Staying compliant requires understanding the laws regarding payroll in every country where you hire. For example, in Indonesia, payroll is dictated by the Manpower Act (Law No. 13 of 2003). Employers with workers in Indonesia must comply with payroll cycles, minimum wage, severance, and financial benefits as laid out in the Manpower Act.

As an Employer of Record (EOR) and provider of payroll services in Indonesia, Payoneer Workforce Management can help companies hire and pay employees with ease.

Payroll in Indonesia: Wages and other payments

Indonesia’s Manpower Act stipulates the following for payroll in Indonesia.

Payroll cycle

• Indonesia’s fiscal year runs from January 1st to December 31st.
• A monthly payroll cycle is standard.
• Employees are typically paid in Indonesian Rupiah (IDR) on the last day of each calendar month.

Minimum wage

In Indonesia, the legal minimum wage varies by region; it is IDR 5,396,760 per month in DKI Jakarta.

Indonesia payroll law also mandates overtime payments for any extra hours an employee is asked to work on top of the core working hours stated in their employment contract. 

Overtime is paid at 150% of the employee’s regular wage for the first hour and 200% of the regular wage after that. 

Overtime pay is capped at 4 hours per day or 18 hours per week, and isn’t often provided to office-based/white-collar workers.

Sick pay

Employees in Indonesia can take up to 4 months of sick leave at full pay, provided that they have a doctor’s note or medical certificate as proof of their illness. Employers must offer sick pay for up to 1 year, but the rate gradually decreases.

Length of sick leave	Percentage of salary paid as sick pay
Less than 4 months	100%
4 to 8 months	75%
8 to 12 months	50%
12 months until termination	25%

Maternity pay

Employment law in Indonesia now mandates a minimum of 3 months of paid maternity leave. Maternity leave may be extended to a total of 6 months under the advice of a medical professional.

In Indonesia, employers are responsible for compensating female employees for 3 months at full pay as maternity entitlements.

Paternity pay

Indonesia’s statutory paid paternity leave is 2 days long. This can be extended to 3 days if agreed with the employer.

Severance packages

In the event of redundancy, Indonesian workers are entitled to severance pay based on their length of service with a company:

Employee’s tenure	Severance payment
Less than 1 year	1 month’s pay
1 to 2 years	2 months’ pay
2 to 3years	3 months’ pay
3 to 4 years	4 months’ pay
4 to 5 years	5 months’ pay
5 to 6 years	6 months’ pay
6 to 7 years	7 months’ pay
7 to 8 years	8 months’ pay
8+ years	9 months’ pay

THR bonus

Employers are legally required to offer Tunjangan Hari Raya (THR) as part of standard payroll in Indonesia. THR is a religious holiday allowance/bonus paid in advance of major religious holidays and celebrations. 

All employees are entitled to THR provided they have completed 1 continuous month of service as part of an indefinite (PKWTT) or fixed-term (PKWT) employment contract.

Payroll taxes in Indonesia

A compliant payroll system in Indonesia is one that automatically deducts appropriate contributions to income tax, social security, and employee insurance programs.

Income tax

Employers deduct an employee’s income tax as part of the monthly payroll in Indonesia.

Indonesia’s income tax (or PPH 21) is a progressive rate between 5% and 35%.

Social security contributions

Other payroll deductions are mandated under Indonesian payroll laws, including:

	Employer contribution	Employee contribution
Jaminan Pensiun (pension fund)	2%	1%
Jaminan Kecelakaan Kerja (work accident insurance)	0.24% to 1.74%, depending on the job’s level of risk	0%
Jaminan Kematian (death compensation)	0.3%	0%
Jaminan Hari Tua (old age security)	3.7%	2%
BPJS Kesehatan (health insurance)	4% (up to IDR 480,000 per month)	1% (up to IDR 120,000 per month)

Indonesia payroll compliance best practices

Organizations that partner with an Employer of Record (EOR) in Indonesia receive support with payroll compliance. If you choose to go it by yourself, then you’ll need to:

• Monitor tax law updates, changes to labor law (the Manpower Act and others), and statutory requirements.
• Audit payroll to identify and resolve errors and non-compliance.
• Provide ongoing payroll training to staff to avoid issues and mistakes.

An EOR like Payoneer Workforce Management will have a team of payroll experts who can guide you on payroll compliance. Our payroll services in Indonesia help streamline the payroll cycle and contributions.

Your options for payroll service in Indonesia

There are three main ways to pay employees in Indonesia:

• Set up a legal entity: Company incorporation allows a U.S. or other overseas business to hire and pay employees in Indonesia. This can be a time-consuming and expensive process, so it’s not the best option if you’re looking to hire fast.
• Hire and pay as contractors: Indonesian law classifies employees and contractors differently. You may be able to hire and pay contractors with less red tape than employees, but be careful not to treat contractors as employees (i.e., by setting their working hours). Misclassification, even accidental, can lead to financial penalties.
• Pay through an EOR: An EOR supports compliant payroll. A streamlined option, an EOR like Payoneer Workforce Management supports hiring, payroll, taxes, and compliance on your behalf, while you still manage employees’ day-to-day work. 

Book a demo of Payoneer Workforce Management today.

FAQs

1) What is the payroll process in Indonesia?

Workers are usually paid monthly in Indonesia. During a monthly payroll cycle, employers should pay salaried and contract workers as per their contract terms, plus deduct the employees’ contributions towards income tax, social security, pension, and insurance.

2) How is BPJS calculated in Indonesia?

BPJS Kesehatan is Indonesia’s version of social security. Here’s the breakdown of employer and employee BPJS contributions:

BPJS program	Employer contribution	Employee contribution	Notes
Jaminan Pensiun (pension fund)	2%	1%	Provides retirement pension benefits
Jaminan Kecelakaan Kerja (work accident insurance)	0.24% to 1.74%	0%	The rate depends on the job risk level
Jaminthe an Kematian (death compensation)	0.3%	0%	Provides financial support for families in case of death
Jaminan Hari Tua (old age security)	3.7%	2%	Functions like a long-term savings/retirement fund

3) What is the best payroll software in Indonesia?

An Employer of Record (EOR) helps overseas businesses hire and pay employees in Indonesia. The right EOR partner will enable smooth and compliant payroll operations and have experience running payroll in the country you’re hiring in.
Payoneer Workforce Management offers EOR services in 160+ countries globally.