Important Elements of Salary Structure in Indonesia
Indonesian payroll includes a mix of fixed and variable components beyond just the basic pay.
Basic Pay
Basic pay refers to the minimum wages that employees agree to for the hours they work each day. You can calculate it using this simple formula:
Basic Pay = Hourly Wage (as agreed) × Number of Hours Worked
Keep in mind that the minimum salary can vary based on the province, district, and sector.
Social Security
In Indonesia, employees are covered by BPJS for healthcare and BPJS for social security, which includes important benefits like work accident insurance, life insurance, and pension plans.
Leave or Allowance
If employees don’t use their paid leave, it’s reflected as an allowance on their payslip. This applies to various types of leave, including sick leave, maternity leave, annual leave, and personal leave. Additionally, employers provide a THR (Tunjangan Hari Raya) allowance for religious festivals to support employees during these special times.
Overtime Pay
The standard working hours for employees in Indonesia are typically:- 7 hours a day or 40 hours a week for a 6-day work week
- 8 hours a day or 40 hours a week for a 5-day work week
If an employee works beyond these hours, that time is considered overtime. Employees are allowed up to 3 hours of overtime per day and 14 hours per week. Overtime Rates for Regular Workdays
When employees work overtime during a regular week, here's how their pay breaks down:
From the second hour onward
1.5 times their hourly rate
1.5 times their hourly rate
From the second hour onward
Holiday Overtime Compensation
For overtime worked on holidays, the pay structure is a bit different:
5 working days and 2 days off schedule
2 times their hourly rate
4 times their hourly rate
6 working days and 1 day off schedule
2 times their hourly rate
4 times their hourly rate
5 working days and 2 days off schedule
2 times their hourly rate
4 times their hourly rate
6 working days and 1 day off schedule
2 times their hourly rate
4 times their hourly rate
Annual Paid Holiday
Every employee who completes a year with the company is entitled to minimum 12 days of paid leave at the end of that year. If an employee hasn’t yet reached their one-year mark, they can still take paid leave, but it will be calculated on a pro-rata basis.
Tunjangan Hari Raya / Religious Holiday Allowance
After just one month of employment, employees are eligible for the 13th-month pay, commonly known as the THR (Tunjangan Hari Raya) or religious holiday allowance.
Employees in Indonesia are entitled to several types of paid leave beyond their annual leave. Here’s a quick rundown of these additional benefits:- Sick Leave
- Maternity Leave: Female employees are entitled to up to 3 months of maternity leave, with 1.5 months taken before childbirth and 1.5 months after.
- Paternity Leave: New fathers can take up to 2 days of leave to support their partners during this important time.
- Marriage Leave: Employees can take 3 days off for their own wedding and 2 days for their child’s wedding.
- Bereavement Leave: In the unfortunate event of a loss, employees are allowed up to 2 days off to grieve and manage their affairs.
Deductions
Individual residents can benefit from certain tax reliefs and deductions that lower their taxable income. For non-residents, a 20% withholding tax applies to their gross income from Indonesia unless a double taxation treaty states otherwise.
Calculating Income Tax (PPh 21)
When calculating your employees' income tax, known as PPh 21, you'll need to factor in allowances, employment costs, and social security contributions (like BPJS Ketenagakerjaan and BPJS Kesehatan). Here's a simple way to determine their taxable income:- Gross Income: Start with your employee's total earnings.
- Net Income: Subtract any allowable costs from the gross income.
- Taxable Income: Deduct the non-taxable components (PTKP) from the net income.
Non-Taxable Income (PTKP)
The non-taxable income, or Penghasilan Tidak Kena Pajak (PTKP), depends on the employee's marital and family status:- Single Individuals: Have a basic non-taxable income limit of IDR 54,000,000.
- Married Individuals: Can claim an additional IDR 4,500,000, bringing their non-taxable limit to IDR 58,500,000.
- Children: For each child (up to three), your employee can deduct an extra IDR 4,500,000 from their taxable income.
If both spouses are working, their incomes are combined for tax purposes, as per Article 8 of the Income Tax Law. Occupational Cost
The occupational cost, often referred to as "office cost," allows individual taxpayers to reduce their taxable income by 5% of their gross income, with a maximum cap of IDR 6,000,000 annually. This deduction accounts for expenses related to the employee's role, such as maintaining work conditions, hiring costs, and other employment-related expenses.
Pension Cost
The pension cost in Indonesia allows for 1% of an employee’s gross income to be deducted, with a cap at IDR 90,776 per month.
Social Security
Employees contribute 2% of their gross income towards BPJS Ketenagakerjaan, which is the social security scheme dedicated to old age savings.