While not all foreign investors end up hiring employees, most do, and part of your responsibility is to make sure you do payroll right. Payroll process is basic and more likely similar with that of other countries.
The process involves the person in charge of it to accomplish the following:
- Determine the salary
- Pay the salary usually every 2 weeks
- Reduce the gross wages with taxes and social security benefits
- Provide the required reports to the government
The challenge lies in two things: compliance and labor laws. Penalties for violations in labor regulations may include not only hefty fines but also imprisonment and blacklisting.
To help you, Cekindo will give some basic facts on payroll process and the soundest business decision you’ll ever make to do it smoothly.
1. General Labour Rules
Even if you’re a foreign investor, Indonesia wants you to prioritize hiring local workers. To do that, you need to prove domestic talent is not enough for your business and that the expatriate possesses the right qualifications for the job. You also have to hire 3 local workers for every 1 foreign employee, as well as pay development funds. There also jobs you cannot give to expatriates. These include human resource, health care, safety, and legal.
2. Working Hours and Days
In Indonesia, both local and foreign workers usually work for 40 hours a week, so that’s 8 hours per day, Monday to Friday. However, it can extend up to 50 hours for 2 months especially if companies need to ramp up production, while the work week may end on Saturday. Breaks should be available every 4 hours.
When it comes to overtime pay, it is equivalent to 1/173 of the employees’ overall monthly salary, although not all employees may be entitled to an overtime pay. For those who cannot get such, their wages should be commensurate with their job title, qualification, skill, and total time rendered in the job.
Related article: THR & National Holidays: The Affect to Your Business in Indonesia
Indonesia now requires individuals to get their tax identification number and then file their respective returns. However, the employees can still withhold tax. Many factors affect taxable income such as the length of residency in the country. Employers, meanwhile, need to remit the taxes withheld every 10th of the following month and submit a report every 20th of the subsequent month.
To calculate the taxable income, the country uses a progressive-based method, which means the tax rate is between 5 and 30 percent depending on the employee’s annual income. However, it’s not as simple as that. The actual formulas can be very complex that often companies found them challenging to understand.
Besides taxation, companies need to comply with the social health and security programs of the government. For social security, employers have to submit a social benefit report and the computation sheet monthly.
Learn the basics of accounting and tax reporting in Indonesia.
Save Yourself the Burden
Payroll process is not something you can delegate randomly, even to yourself. Moreover, it requires a deep understanding of the national and local labour regulations. The good news is you can save yourself the hassle and worry. The best way is to manage it is by outsourcing.
One of the leading outsourcing solutions in Indonesia, Cekindo offerspayroll processing, taxation, and accounting. Our team composed of business consultants, lawyers, and other professionals can help you with the following:
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- Calculate the right taxes and payroll for all your employeesn>
- File the required reports on time
- Perform and report fund transfer
- Create detailed payslip
- Audit your post payroll
We can also provide other supportive services including but not limited to processing Indonesia work permit fast.
Sometimes theory is not enough. Therefore Engkin Nursita, our HR manager at Cekindo, has answered frequently asked questions coming from our clients. Do you want to know more? Let us know by calling us at +6221 30 061 585 or send us an email at sales@cekindo.com. Or you can simply drop your question through the form below. We will be happy to assist you.
