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
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.
Related article: How are Payroll and Company Culture in Indonesia Related?
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.
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:
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.
The company should pay and report their taxes in monthly and annual basis. The monthly taxes includes:
On the other hand, the annual taxes are:
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.
Further reading: Corporate and Personal Income Tax in Indonesia
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 to 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:
The terms of personal leaves are also regulated. There are some conditions in which employees’ personal leaves should be paid, including:
The very detailed regulation on the 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.