Payroll in Indonesia: Compliance & Management

6 min read|Last Updated: January 5, 2023|

Upon setting up your company in Indonesia, the next step is to hire employees to take on various aspects of the operations. This includes payroll in Indonesia for your hired employees.

No matter which country you have started your business in, owners like yourself are burdened to file numerous reports and financial details for inspection and submission to tax authorities.

Indonesia is no exception to this and one of the compliances that businesses are required to submit is payroll for their hired employees.

Payroll Compliance in Indonesia

Complying with payroll regulations in Indonesia can be a tedious process for lean companies. For this reason, there are several firms that offer services to assist with payroll of companies that plan to take advantage of the growing economy of Indonesia.

The Investment Coordinating Board of the Republic of Indonesia (BKPM) works with both businesses and the government, thus acting as the go-between. They serve to boost investment, for both domestic and foreign direct, by creating a conducive climate.

Limited liability companies typically take between five and 10 business days to obtain an initial approval, though complete approval may take longer. Applicants will also have to get a tax number through the Tax Office.

Applicants will need to submit the following:

  • initial approval from BKPM
  • a tax number
  • a Deed of Establishment
  • a domicile letter

Once everything has been settled with BKPM, the services and assistance which become available to the company may make management of the company’s payroll in Indonesia a simpler task.

Payroll Management for Indonesian Companies

Payroll management in Indonesia is a vital aspect of running a business. Ensuring accurate payments and paying employees on a timely manner is a time-consuming task.

Payroll processing worldwide needs accuracy. In Indonesia, the rules, and regulations on numerous aspects can be overwhelming as the regulations change consistently. These include:

Therefore, finding a trustworthy firm which specialises in payroll services in Indonesia is a must at some point. While most small companies tend to keep their payroll management in-house, some other companies choose to make the switch to outsourcing their payroll management services. This is to save time and money, while reducing the workload.

What are the Average Salaries in Indonesia?

Salaries in Indonesia range between 3,070,000 rupiah per month to 54,200,000 rupiah per month. The median salary is 11,400,000 rupiah per month; this implies that half of the population earn less than 11,400,000 rupiah every month while the other half earn more than this figure.

The 25th and the 75th percentiles of salaries in Indonesia also reveal some interesting information. According to the salary distribution of Indonesia, 25% of the population earn less than 6,520,000 rupiah every month while 75% of them earn more than that figure.

On the other hand, 75% of the population earn less than 30,800,000 rupiah per month while 25% earn more than that amount.

Employment Act in Indonesia

In every country, there are laws protecting employees. Here are some details for Indonesia’s policy:

Overtime

There is a 40-hour work week with an 18 hours per week, or four–hour a day limit on the amount of overtime which can be taken.

In the case that an employee exceeds the set hours, they will be entitled to overtime pay. Overtime rates are 1/173 of an employee’s monthly salary.

Breaks

Employees are entitled to a minimum of 30 mins unpaid break after every four hours which an employee works.

Exceptions

Those who have a job as a planner or controller are not subject to overtime restrictions, instead, their salary is to reflect their skills and the hours which they work.

Employer Responsibilities

Paperwork regulations in Indonesia regarding the hiring of employees are lenient. However, all employers are required to have a registered contact with the Ministry of Manpower as long as they plan to hire an employee on a temporary basis.

Minimum Wage

Minimum wage only applies to employees who work for employers for less than a year, it is determined by the location of the company and is usually based on the financial needs of the specific province in which the company is located.

As for employees who work for a longer period, they are to negotiate their salary with their employer. The agreements are valid for two years, and negotiations are allowed to begin within three months of the agreements’ expiration.

Payroll Software and Payroll Management

The management of accounts and maintaining of proper records for the manual preparation of a company’s is a complex process that uses up large amounts of time.

Payroll software programs developed for small businesses in Indonesia are not only simple to use but also affordable. These programs are used to calculate taxes and salaries according to the employees’ contracts and the Indonesian tax system.

The use of payroll software is much more efficient for calculation of payment when compared to that of a manual system.

Payroll software programs help to:

  • make information much easier to understand,
  • help business owners create reports,
  • reduce the amount of manual effort to be made,
  • provides many advantages to organizations,
  • ease management of employees’ salaries, wages, and taxes, and other deductions

Calculating salaries accurately builds trust among employees. For this reason, payroll software programs should be used so that business owners will be able to provide accurate calculations.

The following are several of the primary functions of a high-quality payroll software program:

  • Handling of transactions between more than one company
  • Accurate calculation of money to be paid in the form of monthly salary, bonuses, commissions, or advance payments
  • Generation of various management, payroll and operational reports
  • Maintenance of employees’ personal profiles

Aside from software, companies in Indonesia also often engage professional firms to handle their payroll management.

We at Paul Hype Page & Co provide outsourcing of payroll management and other accounting services. We will help your company save much money and time through the use of our services. They will allow you to then place more emphasis on other important aspects of the operation of your company.

Starting a Business in Indonesia

If your company requires assistance with accounting or payroll functions, we at Paul Hype Page are able to assist and serve your needs in this area. Our expert accountants will work with you to ensure compliance and prompt payments. We will ensure that all the steps we take are completely legal in Indonesia and any other country involved.

OUTSOURCE YOUR BUSINESS FUNCTIONS TODAY

Come to our office or get in touch virtually for a consultation on outsourcing your audit, accounting, and payroll with us today.

FAQs

What is the punishment for late taxes in Indonesia?2021-11-09T11:04:40+08:00

Ans: In the case of late payment, an individual may be subjected to an interest penalty, this will be calculated from the tax underpaid and subjected to an interest rate implemented by the Ministry of Finance on a monthly basis. As for late filing, there is a penalty of IDR100,000. 

What is the recent history of the minimum wage in Indonesia?2021-11-09T10:59:35+08:00

In 2019, the official minimum wage in Indonesia is 3.94 million rupiah per month. This figure represents an increase; the figure was 3.6 million rupiah per month in 2018. In general, the minimum wage in Indonesia has steadily risen. 

Have the changes in the minimum wage in Indonesia been affected by the value of the rupiah?2021-11-09T10:59:06+08:00

In recent years, the value of the rupiah has declined. Over the last decade, the value of the rupiah has fallen from approximately 9,000 rupiah to the US dollar to approximately, 14,000 rupiah to the US dollar. Therefore, although the nominal value of the minimum wage has risen, the actual value of the minimum wage in Indonesia has fallen because of the decline of the rupiah’s value. 

What taxes must be paid by foreign companies operating in Indonesia?2021-11-09T10:57:10+08:00

The laws regarding taxation in Indonesia, depend upon whether the company in question employs any foreigners. Some of the primary taxes to be paid by a foreign company operating in Indonesia are individual income tax for employees in Indonesia, capital gains tax, withholding tax, payroll tax, business tax, and sales tax. 

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