Hiring in Indonesia, whether locals or expatriates, comes with certain regulations that every business is required to comply with.
In Indonesia, labour and employment are regulated by the Ministry of Manpower. The regulations protects all employees. An employee is defined as any person working in return for a salary or compensation in another form.
When it comes to payroll, your company has to use the minimum wages (UMR) set by local government as the lowest salary benchmark. For example, in Jakarta, the UMR is IDR 4,276,249 (2020). The UMR is calculated as a take home pay which already includes basic salary, fixed and non-fixed allowances.
In addition to the salary, your company has to provide THR and enroll employees into Jamsostek (worker social security). THR is an allowance paid prior to the celebration of major religious events such as Christmas and Id al Fitr. The minimum THR regulated by Ministry is one time take home pay.
By enrolling your employees in Jamsostek, you are basically providing them with insurance for accidents (JKK), old age security (JHT), death benefits (JKM) and health insurance (JPK).
The premium contribution is 3.7% by company and 2% by employee. This has to be done on a monthly basis by the 15th. The administrative sanction for failing to enroll in Jamsostek is withdrawal of the company license.
Please keep in mind that it’s obligatory only for company with more than 10 employees. However, companies that provide better company health insurance to employees cannot choose the health care program (JPK) under Jamsostek.
For tax purposes, your company is required to withhold Article 21/26 income tax on a monthly basis from the salary and other compensation payable to your employees. The filing of DGT is due on the 20th each month. Generally, for this purposes, a company’s books must be maintained in accordance with the prevailing accounting standard unless the tax law stipulates otherwise. By default, the books have to be in Rupiah, composed and stored in Indonesia.
For tax income, there’s a differentiation between residents with NPWP (tax identity number) and non NPWP. With NPWP, your employees can enjoy the tier system, which starts from 5% and goes to a maximum of 30%, where the highest is applied to income above IDR 500 million.
If your employee doesn’t have NPWP, it means they are subject to a surcharge of 20% in addition to the standard withholding tax. As an individual, they will have to file an annual income tax return (form 1770) which is basically a summary of their assets and liabilities. It should be done before end of March.
Cekindo provides assistance to its clients in a full range of operations processes such as Payroll Processing and Outsourcing, Accounting and Tax Reporting, Visa and Working Permits, Recruitment and HR Establishment.
Feel free to contact us for a free quotation on receiving business assistance in Indonesia. Our legal team is ready to assist you.