Payroll calculation in Indonesia: How to do it the right way

After successfully incorporating a company in Indonesia, it is important to understand the process for payroll calculation in Indonesia. Most foreign companies opt to outsource these functions to stay compliant with the laws and regulations in Indonesia.

This blog talks about the important elements of payroll calculation in Indonesia and guides you on how you can manage payroll in Indonesia effectively with an expert’s help.

Elements to consider for payroll calculation in Indonesia

Apart from the basic pay, there are various components involved in the payroll calculation in Indonesia:

Types of leaves

Every employee in Indonesia can avail a minimum of:

• 12 days of annual leaves;
• Maternity leaves of up to 3 months (1.5 months before and 1.5 months after childbirth);
• Paternity leaves of up to 2 days;
• Marriage leaves of 3 days for self and 2 days leave for son/daughter’s marriage;
• Bereavement leaves of up to 2 days. 

Any paid leave that is unused by an employee is credited as an allowance on their pay slip. This applies to sick, maternity, annual, and personal leaves.

Tunjangan hari raya / Religious holiday leaves

Every employee in Indonesia is entitled to the 13th month’s pay which is also known as THR or religious allowance. The payroll provider pays this religious holiday allowance to its employee before their festivities. 

THR allowance is paid during respective festivals as follows; 

Muslims	Eid Ul Fitr
Christians	Christmas
Hindus	Hindu Day/Nyepi
Buddhists	Waisak/Vesak
Confucians	Chinese New Year

Overtime pay

In Indonesia, an employee works 7 hours a day or 40 hours a week (for 6 working days) and 8 hours a day and 40 hours a week (for 5 working days). If an employee works more than 40 hours a week then these hours are counted as overtime.  

In Indonesia, 3 hours per day and 14 hours per week are allowed as overtime. Companies that require overtime from employees are mandated to provide them with overtime pay, enough rest, and food and drink. 

Overtime in a regular workweek

Overtime worked	Salary paid in %
First hours	1.5 x hourly rate
From the second hour	2 x hourly rate

Overtime worked during off days 

Overtime worked	Salary paid per hour
First 7 hours	2 x hourly rate for every hour worked
8th hour	3 x hourly rate
9th-11th hour	4 x hourly rate

If statutory holidays happen on the shortest weekdays, the overtime wage is calculated as follows:

First 5 hours	2 x hourly rate for every hour worked
6th hour	3 x hourly rate
7th – 9th hour	4 x hourly rate

Overtime worked during off-days for a 5-day workweek

Overtime worked	Salary paid per hour
First 8 hours	2 x hourly rate for every hour worked
9th hour	3 x hourly rate
10th – 12th hour	4 x hourly rate

Deductions

There are certain reliefs and deductions available for residents that enable them to exclude their total pay from their taxable income.

It is mandatory for foreigners to pay a 20% withholding tax on their gross income from Indonesia unless a double taxation agreement specifies otherwise.

Calculation taxable Income‍

PTKP (Penghasilan Tidak Kena Pajak / Revenue Taxation) is a deduction from the net income based on marital status and the number of children of an employee.

A citizen who is married and has no more than three children can deduct this non-taxable component from their net income.

There is an extra deduction of 4,500,000 IDR for each child, up to a maximum of three children.

There is a maximum of IDR 54,000,000 for individual taxpayers and an additional limit of IDR 4,500,000 to IDR 54,000,000 for married taxpayers.

Pension cost

Pension annuities are deducted from gross income at 1% up to a maximum of IDR 90,776/month.

Mandatory benefits

Indonesian Law also mandates the following benefits in addition to THR allowance and paid annual holidays:

1. BPJS kesehatan (Health insurance)

The health insurance plan covers employees and their families of up to five members (the employee, the spouse, and three children).

2. BPJS ketenagakerjaan (Social security program)

The Social Security funds protect employees from work-related accidents, death, and retirement benefits. A deduction of 2% is made from gross income by the employee for the pension fund BPJS Ketenagakerjaan, which provides retirement security.

Payroll contribution by the employer and the employee

Health insurance

Benefit	Employer contribution	Employee contribution
Health insurance	4%	1%

Pension and retirement benefits

Benefit	Employer contribution	Employee contribution
Pension plan	2%	1%
Retirement savings	3.7%	2%

Payroll cycle

In Indonesia, payroll is usually processed at the end of each month or according to the employment contract.

Payroll calculation in Indonesia in 5 steps with Emerhub

The payroll calculation in Indonesia becomes challenging for foreign employers. As a result, most companies outsource the payroll to third parties.

Emerhub manages the payroll on behalf of your organization. Here is our five-step process for payroll calculation in Indonesia:

1. Provide us with the required documents of your employees along with their salary information
2. We register your employees with the labor department for health and social insurance as mandated by local law
3. Emerhub calculates salaries, overtime, benefits, and employment taxes for your employees
4. We handle the submission of personal income tax (PIT) declarations each quarter and take care of settlements on an annual basis
5. Our services also include the submission of your company’s Labor Use Report biannually

Emerhub ensures that your employees in Indonesia are paid on time, in compliance with local laws, and with all benefits entitled to them. We have a 10+ year history of delivering success in emerging markets. We manage employee salary calculations and tax filing, making your payroll calculation a streamlined operation.

Fill out the form below and book a call with an Emerhub consultant.