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Pros and Cons of Payroll Outsourcing for Small and Medium Companies in Indonesia

Pros and Cons of Payroll Outsourcing for Small and Medium Companies in Indonesia Review by tenissa.tjahjono on 15. 2. 2019 Company Registration in Indonesia, Market Research in Indonesia, Work Permit in Indonesia, Product Registration in Indonesia, Local Partner Selection in Indonesia, Trade Mission in Indonesia, Company Formation in Indonesia, Company Establishment in Indonesia, Company Set Up in Indonesia, Payroll Outsourcing in Indonesia, Tax Reporting in Indonesia, Medical Product Registration in Indonesia, Medical Device Registration in Indonesia, Cosmetic Registration in Indonesia, Food Supplement Registration in Indonesia.
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Every business that employs people is obliged to do payroll, including in Indonesia. However, as a small or medium-sized enterprises (SME) owner, you do not necessarily have to do it yourself, especially when you need to juggle other responsibilities in the company.

Of course, you can delegate payroll tasks to employees and do it in-house. However, there will be a lot of hassles if you are short of employees or your employees are not experts in handling payroll.

As one of the most costly business expenses, payroll should always be well managed – no matter it is outsourced or done internally.

Businesses today have much more options than ever in handling payroll – payroll outsourcing is one of the most successful and effective administration services in Indonesia.

In this article, we will let you know all the pros and cons of payroll outsourcing for SME in Indonesia.

The Cons of Payroll Outsourcing in Indonesia

As always there are some drawbacks when a company engages in payroll outsourcing.

Not for extremely tight budgets

Payroll outsourcing takes a portion of a company’s expenses. Hiring a full-time employee might cost more but all we want to say here is payroll outsourcing is not something for SMEs with an extremely tight budget.

Third Party Service Provider

Loss of control of payroll management internally will be another drawback here. You are now dealing with a consultant who does not work in the company – hence there might be no direct control until the work is completed.

Lack of Skills

As your business grows, you will eventually need someone internally who know about payroll to handle this particular task or even the payroll department for you. If you have been outsourcing payroll all this while, your company might need to pick up all the skills and knowledge from scratch.

The Pros of Payroll Outsourcing in Indonesia

The pros of payroll outsourcing often outweigh its cons for small and medium enterprises in Indonesia. Among the many advantages include the following:

Better Time-Management

It is a time saver and gives you extra time to focus on your core business activities.

Costs

Even though payroll outsourcing might not seem like the cheapest solution at first sight, but the hidden costs of recruiting internal employees, providing them with relevant courses and education, and their total yearly salaries often exceed expenses of hiring a payroll provider.

Faster Adaptation

Payroll consultant can help companies set up a new payroll system quickly even when small are medium companies are new. Also, handling payroll changes due to employee changes becomes much easier.

Reporting

Payroll advisors will prepare detailed and useful reports to comply with Indonesian tax law and obligations and monitor budgets and expenses.

Consulting

Outsourcing your payroll ensures non-stop access to professional advice to make the company’s payroll more efficient and cost-effective.

Read also: TOP Questions about Payroll Services in Indonesia

Payroll Deductions in Indonesia

Whether you decide to use the services of a payroll provider or not, you should be aware of the mandatory payroll deductions in Indonesia include the following:

Social Security (BPJS Manpower)

Social security supports workforce as in social risks and works on the implementation of social insurance’s economic mechanism. It covers life insurance (JKM), work-related accident (JKK), retirement contribution (JP), and pension plan (JHT).

Life Insurance (JKM)

The percentage is 0.30%, contributed by employers and taken out from employees’ wages every month.

Work-related accident (JKK)

The percentage of this deduction is based on the working environment’s level of risk, contributed by the company and taken out from employees’ wages monthly:

  • Very Low Risk (Group I): 0.24%
  • Low Risk (Group II): 0.54%
  • Medium Risk (Group III): 0.89%
  • High Risk (Group IV): 1.27%
  • Very High Risk (Group V): 1.74%

Retirement Contribution (JP)

A total percentage of 3% will be taken out of employees’ wages every month. Among the 3%, the employer contributes 2%, and the employee contributes 1%.

Pension Plan (JHT)

A total percentage of 5.7% will be taken out of employees’ wages every month. Among the 5.7%, the employer contributes 3.7%, and the employee contributes 2%.

National Health Social Agency (BPJS Health)

Employers cover the majority of the BPJS health deduction. Only a small sum will be taken directly from employees’ wages.

Withholding Tax

In Indonesia, on behalf of the employee, an employer will withhold an amount called the withholding tax. Employers will then submit this sum directly to the government which will be included in the employees’ income tax.

Final Note

It is highly recommended to small and medium-sized enterprises (SMEs) to consider using the services of a payroll provider and outsource payroll in order to save time and money. In Indonesia, Cekindo belongs among the most prominent accounting and payroll advisors and thus can ensure compliance with the Indonesian law. Talk to us now, and we will get back to you with a free quotation for your business.