Payroll System in Indonesia
It is always a challenge for any foreign investors to keep up with the accounting regulations in Indonesia, most importantly the one related to payroll regulations. There are so many details that you have to incorporate in your reports. Thus, since payroll system is one of the most important things in business operations, it is crucial to consider fair distribution of employee’s wages or salaries—and other benefits that they receive from working in your company—so that the company’s payroll system can finally have a positive impacts toward the employees’—and at the end—the overall company’s performance.
This article is aimed to help the foreign investors to have better understanding of payroll system in Indonesia
#1. Employee’s Basic Rights
The first basic thing that you need to understand is to know precisely what your employee’s rights are. Here are some rights that your employees must get.
- The typical working hours are 40 hours per week, which means that in average, employees will work approximately 8 hours a day.
- Receive regional minimum wage, which is vary according to province, district, and sector.
- Receive sociajl security (BPJS for the employee/BPJS ketenagakerjaan), which includes work accident insurance, life insurance benefit, and old age benefit (pension) as well as BPJS health care program.
- Receive statutory absence/payment when the employees do not take the annual leave, maternity leave, sickness, and personal leave based on the regulations.
- Receive religious holiday allowance (THR/Tunjangan Hari Raya) based on the regulations.
- Receive overtime rates.
Incentive is the amount of financial reward that the employees receive, apart from the regular wage or salary that they commonly receive. Incentive is given according to the employees’ performances. It can be given in the form of individual incentive or group incentive. The most common incentives given by the employer is overtime benefit. The overtime benefit is the amount of money that the employees get when they perform extra working hour(s). In addition, incentive can also be given for the individual or teams who can reach a certain target set by the company.
#3. Social Security (BPJS Ketenagakerjaan)
The social security (BPJS Ketenagakerjaan) is given to the employees to protect their security while working in the company and when they reach the pension time. Life insurance is also included in this social security (BPJS Ketenagakerjaan). The calculation of the social security (BPJS Ketenagakerjaan) is:
- Occupational accident/work accident insurance, which is 0.24% – 1.74% of the monthly salary, that must be paid entirely by the company.
- Death benefit/life insurance, which is 0.3% of the monthly salary, that must also be paid entirely by the company.
- Pension/old age insurance, which is 5.7% of the monthly salary, that must be paid by both the company (3.7%) and the employee (2%). This pension/old age insurance can be withdrawn when the employees reach 55 years old or at any time after the employees quit working. The employees’ involvement in this social security or BPJS Ketenagakerjaan must be at least 5 years.
#4. Health Insurance (BPJS Kesehatan)
The health insurance for employees must be paid by both the employees and the employer. The maximum amount of money that should be paid by the employer is 4% of the maximum salary of IDR 4,000,000, and the minimum amount that should be paid by the employer is 1% of the employee’s UMR (minimum regional wage). Usually, the employee will receive the benefit of class/type 2, but depending on the company policy, some workers (especially the high level management position) will get an upgraded class.
#5. Tax Reporting
The company should pay and report their taxes in monthly and annual basis. The monthly taxes includes:
- Corporate income tax art 25 (PPh 25) that should be paid on the 15th of the following month at the latest and must be submitted to tax office on the 20th of the following month at the latest.
- Employee Withholding Tax art 21 (PPh 21) that should be paid on the 10th of the following month at the latest and must be submitted to tax office on the 20th of the following month at the latest.
On the other hand, the annual taxes are:
- Corporate Income tax that should be paid before filing the tax return and must be filed at the latest in the end of the fourth month after the book year ends, which is in April.
- Individual Income tax that should also be paid before filing the tax return and filed at the latest in the end of the third month after the book year ends, which is in March.
Any late payment and reporting will cause you to receive penalty that you must pay to the tax office. To avoid the penalty, it is important to consider paying the tax on time.
#6. Leave Regulation
Employees need to follow certain regulations when they want to have a leave. However, every company has to give opportunities for its employees to take the following leaves with the obligation to keep paying their wages/salaries, based on the regulations.
The annual leave is taken with the total of 12 days. The company has the right to allow or postpone the employee’s ability to take the annual leave. The postponement can be done for a maximum of six month. Based on the Indonesian law, there is not any certain regulation, which states the compensation that the employee might get if he/she does not take this annual leave. However, this issue can be put in the employment agreement. During the annual leave, the company has to pay the employees the amount of wages or salaries agreed.
The maternity leave is given for the period of 3 months, and is usually taken 1.5 months prior the delivery and 1.5 months after the delivery. During the maternity leave, the company must give the full wages to the employees. The length of the maternity leave can be extended if there is a recommendation from the doctor.
Should the employees take a leave due to sickness, it shouldn’t reduce the number of annual leave. The amount of wages that should be paid when the employees leave because of sickness is as follow:
- During the first 4 months of absence, the company should give 100% of the wages.
- During the second 4 months of absence, the company should give 75% of the wages.
- During the third 4 months of absence, the company should give 50% of the wages.
- For the subsequent months, the company should give 25% of the wages.
- In addition to menstrual leave (for female workers), the workers are paid full if they cannot perform their duties in the first and second days of menstruation.
The terms of personal leaves are also regulated. There are some conditions in which employees’ personal leaves should be paid, including:
- Worker’s marriage (3 days),
- worker’s child’s marriage (2 days),
- worker’s son’s circumcision (2 days),
- worker’s child’s baptism (2 days),
- worker’s wife giving birth or having a miscarriage (2 days),
- the death of the worker’s close family members (spouse, child, in-laws, parents, or parents in-laws) (2 days),
- and the death of worker’s extended family (1 day)
The very detailed regulation on payroll system must be understood by the company, especially foreign company in Indonesia. Although it is overwhelming information, having someone in your department who can manage the whole things is very crucial. Otherwise, you can also hire a third party to perform everything on your behalf so that you can take care of this payroll system more efficiently and effectively.
If you have any question related to this topic, just let us know and we will try our best to give you the most approachable solutions that suit to your business. Contact us now and we will back to you soon.
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