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How much does an employee cost in Indonesia.

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How much does an employee cost in Indonesia

Regardless of the size of your business, knowing and understanding the true cost of an employee in Indonesia will help you plan your budget and make sound financial choices.

If you are a new business owner looking to understand the costs of an employee or simply planning to hire new talent, this guide will provide a brief outline of the types of costs it would take to employ and maintain staff, from the minimum wage to severance pay.

Key takeaways

  • The minimum wage in Indonesia will increase by 10% by the beginning of January 2023
  • The calculation of overtime wage is based on the hourly rate or 1/173 x wage (basic wage + fixed allowances)
  • Employees are entitled to at least 12-days paid leave per year
  • Employers are required to contribute 4% to the healthcare contribution program, while employees contribute 1%
  • The social security scheme in Indonesia covers accident insurance, life insurance, old age benefits and a pension plan

Employee wages

Minimum wage

The Ministry of Manpower has increased Indonesia’s minimum wage to a maximum of 10% starting on 1 January 2023. The minimum wage in Indonesia varies across each province, is determined by regional wage councils, and is subject to annual revision.

The table below provides the 2023 minimum monthly wage rate for several provinces in Indonesia:

ProvinceMinimum monthly wage (IDR)
DKI Jakarta4,901,798
Bangka Belitung3,498,478
South Sumatra3,404,177
West Papua3,282,000

Overtime wages

Employers must pay employees at an hourly rate if they are required to work more than eight hours a day for five days a week or seven hours per day for six days.

The maximum hours of overtime work allowed are four hours a day or 18 hours a week. This restriction does not apply to overtime work on weekends or public holidays. When the work must be done continually or has been agreed upon by the employer and employee, working on public holidays is permissible.

Overtime requirements

The requirements for overtime work are:

  • The employer must pay overtime wages to the employee
  • The employer must provide an opportunity for adequate rest
  • The employer must provide food and drinks (minimum 1400 Kcal) in case overtime is performed by the employee for four hours or more.
  • There must be a written order from the employer and the written consent of the employee for the performance of overtime

Overtime calculations

The overtime wage calculation is based on the hourly rate or 1/173 x wage (basic wage + fixed allowances).

For overtime performed in weekdays:

  • First hour of overtime worked: 1.5 times the hourly wage
  • Second hour and each additional hour worked: two times the hourly wage

Overtime performed on a weekly rest day and/or a public holiday for a six-day work week:

  • The first seven hours: two times the hourly wage
  • The eighth hour: three times the hourly wage
  • The ninth and tenth hour: four times the hourly wage

Employees who are not entitled to overtime compensation

Employees who are not entitled to overtime compensation include the following:

  • Able to control the course of the company
  • Holding a certain higher-level position (can be considered as thinkers, planners, implementers)
  • Whose time cannot be restricted by working hours as set by the company

Paid leave entitlement

Employees are entitled to a minimum of 12 annual paid leaves each year. A sick employee’s pay is reduced based on the amount of time the employee has been absent from work, which is calculated as follows:

  • 100% of pay – The employee receives 100% of their pay for the first four months of their sickness
  • 75% of pay – The employee receives 75% of their pay after the first four months
  • 0% of pay – Employers are permitted to terminate employees who have been sick for 12 months or longer

Maternity leave is three months paid, miscarriage leave is one and half months paid; paternity leave is two days paid, marriage leave is three days paid, and family leave in the following situations are paid:

  • Baptism of the employee’s child is two days
  • Circumcision of the employee’s child is two days
  • Death of the employee’s husband/wife, parents/parents-in-law, children/children-in-law is two days
  • Death of family members living in the same house is one day
  • Marriage of the employee’s child is two days.

Bonus/religious day allowance

An annual bonus known as the Tunjangan Hari Raya (THR) is equal to one month’s wages (base salary and fixed allowances) after a year of service and is paid a week before religious holidays:

  • Eid al-Fitr for Muslims
  • Christmas for Christian Protestants and Catholics
  • Silence Day, Saka New Year for Hindus
  • Vesak for Buddhists
  • Chinese New Year (Imlek) for Confucians

In the event that Employee’s service period has not reached 1 year when THR is given, the Employee will only be entitled to receive a pro-rata THR.

If the employer and employees agree, the entire team can have one preferred payment time. For example, a company can pay THR to everyone during Eid al-Fitr regardless of their religion.

A religious day allowance applies to employees with an agreement for a fixed term and an indefinite period (PKWTT). Freelance workers do not receive THR payment.

Healthcare program contribution for employees

The healthcare program contribution rate for employees is:

Employer contribution rateEmployee contribution rate
4% (maximum of IDR 480,000)1% (maximum of IDR 120,000)

The maximum wage for calculating the healthcare program contribution is IDR 12 million. Even if the employee’s wage is more than IDR 12 million, the employer and employee will contribute IDR 480,000 and IDR 120,000.

The healthcare program contribution covers a maximum of five members: the employee, spouse and three children, including stepchildren.

Social security scheme

Social security (BPJS Ketenagakerjaan) is mandatory for all companies, and employers must register their employees with the BPJS. If you are a freelance, you can also register.

Social security scheme coverage

The social security scheme in Indonesia provides the following protection:

  • Working accidents– If you are injured or require medical treatment while working for the company, you will receive compensation determined by the job risk.
  • Old age protection– You will receive benefits from the scheme once you have retired, and if you have worked for a company for more than 10 years, you will receive the maximum benefit.
  • Life insurance– If you die while working for the company, your heirs will receive the benefit.
  • Pension benefit– When you retire, you will receive a guaranteed income, and this only applies to citizens.

Social security scheme contribution

The contribution rates for social security scheme are:

Areas coveredEmployer contribution rateEmployee contribution rate
Accident insurance0.24% – 1.74%
Life insurance0.3%
Old age benefits3.7%2%
Pension plan2%1%

The maximum wage for calculating the BPJS pension plan contribution as of March 2023 is IDR 9,559,600. Even if the employee’s wage is more than IDR 9,559,600, the employer and employee will contribute IDR 191,192 and IDR 95,596.

Maximum wages will be received once a year and new maximum wages will be applied in March.

Termination compensation

The Manpower Regulations establish the following entitlements to severance and service pay based on the employee’s service period:

Severance pay Service pay
ServiceperiodCompensation (month)Service periodCompensation (month)
Less than one yearOneThree to six yearsTwo
One to two yearsTwoSix to nine yearsThree
Two to three yearsThreeNine to 12 yearsFour
Three to four yearsFour12 to 15 yearsFive
Four to five yearsFive15 – 18 yearsSix
Five to six yearsSix18 – 21 yearsSeven
Six to seven yearsSeven21 – 24 yearsEight
Seven to eight yearsEightMore than 24 years10
More than eight yearsNine

For more detailed coverage this topic, visit our guide here.

How Acclime can help with your HR needs

Understanding the exact employee costs is crucial for business owners in order to accurately estimate and allocate budgets for their operations. It’s important to keep in mind that employee costs go beyond just salary and include additional expenses such as healthcare contributions, social security contributions, paid leave entitlement, and severance pay. By taking all of these factors into account, business owners can make informed decisions and effectively manage their finances.

Acclime provides professional HR services, including PEO, payroll & HR administration. Work with an in-country expert to seamlessly pay and maintain your staff without having to handle any time-consuming administration tasks. Contact us if you need any assistance with employment and HR needs. We are ready to help.

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Acclime helps established multinational companies and startups start and operate their business in Indonesia and beyond. By seamlessly navigating our clients through the complexities of the local regulatory systems, we maximise opportunities while ensuring compliance and good governance.

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