April 2022

Doing business in Indonesia requires basic knowledge about its regulations. Each employee contract and company regulation/collective agreement should comply with the new Job Creation Law UU no 11 2020 and some articles from Manpower/Labor Law UU no. 13 2003. The company should comply with other labour laws, which are the following:

UU no 21 2000 regarding Labor Unions
UU no 02 2004 regarding Industrial Relational Dispute Settlements
UU no 40 r 2004 regarding National Social Security System and Government Regulation no 45 regarding Pension Program and 46 2015 regarding Old Age Security Program
UU no 24 2011 regarding Social Security Organizing Body and Presidential Regulation no 111 2013 regarding National Health Insurance
UU no 7 2021 regarding Tax Regulation Harmonization, which changed UU no 8 2008 Income tax, and PER 16/PJ/2016 regarding Guidance to withhold income tax and report
PP no 34 2021 regarding Expatriate
PP no 35 2021 regarding Employment Agreement for a specified period of time; Outsourcing; Working Time and Rest Time; and Termination of Employment.
PP no 36 2021 regarding Wages

Below are some critical points that you may consider in calculating your company budget for hiring employees in Indonesia:

Minimum wages depend on the province and are determined by the local governor every year. Based on Manpower Law, the fixed salary should be at least 75% of the total monthly compensation benefit. The minimum wages are applicable for hiring non-staff such as office boys, security guards, operators, etc.
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 two weeks before Eid al Fitri for all employees regardless of religion. This calculation will be proportional if a person works for more than one year and less than a year.
Based on PP no 35 2021, the company should pay compensation money equal to one month's salary for one year of a non-permanent contract, whether the contract is ended or proportionally if the employee resigns.
Based on the Social Benefits law, the Employer should pay an Old Age Security amounting to 3.7% of salary, and the employees will contribute 2% of their salary. The Employer should pay a work accident premium from 0,24% up to 1,74% of the salary (depending on the type of industry) and death premium amounting to 0,3% of the salary. Based on Government Regulation no 37 2021, the government have allocated 0,14% of work accident premium and 0,10% of death premium to unemployment benefit.
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 the latest change in 2022 with maximum salary Rp 9.077.600 or the premium is maximum Rp 181.552, while the employee will contribute 1% from his/her salary or the premium is maximum Rp 90,776. This total 3% may gradually be increased up to 8%.
The difference 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 retired
If an employee works more than 40 hours a week, he/she will be eligible to obtain an overtime allowance. The overtime allowance should be calculated based on PP no 35 2021.
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% of salary with a maximum salary of Rp 12,000,000 (just change on 1 January 2020), or the premium is a maximum Rp 480,000 per month. The employee contributes 1% of his/her salary to participate in this National Health Insurance. Although there are many good stories about the benefit of this program, I found there was some progress in administrating the National Health Insurance. However, there is still room for improvements to simplify the process. The company may pay an additional premium to an insurance company to improve the quality of health insurance,
The Employer should be aware of the expectation of candidate employees to have their salary quoted in either 'net of tax' or 'gross salary' amounts. On the contrary, the candidate 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 pay without considering the various deductions that need to be calculated.
Based on the latest tax regulations, the Employer applies the tax rate on the annual income after deducting non-taxable income (PTKP).

Current Tax Rates (January 2022)

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%
More than Rp 500.000.000.000

Non-taxable Income 2016	Tax status
Rp 54,000,000	Single
Rp 58,500,000	Married
Rp 63,000,000	Married with 1 child
Rp 67,500,000	Married with 2 children
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 and reward 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 April 1, 2022