How to Navigate Employee Payroll in Indonesia as a Foreign Employer

Are you planning to hire remote employees from Indonesia’s increasingly versatile and skilled workforce? Understanding the regulations encompassing employee payroll in Indonesia is a key factor. This article will explore the different considerations and requirements you will need to navigate as an employer, and how a managed payroll service can help.

Key components of labor law on employee payroll in Indonesia

Regulations on wage and working hours

Salary is one of the key factors for attracting potential employees, therefore the first thing you should understand before hiring employees in Indonesia is the country’s up-to-date laws in terms of wages. In Indonesia, the minimum wage is determined on a provincial basis and based on the industry. It is also standard to ask prospective employees about their salary expectations.

If you intend on hiring in business hubs, such as Jakarta, then the wage will be higher. Currently, the minimum wage in Jakarta is approximately USD 331.00 / month. For hiring in some of the most commonly outsourced positions, it is best practice to offer a salary that meets industry standards in Indonesia to remain competitive in attracting talent:

• Customer Service Representative: USD 435 / Month
• Software Developer: USD 1100 / Month
• Branch manager: USD 2200 / Month

Overtime regulations for payroll in Indonesia

As a foreign employer managing employee payroll in Indonesia, it is also essential that you properly process overtime calculations for your employees and ensure compliance with local regulations. The standard work week is 40 hours, and overtime is capped at 4 hours per day or 18 hours per week. Overtime pay is calculated based on when the extra hours are worked:

1. Weekdays:
   First hour of overtime is 1.5 times the hourly wage
   1. Subsequent hours are 2 times the hourly wage
   1. First 8 hours of overtime are 2 times the hourly wage
   2. 9th hour is 3 times the hourly wage
   3. Subsequent hours are 4 times the hourly wage

   Keep in mind that in Indonesia, the employee must give prior consent before working overtime hours. In some cases, such as with employees holding managerial positions, it is possible that overtime regulations may not apply. RecruitGo’s global payroll team can help you properly calculate overtime for all your remote teams to ensure compliance with local standards.

   Statutory deductions in Indonesia

   Indonesian labor law requires employers to properly manage contributions towards mandatory benefits for employees through payroll administration. The principal statutory contributions are for Social Security (BPJS Ketenagakerjaan) and National Healthcare (BPJS Kesehatan). Contributions are shared between employers and employees based on the monthly salary:

   Benefit	Employee share	Employer share
   Pension Plan	1%	2%
   Old-Age security	2%	3.7%
   Work-accident	0%	0.24%
   Death insurance	0%	0.3%
   Healthcare	1%	4%

   As an employer in Indonesia, it is important that you not only deduct the appropriate amounts for your and the employee’s share but also that you follow submission deadlines set by the Indonesian government. RecruitGo’s team of local payroll experts can help you ensure compliance for all of your employees and avoid potentially costly late filing penalties.

   Additional considerations to take into account for managing payroll

   Calculating severance pay for Indonesian employees

   Indonesia has strict employee protection laws that require employers to pay severance pay in the event of termination by the employer or by mutual agreement. Some of the most common situations that lead to eligibility for severance are termination due to redundancy, layoffs, illness or injury, and fixed-term contract expiration. 

   Severance pay is generally paid out upon termination and it is important that you properly calculate the exact entitlement of the employee based on their years of service. It is not uncommon for terminated employees in Indonesia to pursue legal action for late or inaccurate payments.

   As your Employer of Record, RecruitGo handles all matters relating to payroll computation for your Indonesian employees, including any issues relating to termination and severance pay. We will also represent and advise you in cases of legal disputes.

   How to calculate 13th-month pay

   In Indonesia, employers are required to pay out a benefit known as 13th-month pay to their employees to cover potential additional expenses during the country’s main religious holidays. The benefit is commonly paid out 7 days before Eid for Muslim employees, but the exact payment date can be negotiated during the hiring process.

   Eligibility for this payout is determined by having worked for a company for a minimum of one continuous month. In terms of payroll, you must calculate the equivalent of one month’s pay for employees who have been employed for over 12 months. The payroll calculation is pro-rated per month of service for employees who have been working for less than 12 months.

   Income tax laws relating to employee payroll in Indonesia

   As an employer in Indonesia, it is crucial that you properly manage your payroll and withhold the correct amount of employment income tax, referred to locally as Pajak Penghasilan (Pph 21) for each of your employees. You must take into account all taxable income, from wages to benefits, and bonuses, and then calculate the deduction based on the current progressive rates:

   Annual personal income	Tax rate
   < IDR 60M	5%
   > IDR 60M – IDR 250M	15%
   > IDR 250M – IDR 500M	25%
   > IDR 500M – IDR 5B	30%
   > IDR 5B	35%

   Your responsibilities as an employer in Indonesia require you to properly calculate the amount of tax to withhold for each of your employees, as well as submit monthly reports to Indonesian tax authorities on your payroll compliance. RecruitGo can manage this process for you and help ensure that your payroll computations are accurate and compliant with current rates.

   The benefits of partnering with a managed payroll service

   To avoid the potential complexities that come with outsourcing roles into an unfamiliar market, you may want to consider partnering with RecruitGo’s Employer of Record service. As your EOR, we will act as the legal employer for your Indonesian teams, and handle all administrative processes for payroll, benefits, and employee management.

   If, however, you want to directly hire prospective employees through your entity, then you can still outsource complex payroll responsibilities to RecruitGO by partnering with our Managed Payroll service. Our team consists of locally based experts who will ensure full compliance with Indonesian regulations regarding salary computations and income tax administration.

   Contact RecruitGo today via the form below with a brief explanation of your hiring needs in Indonesia, and we’ll put you in touch with one of our local advisors!