Understanding the Payroll System in Indonesia & How Software Solutions Help

Are you planning to take your company to Indonesia? Before you prepare for a business expansion, make sure you navigate international payroll processing. The payroll system in Indonesia is a bit different compared to other countries, so it’s best to equip yourself with the necessary knowledge.

Payroll is one of the critical factors that keep a business running. It plays a pivotal role in creating a positive company culture, boosting employee morale, and establishing a reputation. For these reasons, you should keep up with the payroll regulations of an overseas market.

Here’s everything you need to know about the changes in Indonesia’s payroll and how investing in payroll software helps you get started:

What is the Payroll System Like in Indonesia?

As with other countries, Indonesia has a set of payroll elements that employers should understand and meet—from the employee’s basic rights to compensation, bonuses, leaves, and tax and social security.

Recently, the Indonesian House of Representatives (DPR) has approved the Job Creation Law (RUU Cipta Kerja), commonly known as the Omnibus Law. The law amends some existing rules, including Law No. 13 of 2003 on Labour (Labour Law) and Law No. 40 of 2004 on the National Social Security System (Social Security Law).

Let’s take a closer look at each payroll component and the few changes in the Labour and Security laws!

Employee’s Basic Rights

Before hiring employees, you must first know the worker’s basic rights. By law, employers should ensure the safety and health of all workers and guarantee them a fair working environment to avoid legal actions.

Whether you plan on setting up a physical office in Indonesia or hiring remote employees, this list of employment considerations may come in handy:

• Employees can work a maximum of 40 hours per week. On average, employees work approximately 8 hours a day.
• Females under 18, and pregnant women whose health would be at risk if they work, are not allowed to work between 11 pm and 7 am.
• The Omnibus Law extends the maximum overtime to four hours per day and 18 hours per week.

Compensation & Bonuses

The minimum wage in Indonesia varies according to province, district, and sector. However, the Omnibus bill removed the provisions of the Labour Law on sectoral minimum wage. This means employers may defer the payment of minimum wages.

Employees who have worked the full year shall receive a religious holiday allowance (Tunjangan Hari Raya). The THR bonus is worth one month's salary and must be paid at least a week before the Eid al-Fitr public holiday.

In Indonesia, employees may also receive incentives. The highest bonus is five times the wage for workers who have worked for 12 years or more, according to the newly created RUU Cipta Kerja.

Holidays & Leave

Employees are also entitled to paid time off on the 14 days of public holidays observed in Indonesia each year.

Some of the unique provisions of the Indonesian Labour Law are two days of menstrual leave per month for women and two months of long leave for employees who have worked in the company for six years. The draft CiptaKerja bill, however, doesn’t include these menstrual leave and long service rights.

Also, workers may take a leave due to sickness and for personal matters. The number of paid personal leaves vary per reason:

• Employee’s marriage: 3 days
• Employee’s child’s marriage: 2 days
• Employee’s child’s baptism: 2 days
• Employee’s wife giving birth or having a miscarriage: 2 days
• The death of the employee’s close family members (spouse, child, in-laws, parents, or parents-in-law): 2 days

Social Security & Income Tax

The payroll system in Indonesia also involves social security and income tax. In the creation of the Omnibus Law, these components have also been regulated. Here are some of the changes in the Social Security and Income Tax laws:

Amendments to the Social Security Law:

• The Omnibus Law introduces a new social security program, job loss insurance, which will be administered by the Manpower Social Security Organizing Agency (Badan Penyelenggara Jaminan Sosial (BPJS) Ketenagakerjaan).
• The implementation of the unemployment security program will be further regulated under Government regulation.

Amendments to the Income Tax Law:

The Cipta Kerja bill also made significant changes in Income Tax Law, including:

• Provision on the tax treatment for individual taxpayers, i.e.:
  • Indonesian citizens who stay abroad for more than 183 days will be treated as non-resident taxpayers with several conditions.
  • Foreign residents who have certain expertise and have become Subject Pajak Dalam Negeri (SPDN) or Resident Tax Subjects are taxed only on incomes received or earned from Indonesia.
• Tax exemption for dividends received by a resident taxpayer that originate from both domestic and foreign sources that are re-invested in Indonesia
• Possibility (with the issuance of government regulation) to reduce the withholding tax rate on interest paid to non-resident taxpayers (currently 20%)

Reasons to Get Payroll Software in Indonesia

If you’re building an office in Indonesia, there’s one way you can navigate the complicated payroll —invest in payroll software. Here’s how this HR technology can benefit your growing business.

1. Generate Accurate Payroll

The biggest perk of having payroll software is ensuring timely and accurate payroll. Through this tool, your HR team or dedicated staff can generate accurate payroll based on Indonesia taxation.

Most payroll systems automatically adjust to different tax rules and regulations. A tax table is embedded into the system, which allows users to automate tax calculations. Thanks to this software feature, your payroll staff will no longer do tax computations again by hand.

2. Manage Employee Records

Getting payroll software in Indonesia also enables your team to perform various HR functions while maintaining a good record of every bit of employee and business information and keeping them up-to-date.

Unlike paper-based document management systems, online payroll solutions store all data electronically in cloud-based document storage. This functionality not only keeps your documents private but also allows for easier access and faster sharing.

3. Maintain Compliance with Laws

Since payroll software simplifies the complex and tedious payroll processing, tax calculation and document management, your business can remain compliant with the necessary laws and regulations.

Designed with special functions that can help you proactively maintain compliance, a payroll system can ease your worries from paying penalties or facing the repercussions of non-compliance. Examples of such compliance features include:

• Deductions
• Contributions
• Tax filing/sending
• Social security taxes
• Deadline alerts/reminders
• Legal and financial compliance alerts
• Local, state, and federal tax calculation

Prosoft HRMS: Providing the Best Payroll Software in Indonesia

Expanding your business in Indonesia is a magnificent idea. However, such a decision requires caution and comprehension of the country's payroll system.

At Unit4, we have a team across the Asia Pacific region that can provide you with an essential payroll software solution for your impending business expansion. Our Prosoft HRMS can help you ensure compliance with statutory requirements in Indonesia.

Ready to get started? Sign up for a personalised demo here to see how Unit4 Prosoft can help your business run better.

Disclaimer:
All of the new policies written above may still change considering the possibility of new adjustments in the latest draft of the Job Creation Law or Omnibus bill (UU Cipta Kerja).