A Complete Guide to Indonesia Payroll Calculation

It is always a challenge for any foreign investors to keep up with the accounting regulations in Indonesia, most importantly the ones related to payroll regulations, the payroll system, and Indonesia payroll calculation. There are so many details to incorporate in your reports.

Since the payroll system is one of the most important things in business operations, it is crucial to consider the fair distribution of employee’s wages or salaries and other benefits they receive from working in your company with the right Indonesia payroll calculation. This way, the company’s payroll system can have a positive impact on the employees. In the end, the overall company’s performance improves as well.

This article aims to help foreign investors to have a better understanding of the payroll system in Indonesia.

Understanding Indonesia Payroll Calculation System

1. Employee’s Basic Rights

The first basic thing to understand is to know precisely your employee’s rights. Here are some rights that your employees must get.

• The typical working hours are 40 hours per week. On average, employees work approximately 8 hours a day.
• Receive regional minimum wage varies according to province, district, and sector.
• Receive social security (BPJS for the employee/BPJS ketenagakerjaan), including work accident insurance, life insurance benefit, and old age benefit (pension) as well as BPJS healthcare 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.

READ MORE:

• How are Payroll and Company Culture in Indonesia Related?
• 8 Payroll Mistakes in Indonesia You May Have been Making over the Years

2. Benefit and Allowances for Employee

An incentive is the amount of financial reward that the employees receive, apart from the regular wage or salary. Incentives are given according to the employees’ performances. It can be given in

the form of individual incentives or group incentives.

The most common from the employer is overtime benefit. The overtime benefit is the amount of money that the employees get when they perform extra working hours (s). In addition, an

incentive is also for the individuals or teams who can reach a certain target set by the company.

3. Social Security (BPJS Ketenagakerjaan)

The social security (BPJS Ketenagakerjaan) is to protect their security while working in the company and when they reach the pension time. Life insurance is part of 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 (company pays entirely).
• Death benefit/life insurance, which is 0.3% of the monthly salary (company pays entirely).
• Pension/old-age insurance, which is 5.7% of the monthly salary, must be paid by both the company (3.7%) and the employee (2%). Employees can withdraw this pension/old age insurance when they 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)

Both employees and employers pay for health insurance. The maximum amount of money that should be paid by the employer is 4% of the maximum salary of IDR 4,000,000. 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 its taxes on a monthly and annual basis. The monthly taxes include:

• 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 the 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 the tax office on the 20th of the following month at the latest.

On the other hand, the annual taxes are:

• Corporate Income tax should be paid before filing the tax return and must be filed at the latest at the end of the fourth month after the book year ends, which is in April.
• Individual Income tax should also be paid before filing the tax return and filed at the latest at 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 a penalty that you must pay to the tax office. To avoid the penalty, it is important to consider paying the tax on time.

READ MORE:

• Payroll Outsourcing: Why It is A Must Do when Running A Business in Indonesia
• Managing Payroll & Recruitment in Indonesia: The Right Way

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.

Annual Leave

The annual leave is taken for a 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 months. Based on 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 number of wages or salaries agreed.

Maternity Leave

The maternity leave is given for the period of 3 months and is usually taken 1.5 months prior to the delivery and 1.5 months after the delivery. During 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.

Sick Leave

Should the employees take a leave due to sickness, it shouldn’t reduce the number of annual leave. The number 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 fully if they cannot perform their duties in the first and second days of menstruation.

Personal Leaves

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-law) (2 days),
• and the death of the worker’s extended family (1 day)

Overtime Calculation in Indonesia

Understanding how overtime is calculated in Indonesia starts with knowing what counts as regular working hours. Indonesian labor regulations set the normal working time at 40 hours per week, which may be arranged as:

• 5 working days: 8 hours per day
• 6 working days: 7 hours per day

Any work performed beyond these limits is classified as overtime and must be compensated in accordance with labor laws.

Maximum Allowable Overtime Hours

Overtime is permitted, but strictly capped to protect employee welfare:

• Up to 4 hours per day
• Up to 18 hours per week

For work performed on weekly rest days or public holidays, higher daily limits apply depending on the employee’s work schedule:

• 5-day workweek: up to 12 hours
• 6-day workweek: up to 11 hours

These limits are cumulative and must be monitored carefully, especially for employees with frequent overtime assignments.

When overtime is required, employers are responsible for ensuring that the overtime is approved and consented, overtime wages are paid, and meals are provided (for overtime exceed 4 hours in a day).

Overtime Rate Calculation

Overtime pay is calculated using the employee’s hourly wage, which is derived from their monthly salary:

Hourly wage = Monthly salary ÷ 173

Once the hourly wage is determined, overtime is paid using the following statutory multipliers.

1. Overtime on Regular Working Days

Overtime Duration	Rate Applied
First hour	1.5 x hourly wage
Second hour onwards	2 x hourly wage

2. Overtime on Weekly Rest Days and Public Holidays

Work Schedule	Overtime Hours	Rate Applied
5-day workweek	First 8 hours	2 x hourly wage
	9th hour	3 x hourly wage
	10th hour onwards	4 x hourly wage
6-day workweek	First 7 hours	2 x hourly wage
	8th hour	3 x hourly wage
	9th hour onwards	4 x hourly wage

How to Calculate an Employee’s Monthly Salary

After understanding legal requirements for payroll in Indonesia, the next key question for employers is how an employee’s monthly salary is calculated. Salary calculation involves understanding the salary scheme, key components, and statutory deductions.

Indonesian companies generally apply one of the following salary structures:

• Gross salary: Salary is agreed before tax and BPJS deductions. Taxes and social security contributions are deducted from the salary.
• Net salary: Employee receives fixed take-home amount and the employers will pay income tax and deductions on behalf of the employee.
• Gross-up salary: Salary is increased, so the employee’s take-home pay remains unchanged after tax (for managerial or expatriate roles).

Once employers determine the salary structures, it is important to understand that an employee’s monthly salary consist of key components that should be clearly defined in the agreement. These include:

• Basic salary
• Fixed allowances (regular payments for housing or transportation allowances)
• Variable allowances (performance-based or attendance allowance)
• Overtime pay
• Deductions (BPJS Kesehatan, BPJS Ketenagakerjaan, PPh 21)

Not all components are mandatory, but basic salary and allowances must comply with minimum wage regulations (UMR) applicable to the employee’s work location.

Step-by-Step Guide

The calculation process typically follows these steps:

1. Determine Gross Earnings

Add up all salary components for the month, including: basic salary, allowances, and overtime pay (if any).This total represents the employee’s gross income for the month.

2. Apply Statutory Deductions

Depending on the salary structure, applicable deductions may include:

• Employee portion of BPJS Kesehatan
• Employee portion of BPJS Ketenagakerjaan
• Income tax (PPh 21)

For net or gross-up schemes, these deductions may be borne partially or fully by the employer.

3. Calculate Take-Home Pay

Subtract applicable deductions from gross income:

Item	Amount (Example)
Gross monthly income	Rp8,000,000
BPJS & tax deductions	Rp1,200,000
Take-home pay	Rp6,800,000

This final amount is what the employee receives for the month.

Conclusion

Companies must understand the very detailed regulations on the payroll system, especially foreign companies in Indonesia. Although overwhelming, having someone in your department who can manage the whole thing is very crucial.

Otherwise, you can also outsource a third party to perform everything on your behalf. This way, you can take care of this payroll system more efficiently and effectively in regards to Indonesia payroll calculation.

If you have any questions related to this topic, just let us know. We will give you the most approachable solution. Contact us now and we will back to you soon.

Frequently Asked Questions