Statutory Contribution in Indonesia: What Businesses Need to Know

Statutory contribution refers to mandatory payments employers must make to support employee welfare, covering health insurance, employment protection, and retirement benefits. While these contributions are essential to ensuring fair and sustainable labor practices, they often become a major challenge for foreign companies entering the Indonesian market.

Many businesses underestimate the complexity of these obligations, leading to compliance risks, unexpected costs, and potential penalties. Understanding how Indonesia’s statutory contributions work is therefore crucial for any company planning to hire directly or through an Employer of Record (EOR).

Key Statutory Contributions in Indonesia

Below are the key statutory contributions every employer must understand when operating or hiring in Indonesia:

1. BPJS Kesehatan (Healthcare Program)

This program ensures employees and their families have access to affordable healthcare through Indonesia’s national health insurance scheme.

• Contribution rate: 5% of the employee’s monthly salary
• Employer share: 4%
• Employee share: 1%
• Salary cap: IDR 12,000,000

2. BPJS Ketenagakerjaan (Employment and Pension Programs)

BPJS Ketenagakerjaan is the national social security system that protects employees against employment-related risks and ensures income continuity after retirement. It consists of several sub-programs:

Through these combined programs, employees are protected both during their active years and after retirement. Employers must ensure registration and monthly payments are accurate to stay compliant.

3. PPh 21 (Employee Income Tax)

Employers are responsible for withholding PPh 21, or personal income tax, from employees’ monthly salaries and remitting it to the Indonesian Tax Office. Indonesia applies a progressive tax system, meaning the higher a person’s income, the higher the percentage of tax they pay, but only for the portion of income that falls within each bracket.

To simplify monthly payroll processing, employers can apply the Tarif Efektif Rata-rata (TER), or Average Effective Rate, instead of recalculating the full progressive tax table every month. The TER is a monthly rate issued by the Directorate General of Taxes (DJP) that reflects an average of the annual progressive tax obligations based on income level and employment type.

This system allows companies to calculate and withhold income tax more efficiently throughout the year. At the end of the fiscal year, employers still perform an annual adjustment (reconciliation) to ensure that the total tax withheld aligns with the employee’s actual annual income.

In short, TER is used for monthly payroll deductions, while PPh 21 progressive rates apply for annual calculations, ensuring compliance and accuracy in both monthly and year-end reporting.

Here’s how the progressive rate structure works under Law No. 7/2021 (UU HPP 7/2021):

Example: If an employee earns IDR 300 million per year, the tax is not 25% of the entire income. Instead, it’s calculated in tiers:

• 5% for the first IDR 60 million
• 15% for the next IDR 190 million (from IDR 60–250 million)
• 25% for the remaining IDR 50 million (from IDR 250–300 million)

Other Statutory Employee Benefits in Indonesia

In addition to mandatory social security programs like BPJS, employees in Indonesia are also entitled to other statutory benefits designed to protect their welfare and standard of living. These include:

• Minimum Wage: Every region in Indonesia sets a minimum wage, known as Upah Minimum Provinsi (UMP) or Upah Minimum Kabupaten/Kota (UMK). Employers must pay at least this amount, which is reviewed and adjusted annually by local governments based on inflation and economic growth.
• 13th Month Salary (Tunjangan Hari Raya or THR): Employees are entitled to one month’s salary as a religious holiday allowance, commonly known as THR. It must be paid once a year, no later than seven days before the employee’s major religious holiday, regardless of their contract type.

Compliance Responsibilities for Employers

Operating in Indonesia means adhering to strict employment and compliance standards. To remain compliant, employers are expected to follow several key responsibilities that ensure both employees and the company are properly protected under local regulations.

Employers must register all employees under both BPJS Kesehatan and BPJS Ketenagakerjaan within 30 days of hiring. This ensures that every worker is covered by the country’s mandatory health, employment, and pension programs.

Once registration is completed, employers are required to make monthly contributions on time, calculated based on each employee’s actual salary or up to the specified salary cap, depending on the program.

In addition, employers must maintain accurate payroll and contribution records for a minimum of five years. These records serve as crucial evidence during BPJS audits or government inspections and reflect the company’s commitment to transparency and accountability.

Simplify Statutory Contributions in Indonesia with Glints TalentHub

Understanding Indonesia’s statutory contributions is essential for any business operating or hiring in the country. From BPJS Kesehatan and BPJS Ketenagakerjaan to income tax (PPh 21) and the upcoming Tapera program, each component plays a crucial role in ensuring employee welfare and maintaining compliance with local regulations.

For growing companies, keeping track of these requirements can be complex, especially across multiple jurisdictions. That’s where Glints TalentHub can support you. Through our Employer of Record (EOR) service, we take care of payroll, statutory contributions, and compliance, so you can focus on expanding your team confidently and compliantly in Indonesia.