Payroll Compliance Checklist for Indonesian Employers: Essential Guide for Employers

Managing payroll in Indonesia is often challenging due to complex labor laws, multiple mandatory contributions, and strict monthly reporting deadlines. A single error, whether in BPJS calculations, tax withholding, or submission timelines, can quickly lead to penalties, compliance risks, and unhappy employees. Many businesses end up spending more time correcting mistakes than focusing on operations or growth.

This checklist outlines the key steps you need to stay compliant and maintain a smooth payroll cycle. You can use this as a hiring guide in Indonesia to strengthen your internal processes.

Understanding Payroll Compliance in Indonesia

Payroll compliance in Indonesia requires employers to follow a structured set of labor regulations, tax rules, and mandatory social security contributions. Each month, companies must calculate wages, overtime, tax deductions, and BPJS contributions accurately, while ensuring all submissions meet strict government deadlines.

Unlike in some markets, payroll compliance in Indonesia is highly detail-oriented. Employers must stay updated on evolving regulations, from changes in income tax brackets to adjustments in BPJS rates or regional minimum wages. Missing a deadline or miscalculating even one component of payroll can result in penalties, audits, or employee dissatisfaction.

Payroll Compliance Checklist for Indonesia Employers

Indonesian labour law sets clear rules on how employers must handle salary payments, tax, social security, overtime, and THR to avoid disputes and sanctions. Below is a concise, law‑grounded explanation of each point for your checklist and article structure.

1. Salary Payment

Under Manpower Law No. 13/2003 and Wage Regulation No. 78/2015, wages must be paid in Indonesian Rupiah, in full, on a regular schedule (weekly or monthly), and the pay period may not exceed one month. Employers and employees agree with the exact payday in the employment contract, company regulations, or collective agreement; if the date falls on a holiday or weekly rest day, the company must regulate an alternative date internally, and salaries cannot be paid in instalments.

Key compliance points:

• Basic salary must be at least the applicable provincial/regency minimum wage, and basic salary should be at least 75% of the total basic wage plus fixed allowances.
• Any salary deduction (fines, loans, etc.) must be allowed by law and regulated in the employment agreement, company regulation (PP), or collective labour agreement (PKB).

2. Income Tax (PPh 21)

PPh 21 is the monthly withholding tax on employment income under the Income Tax Law (UU PPh) and implementing regulations, recently updated through PP 58/2023 and related rules. Employers act as withholding agents, calculating, deducting, depositing, and reporting PPh 21 on behalf of employees.

Core obligations:

• Apply the correct scheme (regular vs final period) using the effective average rate (tarif efektif rata‑rata / TER) on gross monthly income for most 2025 payroll calculations, while still respecting the progressive annual tax brackets in UU PPh (5%–35% by income layer).
• Consider employee status (marital status and dependents), NPWP, and deductible items (mandatory pension contributions, etc.) when determining the TER category.
• Withhold PPh 21 each pay period, deposit it to the state treasury no later than the 10th of the following month, and file the PPh 21 monthly return (SPT Masa) by the 20th.

3. Social Security Contribution (BPJS)

Indonesia’s social security is governed by the BPJS laws (Law No. 24/2011 and related regulations) and requires mandatory enrolment in:

• BPJS Kesehatan (national health insurance)
• BPJS Ketenagakerjaan (employment programs: JKK, JKM, JHT, JP, and JKP)

BPJS Kesehatan:

• Employers must register all eligible employees and their dependents and pay monthly contributions split between employer and employee (for private‑sector employees, 4% employer and 1% employee of wages, capped at a regulated maximum wage ceiling, e.g., IDR 12 million as of recent guidance).
• Contributions must be paid by the monthly deadline; late payments can cause coverage disruption and penalties.

BPJS Ketenagakerjaan:

• Employers must enrol employees in Work Accident Insurance (JKK), Death Benefit (JKM), Old‑Age Security (JHT), Pension (JP), and Unemployment Insurance (JKP), with contribution rates and wage caps set in Government Regulations that are periodically updated.
• Recent regulations (e.g., PP No. 28/2025 and similar) reduce JKK and JKP rates for certain labour‑intensive sectors, but employers must actively update their classification and wage data in the BPJS system to benefit from lower rates.

From a compliance checklist view:

• Ensure timely registration of new hires to BPJS Kesehatan and BPJS Ketenagakerjaan.
• Calculate employer and employee shares correctly and show BPJS deductions clearly on payslips.
• Respect wage caps and track regulatory changes in contribution rates each year.

4. Overtime Compliance

Overtime in Indonesia is mainly governed by Manpower Law No. 13/2003 as amended by the Omnibus Law (Law 11/2020) and implementing regulations on working time and overtime pay. Employers must obtain employee consent for overtime, keep accurate records, and pay overtime at statutory rates.

Key legal principles:

• Normal working time is generally 7 hours per day and 40 hours per week for 6‑day workweeks, or 8 hours per day and 40 hours per week for 5‑day workweeks.
• Overtime must not exceed the legal maximum (commonly 4 hours per day and 18 hours per week, excluding certain roles), and must be ordered in writing or via a documented system.

Overtime pay:

• Overtime is calculated based on the employee’s hourly wage derived from monthly wage components that are treated as “wage” under labour law (basic salary and fixed allowances).
• The law prescribes premium multipliers (e.g., 1.5x for the first overtime hour on a workday, 2x for subsequent hours, and specific formulas for rest days and public holidays), and employers must apply the correct formula and include overtime earnings in the payslip.

Compliance risks:

• Not paying overtime to eligible non‑managerial staff, misclassifying employees as “exempt”, or using a flat “all‑in” salary without ensuring it meets or exceeds statutory overtime entitlements can trigger back‑pay claims and sanctions.
• Employers should define overtime rules in company regulations and ensure time‑tracking systems capture real hours worked.

5. Religious Holiday Allowances (THR)

THR is governed by Manpower Law and specifically by the Minister of Manpower Regulation on Religious Holiday Allowances (commonly updated by annual circulars). It is a mandatory religious bonus separate from regular salary.

Core rules:

• All employees with at least 1 month of continuous service are entitled to THR; employees with 12 months or more service receive at least 1 month’s wage, while those with less than 12 months receive a proportional amount based on their service length.
• “Wage” for THR typically includes basic salary plus fixed allowances, consistent with wage definitions used elsewhere in labour regulations.

Timing and payment:

• THR must be paid once per year, no later than 7 days before the relevant religious holiday (e.g., Idul Fitri for Muslim employees, Christmas for Christian employees), and late payment can attract administrative sanctions and fines that must be used for employee welfare programs.
• THR must be paid in cash or via bank transfer in Rupiah, not substituted with goods or vouchers, and should be reflected in payroll records and, ideally, on payslips or separate THR slips.

How to Ensure Payroll Compliance in Indonesia

Below is a practical guide on how to ensure payroll compliance in Indonesia:

1. Understand Applicable Laws and Regulations

Learn the core regulations governing payroll in Indonesia, including the Manpower Law (Law No. 13/2003 and its amendments), income tax rules (PPh 21), and BPJS social security requirements. Stay updated on changes to minimum wages, tax brackets, and BPJS contribution rates through official government releases or legal advisories.

2. Register Employees Correctly

Ensure every employee is registered with relevant authorities, including the local tax office and BPJS Kesehatan and BPJS Ketenagakerjaan. Collect and verify Tax Identification Numbers (NPWP) to apply the correct PPh 21 withholding.

Keep compliant employment contracts that clearly outline wages, working hours, benefits, and other required terms.

3. Establish Robust Payroll Policies and Systems

Create clear payroll policies that guarantee timely monthly payments and full adherence to minimum wage and overtime rules. Use payroll systems or software capable of accurately calculating PPh 21, deducting BPJS contributions, and managing variable components such as THR. Provide employees with regular payslips that detail earnings, deductions, and net pay.

4. Accurately Calculate and Deduct Taxes and Contributions

Calculate PPh 21 monthly using the correct progressive tax rates and applicable exemptions, ensuring accurate withholding from employee salaries. Deduct employees’ BPJS contributions and add the employer portions, then remit all payments on schedule. Maintain detailed records of all tax and contribution submissions for audit and compliance purposes.

5. Comply with Reporting and Payment Deadlines

Submit monthly tax filings and BPJS contributions before their respective deadlines, typically the 20th for taxes, and the 10th and 15th for BPJS Kesehatan and Ketenagakerjaan. File annual employee income reports by the required deadline (usually March 31).

Ensure THR payments are made at least seven days before the relevant religious holiday as mandated.

Consequences on Non Compliance

Non-compliance can result in penalties, back payments, late interest, and potential issues during audits. Beyond financial risk, repeated payroll mistakes can erode employee trust, lowering morale and increasing turnover.

If you’re ever uncertain about a requirement or want to simplify cross-border payroll processes, you can schedule a session with a Glints TalentHub expert. We can walk you through Indonesia’s regulations and provide hands-on guidance to help streamline your payroll operations and keep your team fully protected.

Make Payroll Compliance Easier with Glints TalentHub

Payroll compliance in Indonesia is governed by key regulations such as the Manpower Law (UU Ketenagakerjaan) and Government Regulation No. 35/2021, which outlines employer obligations on wages, working hours, overtime, and termination procedures. Keeping your payroll aligned with these rules through a structured checklist helps ensure accuracy, transparency, and timely payments, building trust and preventing disputes or administrative penalties.

As your team grows or regulatory updates occur, managing payroll and statutory contributions in Indonesia can become increasingly complex. Glints TalentHub can support your compliance needs by handling accurate payroll processing, BPJS submissions, and complete employee documentation. Through our Employer of Record (EOR) solution, you can also hire and manage talent across Indonesia without worrying about payroll risks or changing labor requirements, freeing your team to stay focused on growth.