Employee Compensation Benefits: Indonesian Regulations

Important relevant regulations that affect employee contracts and budgeting

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 6 2023 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 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 (UU HPP), which changed UU no 8 2008 Income Tax, and introduced updated withholding rules. Note: effective January 2024, monthly PPh 21 withholding is now calculated using the new Effective Average Rate (Tarif Efektif Rata-rata / TER) system under PP No. 58/2023 and PMK No. 168/2023, simplifying monthly payroll tax calculations for employers.
• PP no 34 2021 regarding Expatriates
• PP no 35 2021 regarding Employment Agreement for a specified period; 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:

1. Minimum Wages — Minimum wages depend on the province and are determined yearly by the local governor. Based on Manpower Law, the fixed salary should be at least 75% of the total monthly compensation benefit. The minimum wages apply to hiring non-staff such as office boys, security guards, operators, etc. To find the amount for your province, Google “upah minimum provinsi _____ tahun 2026” putting the name of the province instead of the blank.
2. Religious Holiday Allowance (THR / “13th-Month Salary”) — 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 has worked for more than one month but less than a year.
3. Non-Permanent Contract Compensation — Based on PP no 35 2021, the company should pay compensation equal to one month’s salary for one year of a non-permanent contract, whether the contract ends or proportionally if the employee resigns.
4. BPJS Ketenagakerjaan — Old Age Security (JHT), Work Accident (JKK) & Death (JKM) — Based on the Social Benefits law, the Employer should pay an Old Age Security (JHT) premium amounting to 3.7% of the salary, and the employee will contribute 2%. The Employer should pay a work accident (JKK) premium from 0.24% up to 1.74% of the salary (depending on the type of industry) and a death (JKM) premium amounting to 0.3%. Based on Government Regulation 37 2021, the government allocates 0.14% of the work accident premium and 0.10% of the death premium to unemployment benefits.
5. BPJS Ketenagakerjaan — Pension Program (Jaminan Pensiun / JP) — Based on Government Regulation no 45 2015 regarding the Pension Program, the Employer should pay a Pension premium of 2% of salary, while the employee will contribute 1%. The maximum wage ceiling for calculating JP contributions is adjusted annually based on Indonesia’s GDP growth rate. As of March 2026, the maximum wage ceiling is Rp 11,086,300 per month, meaning the maximum employer premium is approximately Rp 221,726 and the maximum employee premium is approximately Rp 110,863 per month. Employers should verify the updated ceiling each March.
   ⚠️Note: The ceiling was Rp 9,559,600 in 2022 (as cited in the original article), Rp 10,042,300 in 2024, and Rp 10,547,400 in 2025. It is updated every March based on the prior year’s GDP growth.
   The total 3% contribution may gradually be increased up to 8% under the law.
   Retirement Age: Effective January 2025, the official pension eligibility (retirement) age increased to 59 years. It is scheduled to increase incrementally, reaching 65 years by 2043.
6. Old Age Security vs. Pension — Key Difference — The employee will receive the accumulated Old Age Security (JHT) balance when he/she retires or is terminated. Under the Pension (JP) program, the employee will receive a monthly pension benefit upon retirement. As of March 2025, the minimum monthly pension benefit is Rp 399,700 and the maximum is Rp 3,600,000 per month.
7. Overtime — 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.
8. Health Benefits — Although the current health benefit allowance may vary among 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.
9. BPJS Kesehatan — National Health Insurance — Based on Presidential Regulation no 111/2013, the Employer is required to register employees with the National Health Insurance program (BPJS Kesehatan). The cost of this program is 4% of the salary paid by the employer, with a maximum salary base of Rp 12,000,000 per month (i.e., maximum employer premium of Rp 480,000 per month). The employee contributes 1% of his/her salary (maximum Rp 120,000 per month). The company may pay an additional premium to a private insurance company to supplement health insurance quality.
10. Salary Quotation — Gross vs. Net — The Employer should be aware of candidates’ expectations to have their salary quoted as either “net of tax” or “gross salary.” The candidate employee also 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 is easier to develop a company budget based on the gross amount, as calculating a budget based solely on net pay requires accounting for various deductions.
11. Tax Identification (NPWP/NIK) — Since 2024, Indonesia has integrated the Tax Identification Number (NPWP) with the national identity number (NIK) for Indonesian citizens. Employers should ensure employees have registered their NIK-linked NPWP with the Directorate General of Taxes (DJP). Tax administration is now handled through the Coretax system (effective from PMK 81 of 2024); EFIN and DJP Online are no longer used for annual filing. Annual income tax returns (SPT Tahunan) are still due by 31 March of the following year.
12. Income Tax (PPh 21) — Based on the latest tax regulations, the Employer applies the tax rate on the annual income after deducting non-taxable income (PTKP). Note: for monthly payroll withholding, employers must now apply the TER (Effective Average Rate) system. The progressive annual brackets below are used for the final year-end settlement in December.
13. Severance and Long-Service Pay Accrual — As the company operates over a long period, the employer needs to accrue the obligation for severance pay and reward/long-service pay for employees when they retire or are terminated.

Current Income Tax Rates (Updated 2024, under UU HPP / UU no 7 2021)

⚠️The first bracket was expanded from Rp 50,000,000 to Rp 60,000,000 under UU HPP (effective 2022). The article’s original figure of Rp 50,000,000 was outdated.

Non-Taxable Income (PTKP) — Current Rates

Note: PTKP thresholds have not changed since 2016. Any updates by the government should be verified annually.

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