Employee Benefit
Employee benefits go beyond basic pay and other standard salary components. They include additional perks, both monetary and non-monetary, that help support and motivate employees.
These benefits are designed to show appreciation, keep employees engaged, and reduce the chances of them leaving for better opportunities elsewhere.
Compensation Laws in Indonesia
Indonesia’s Manpower Law No. 13/2003 ensures that employees receive fair compensation and protection against unfair dismissal. It also gives workers the freedom to choose their employment type, ensuring a flexible labor market that benefits both employees and employers.
Whether you’re hiring local Indonesian talent or expatriates, both are subject to regulations set by the Ministry of Manpower (MOM), which oversees employment practices, workplace rights, and labor standards.
In addition to the Manpower Law, the Social Security Act governs Indonesia’s BPJS (Badan Penyelenggara Jaminan Sosial), the national social insurance agency. BPJS covers workers under healthcare and work accident insurance, ensuring their well-being throughout employment.
Omnibus Law
In 2020, the Indonesian government introduced the Omnibus Law, which aimed to simplify various employment-related regulations by amending over 71 existing laws. This law has significantly impacted areas such as termination of employment, pension plans, social security, leave policies, fixed-term contracts, minimum wages, and overtime rules.
Here’s a friendly breakdown of how the Omnibus Law changed the landscape for benefits and compensation in Indonesia:
Termination
When terminating employees in Indonesia, employers are required to provide severance pay, service pay, and compensation. In cases of retirement, death, or permanent disability, the law mandates employers to pay double the severance pay as part of the compensation package.
When terminating employees in Indonesia, employers need to follow payment guidelines based on the reason for termination.
Retirement: Employers are required to pay 1.75 times the severance amount.
Restructuring: A standard 1x severance pay is due.
Financial difficulties: Employers must pay 0.5 times the severance if the company is facing financial challenges.
Long service leave
Employees who have been with the same company for six years are entitled to a special benefit—a two-month leave.
The previous statutory requirement of a two-month leave entitlement is no longer in place. Now, any long leave arrangements are agreed upon directly between employers and employees. These agreements are typically outlined in the employment contract, company policies, or collective bargaining agreements.
Overtime limits
Under Indonesia’s Manpower Law, overtime work is capped at 3 hours per day and 16 hours per week.
Employees can now work up to 4 hours of overtime per day, with a weekly cap of 18 hours.
Termination
Manpower law
When terminating employees in Indonesia, employers are required to provide severance pay, service pay, and compensation. In cases of retirement, death, or permanent disability, the law mandates employers to pay double the severance pay as part of the compensation package.
Omnibus law
When terminating employees in Indonesia, employers need to follow payment guidelines based on the reason for termination.
Retirement: Employers are required to pay 1.75 times the severance amount.
Restructuring: A standard 1x severance pay is due.
Financial difficulties: Employers must pay 0.5 times the severance if the company is facing financial challenges.
Long service leave
Manpower law
Employees who have been with the same company for six years are entitled to a special benefit—a two-month leave.
Omnibus law
The previous statutory requirement of a two-month leave entitlement is no longer in place. Now, any long leave arrangements are agreed upon directly between employers and employees. These agreements are typically outlined in the employment contract, company policies, or collective bargaining agreements.
Overtime limits
Manpower law
Under Indonesia’s Manpower Law, overtime work is capped at 3 hours per day and 16 hours per week.
Omnibus law
Employees can now work up to 4 hours of overtime per day, with a weekly cap of 18 hours.
The Constitutional Court of Indonesia has flagged certain aspects of the Omnibus Law as unconstitutional, prompting the government to revise it. As an employer, it’s crucial to stay updated on any amendments to ensure your compensation and benefits policies remain compliant with local regulations.
What are the Mandatory Benefits Employers Offered in Indonesia
Beyond healthcare, employers in Indonesia must also provide other essential benefits, including:
- Pension or retirement benefits
- Workman’s compensation
- Death benefits
- Maternity leave
- Paid sick leave
- Annual paid leave
Fringe Benefits for Employees in Indonesia
In Indonesia, many companies offer fringe benefits to enhance the overall compensation package and improve the quality of life for their employees. These benefits often vary depending on the employee’s grade or position within the company. Here are some common fringe benefits:
- Medical insurance: Coverage for employees and their family members.
- Educational assistance: Support for employees or their children’s education.
- Housing allowance: Assistance with home rental costs.
- Food allowance: Meal tickets or passes provided by the employer.
- Transportation support: Pick-up and drop-off services or transportation allowances.
- Retirement insurance: Additional retirement savings or pension schemes.
- Mobile and internet allowance: Compensation for communication expenses.
- Accidental insurance: Coverage for accidents at or outside the workplace.
Conclusion
Effectively managing compensation and benefits in Indonesia is key to attracting and retaining top talent while staying compliant with local regulations. Regularly reviewing your compensation packages and employee benefits not only strengthens your employer brand but also ensures alignment with Indonesia’s employment standards.
With Glints, Southeast Asia’s trusted HR partner, simplifying compensation and benefits management is within reach. Our local expertise allows us to navigate Indonesia’s unique regulatory landscape, making sure your offerings are competitive and compliant. Book a call with us today to see how we can support your compensation and benefits strategy.
