Introduction to Payroll in Indonesia
Making payments to remote teams in Indonesia requires careful consideration of local labor legislation. You need to pay your workers in a timely and accurate manner, and most importantly, in strict compliance with local employment practices that require in-country knowhow. Skuad’s local legal expertise will guide you through Indonesia’s complicated labor landscape and requirements so you can run payroll without hassle.
Employee Compensation, Benefits, and Taxes
Our in-country expertise in Indonesia’s local labor laws is what you need to understand employee salary requirements, specifics of taxation legislation, and benefits expectations when it comes to payroll in Indonesia:
- Corporate, income, and regional taxes
- Social security, healthcare insurance, pension and unemployment benefits
- Leaves and holiday compensation
- Other taxes and mandated employee contributions
Talk to Skuad’s in-country experts now to see how you can get set up quickly in Indonesia.
Payroll Process in Indonesia
The payroll process does not drastically change country to country. What changes are the local labor laws that dictate specific facets such as how to calculate wages and taxes. Generally, the payroll process consists of three steps. The pre-payroll phase is a preparation stage that follows defined policies consistent with company standards and compliant with relevant local legislation. It mostly involves intricate work around input gathering and validation, the details of which will be used for latter phases of the payroll process. The next phase is payroll calculation, which, as its name implies, focuses solely on computing the accurate compensation for workers. The final stage is the post-payroll phase. Largely revolving around the actual payout of salaries, the post-payroll phase also includes accounting and reporting.
The rest of the payroll process relies on the policies and preparation established during pre-payroll. Due diligence in this preparatory stage is critical to timely, accurate, and compliant payroll processing.
You will need to submit various documents and forms to relevant government bodies for reporting purposes. These include but are not limited to reimbursements, payslips, and tax forms. To do so, you need an updated and complete set of registered business numbers and other identifying information, which together form your business profile.
It may be necessary to set different policies for different work locations, even if they’re all within Indonesia.
Policies concerning leaves and holidays also affect compensation and payroll, and should also be clearly defined from the onset.
Internal company policies relating to attendance need to be clear and well-defined, as attendance typically forms the foundation for base pay. You also need to account for changes in base salary such as overtime rendered, half-day permissions, and other on-duty requests. If you’re using digital tools like online timesheets or biometric trackers, these need to be integrated into your attendance policy.
Indonesian labor legislation is governed by the country’s Law No. 13 on Employment. It is a comprehensive set of laws that covers everything related to employment and labor, so much so that it is crucial to engage with partners with local legal expertise to successfully navigate its complexities.
Aside from meeting mandatory minimums set by the local government, you also need to align worker salary with industry standards and your company’s internal policies. Furthermore, salary components also extend to deductions and benefits, as well as diversified pay structures.
In Indonesia, workers are typically paid monthly. In terms of scheduling at which time of the month to pay salaries, it is recommended to adhere to local labor practices and norms while also accommodating internal policy.
The pre-payroll phase involves a lot of input gathering and validation, and most of it is concerning employee information that will impact the computation of compensation. Also note that inputs gathered with valid documentation may need to be submitted to an appropriate government agency.
Payroll Calculation Phase
The second phase concerns only the calculation of wages. While a singular task, computation of salaries is a complex effort due to required close compliance to mandated minimums and taxation requirements, along with other deductions and benefits. Depending on the tools you or your payroll processing partner use, automated systems and software can alleviate most of the tedium.
The actual salary payout comprises the majority of the post-payroll phase. This is when you send the advice to your bank or payment processor on how to handle disbursement. Automated systems with integrated direct deposit functionality can make payout more efficient.
Internally, you will need to account for all salaries paid out, as worker wages are one of the most significant business expenses.
Payroll reporting and compliance
Externally, you will need to report to appropriate local government departments depending on what compliance requires, Submitting tax forms and invoices are examples.
Skuad can help you smoothly setup your payroll processing in Indonesia. Get in touch now.
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Payroll Processing in Indonesia
As payroll in Indonesia requires detailed, intricate work every step of the way, partnering with an expert provider is a preferred strategy for many businesses.
Payroll Processing Company in Indonesia
A payroll processing solutions provider like Skuad offers the in-country expertise that can help you successfully navigate the legal compliance requirements of Indonesia’s local governance and direct your attention to other important matters. Rather than trying to build-up in-house local legal expertise, handing off payroll in Indonesia lets you process payments for your remote teams hassle free and focus instead on scaling your business.
Payroll Management in Indonesia
Payroll management in Indonesia involves maintaining financial records related to payroll in compliance with the country’s statutory requirements. As a leading payroll processing provider, Skuad also offers payroll management services.
Payroll Compliance in Indonesia
Indonesia’s Law No. 13 of 2003 on Employment comprehensively covers practically every aspect of labor, including payroll. Due to its complexity, it often requires local legal expertise to completely understand. Otherwise, you are opening yourself up to liabilities and fines.
For example, violating the article on paying retiring employees or the chapter concerning termination of employees may result in a maximum fine of 500,000,000 Indonesia Rupiah or IDR ($34,444), as well as one to five years of imprisonment. The violation is recognized as a felony.
With Indonesia’s Employment Law being so comprehensive and complicated, it is paramount to secure in-country legal expertise to avoid potentially hefty fines and administrative and criminal sanctions. Payroll compliance is a matter of utmost importance not only to avoid sanctions and fines, but also to maintain good working relationships with highly prized remote workforces.
Payroll Components in Indonesia
The various components of payroll in Indonesia can generally be divided into three groups: base pay, deductions for tax and social security, and benefits and bonuses. These general groupings can be further subdivided into segments. each of which are governed by Indonesia’s local employment regulation, including:
In Indonesia, the minimum wages are fixed provincially and annually reviewed. The monthly minimum wage as of January 2022 is IDR 4,641,854 ($319), though you are expected to not only meet the minimum but offer a more competitive rate to attract and retain top talent.
In Indonesia, regular workweeks are 40 hours spread out at five eight-hour workdays or six seven-hour workdays.
Any overtime work rendered outside the standard workweek hours is calculated based on the monthly salary of the employee. An hour of overtime work equals 1/173 of an Indonesian employee’s monthly salary.
Social security contributions in Indonesia cover five aspects, and are typically shared between employee and employer.
- Health insurance: 4% employer and 1% employee
- Occupational injuries: 0.24% to 1.74% employer
- Old-age saving: 3.7% employer and 2% employee
- Pension benefits: 2% employer and 1% employee
- Death benefits: 0.3% employer
There is no sick leave classification in Indonesia, therefore, paid leaves due to sickness are based on contracts. It is typical for employees to receive paid leaves due to sickness for up to four months.
New mothers are entitled to three months of paid maternity leave, half of which is before, and half after, they give birth. New fathers are entitled to two days of paid paternity leave.
These are the mandated public holidays in Indonesia:
- 01 January – New Years Day
- 01 February – Chinese New Year (Imlek) 2573 Kongzili
- 28 February – Night Journey of the Prophet Muhammad SAW
- 03 March – Hari Raya Nyepi and Balinese New Year Saka 1944
- 15 April – Good Friday, the death of Jesus Christ on the Cross
- 01 May – International Labor Day
- 02-03 May – Hari Raya Idul Fitri 1433 Hijriah
- 16 May – Hari Raya Waisak 2566 (Birthday of the Lord Buddha)
- 26 May – The Ascension Day of Jesus Christ
- 01 June – Hari Raya Pancasila
- 09 July – Hari Raya Idul Adha 1443 Hijriah
- 30 July – Islamic New Year 1443 Hijrah
- 17 August – Indonesian Independence Day
- 08 October – Birthday of the Prophet Muhammad SAW
- 25 December – Christmas Day
Income tax in Indonesia is calculated on a progressive scale based on pay rate.
- Up to IDR 50 million: 5%
- IDR 50 million to IDR 250 million: 15%
- IDR 250 million to IDR 500 million: 25%
- IDR 500 million: 30%
There are specific statutes and limitations when it comes to worker probation and termination in Indonesia. These not only affect payroll, but may also leave employers at risk of noncompliance.
Book a demo with Skuad now if you need to discuss additional details for your payroll processing needs.
Why Indonesia Payroll Outsourcing Is the Best Choice
The Republic of Indonesia consists of over 17,000 islands and is the fourth most populated country right after the U.S., as well as a major competitive economic player in Southeast Asia with a GDP valued at $1.058 trillion in 2020. Overall, the country offers more affordable overhead costs for businesses looking to outsource teams, and a highly skilled workforce active in the Information and communications technology (ICT) industry, among others.
A major challenge to outsourcing remote teams in Indonesia, however, is compliance with local employment legislation. In this regard, payroll processing providers like Skuad are invaluable in offering in-country expertise to help satisfy the local government’s mandatory requirements.
You can divert business investments into in-house payroll expertise that can successfully comply with local regulation in Indonesia, or you can use your resources for scaling your organization and hand over payroll to an expert provider like Skuad.
Best of all, as a trusted payroll service provider not only in Indonesia but many other countries, Skuad can help get you set up and run payroll hassle-free for other globally distributed teams.
Find out more about leveraging Skuad expertise for your own business.