Navigating the tax system in one’s own country is no walk in the park. Getting familiar with the payroll system in another country, however, presents tougher challenges as well as possible misunderstandings.
The payroll system in Indonesia is no exception: its rather complex tax system and ever changing laws make it tricky for foreign investors to keep up with the regulations and the amount of paperwork that needs to be submitted to the tax authorities.
Payroll System in Indonesia & Working Conditions
Employees Basic Rights
The typical working hours for full-time employees are 40 hours per week -approximately 8 hours a day over 5 days.
By law, employees must be paid a regional minimum wage, which varies according to province, district and industry
Employees are entitled to social security and health insurance scheme.
Employees are to receive a statutory payment in lieu of annual leave, maternity leave, sickness and personal leave based on their employment contract
Employees are entitled to religious holiday allowance based on their employment contract
Employees are entitled to overtime rates. Again, these may change according to the employer and type of industry.
IncentivesAn incentive is a financial reward that employees receive on top of their regular salary. Incentives can be provided in the form of individual or group incentives and usually consist of overtime benefits (an amount of money that employees receive when they work extra hours) or as rewards for having reached a certain target set by the company.
Social SecurityBPJS Ketenagakerjaan is a mandatory payment to ensure that employees are financially protected while working for their employer. These funds include work accident insurance, life insurance, provident fund benefit and pension fund. The BPJS Keternagakerjaan is calculated as follows:
Occupational accident/work accident insurance is 0.24% – 1.74% of the monthly salary, which must be solely paid by the company.
Death benefit/life insurance is 0.3% of the monthly salary, which must be solely paid by the company.
Provident fund benefit, which is 5.7% of the monthly salary. This benefit must be paid by both the company (3.7%) and the employee (2%) and can be withdrawn when the employee reaches 55 years of age or leaves the company.
Pension fund/old age insurance is 3% of the monthly salary and must be paid by both the company (2%) and the employee (1%).
Health InsuranceIn Indonesia, BPJS Kesehatan is another case of mandatory payment and is shared between the employee and the employer. The maximum amount of money to be paid by the employer is capped at 4% out of a maximum salary of IDR 8,000,000 and the minimum amount paid by the employee is 1% of the employee’s minimum regional wage.
Tax RequirementsThe company should pay and report the Employee Withholding Tax Article 21 (PPh 21) which is due by the 10th of the following month and must be submitted to the tax office by the 20th of the following month. Any late payments and reports will incur a fine that is payable to the tax office.
Annual Leave, Maternity and Sickness PayRules and conditions concerning employees’ paid leave vary from company to company and usually require employees to follow a standard procedure.