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Indonesia, with a population of over 270 million people, is the world's fourth-largest country and a long-standing international trade destination. Indonesia's economy is presently the 16th largest in the world, with a nominal GDP of $1.19 trillion in 2021 with an estimated growth of 6.5% approximately in upcoming years. Payroll in Indonesia is governed by several payroll laws Indonesia, including the Employment Act, the Manpower Act, and the Social Security Act. The Employment Act establishes the rights and responsibilities of Indonesian employers and employees, including the basic minimum wage, working hours, and leave entitlements. The Manpower Act regulates the employment of foreign workers in Indonesia, while the Social Security Act establishes the country's social security system, which includes retirement, health, and unemployment insurance for the payroll process in Indonesia. The official currency of Indonesia is IIndonesian Rupiah (IDR).
Payroll Cycle & Working Hours in Indonesia
In Indonesia, the payroll cycle is generally monthly, and wages are generally paid on the final working day, as negotiated in the employment agreement. For the payroll process in Indonesia, the workweek is Monday to Friday or some follow Monday to Saturday as well with 40 working hours per week.
Social Security Contributions In Indonesia
Social security contributions for payroll in Indonesia refer to the payments made by employers and employees to the country's social security system, which provides retirement, health, and unemployment insurance to workers.
Under payroll laws Indonesia, employers and employees both have to contribute to the social security system. The employment cost is a maximum of 11.74% of employees’ monthly salaries to the system, while the employee cost is approximately 4% of employee wages. The percentage of salary or wages that must be contributed to the social security system is set by the government and may change from time to time.
According to the payroll laws Indonesia, employers are responsible for registering their employees with the Social Insurance Administration Organization or BJPS in Indonesia that runs social security programs in Indonesia for employees. It is done by two organizations namely:
- BPJS Kesehatan – It is the social security administrator for employee healthcare
- BPJS Ketenagakerjaan – It is responsible for other social security programs. It is a statutory body established to protect all Indonesian workers from several social and economic uncertainties.
The social security system for the payroll process in Indonesia is made up of several components, which provide various forms of protection and support to workers. The main components of the social security system in Indonesia are:
- Pension Security: Provides a pension to workers who have reached the age of retirement (58 years) or who are unable to work due to illness or disability. The employer contribution is 2% & employee contribution is 1% to the Insurance & social security program (BJPS) up to a maximum monthly salary of IDR 9,077,600, effective March 1, 2022.
- Death Security – Also called Non-work related accidental death insurance, only the employer contributes around 0.3% of the employee's salary to it.
- Old-age Security - Both employer and employee contribute approx. 3.7% & 2% of employee salary respectively to the retirement savings fund.
- Work Accident Security – Employees do not contribute to it. Only employers need to contribute 0.24% to 1.74% according to the risk factor involved in the work to the work accident fund to cover the medical treatment and compensate workers who got injured as a result of their work.
- Health Insurance – It provides coverage to workers for their medical treatment, including hospitalization and outpatient care. The employer contribution to health security is 4% while the employee contributes 1% to it. The contribution is capped up to a max of IDR 4,80,000.
Organizations are obligated to ensure that their workers are covered by both government social security agencies' under social security programs. The employer collects employee contributions through payroll deductions and should be paid to BPJS in addition to employer contributions.
Employer Contribution (Employment Cost) to Payroll in Indonesia (2022)
Employee Contribution (Employee Cost) to Payroll in Indonesia (2022)
Income Tax or Payroll Tax in Indonesia
Payroll tax in Indonesia is withheld from employees' salaries & paid to the Indonesian government on employees’ behalf. Payroll tax is also known as "income tax" or "personal income tax."
Under payroll laws Indonesia or Indonesian tax law, all individuals who receive income from employment or business activities are required to pay income tax. The tax rate for employment income depends on the employee's tax bracket, which is based on their total taxable income. Under the payroll process in Indonesia, new progressive income tax rates are implemented beginning in January 2022. The revisions to payroll tax in Indonesia include a new highest individual income tax rate of 35% on income exceeding IDR 5 billion, as well as an increase in the upper 5% rate threshold from IDR 50 million to IDR 60 million.
The tax brackets and rates for employment income in Indonesia for the year 2022 are as follows:
Payroll tax in Indonesia is collected every month, and the annual tax return is due on March 31st of each year to be submitted to the Indonesian Tax authority. Overall, payroll in Indonesia requires careful compliance with a range of payroll laws Indonesia to ensure that employees are treated fairly and that all required contributions are made.
