GUIDE TO INDONESIA LABOUR REGULATIONS | NuSmart HRMS
 

GUIDE TO INDONESIA LABOUR REGULATIONS | NuSmart HRMS

Introduction

The purpose of this guide is to provide general information about the statutory requirements as per the labour regulations and common practices on employment in Indonesia. The guide tries to explain the different laws and regulations concerning employment and should be taken for reference only.

When in doubt or if further clarification is required, please refer to or contact the relevant Government authority for assistance.

Indonesia Labour Regulations

The various labour regulations in Indonesia are:

  • Labour or Manpower Act 13
  • Trade Unions Act 21
  • Industrial Relations Dispute Settlement Act 2
  • National Social Security Act 40

Manpower or Labour Act

The Manpower or Labour Act is the main legislation that govern the employment of people in Indonesia.

  • Coverage

The Manpower Act covers all employees and workers regardless of their wages or salaries as well as job grades/levels or types of employment, that is, permanent or temporary.

  • Hours of Work

Under the Manpower Act, all employees who work on a 6 days’ work week cannot work more than 7 hours a day or more than 40 hours a week. Those who work on a 5 days’ work week cannot work more than 8 hours a day or more than 40 hours a week.

An employee must not work overtime for more than 3 hours on a normal working day or 14 hours in a week.

For every 4 consecutive hours of work, there must be a break of 30 minutes.

  • Rest Day and Public Holidays

All employees must have at least 1 rest day per week if they worked 6 days’ work week and 2 rest days if they worked 5 days’ work week.

There are 11 gazetted National public holidays in Indonesia.

Sometimes the Indonesia Government may declare additional public holidays known as Joint Holiday when a gazette public holiday falls on a Thursday or Friday to give employees a longer weekend.

  • Probation Period

All employment contracts without a specified or fixed period may have a probation period of no longer than 3 months.

All employment contracts with a specified or fixed period are not allowed to have a probation period.

  • Overtime

Employers must pay overtime to low level positions’ employees if they work beyond the normal working hours. Overtime work must be at the request of the employer and accepted by the employee.

The overtime rates for overtime work requested by the employer are as follow:

Normal Working Days
1st overtime hour 1.5 times the hourly rate of pay
Hours thereafter 2.0 times the hourly rate of pay

* Note: hourly rate calculation : 1/173 x monthly salary

 

Off & Rest Days and Public Holidays
5-Day Work Week
1st 8 hours 2.0 times the hourly rate of pay
9th hour 3.0 times the hourly rate of pay
10th & 11th hour 4.0 times the hourly rate of pay
6-Day Work Week
1st 7 hours 2.0 times the hourly rate of pay
8th hour 3.0 times the hourly rate of pay
10th hour 4.0 times the hourly rate of pay

 

Employees are not allowed to work more than 11 hours a day (5-day work week) or 10 hours a day (6-day work week) on an off and rest day as well as public holiday. In additional, employees are not allowed to work more than 14 hours of overtime work per week.

  • Tunjangan Hari Raya (THR) or Holiday Allowance/Bonus

All employees, either permanent or contract-based, who have worked a full year with an employer are entitled to Tunjangan Hari Raya (THR) or holiday allowance or bonus equivalent to one month’s salary and must be paid at least 1 week before the Eid-ul-Fitr public holiday.

For employees who have served one month or more but less than 12 months, the THR is calculated on a pro-rata basis using the following formula: (service period/12) x 1 month’s salary

  • Leaves

Annual Leave

Employees who have completed 12 months of consecutive service with an employer are entitled to 12 days of annual leave.

For workers or labourers of certain industry or enterprises who have completed 6 years of consecutive service with an employer shall be entitled to annual leave as follow:

  • 7th year – 1 month of paid annual leave
  • 8th year – 1 month of paid annual leave

The 1 month of paid annual leave on the 7th and 8th year shall be inclusive of the 12 days annual leave entitlement. This ruling shall be applicable every 6 years of consecutive service.

Sick Leave

There is no specific number of or cap on paid sick leave under the Manpower Act. The payment of paid sick leave shall be as follow:

  • 1st 4 months – Full pay (100% of wages)
  • 2nd 4 months – 75% of wages
  • 3rd 4 months – 50% of wages
  • Thereafter – 25% of wages

 Maternity Leave

All female employees are entitled to 3 months paid maternity leave as follow:

  • Before confinement – 1.5 months
  • After confinement – 1.5 months

A female employee who suffers a miscarriage is entitled to 1.5 months of paid leave.

There is no minimum requirement for length of service with the employer to be entitled to maternity or miscarriage leave.

Other Leaves

Under the Manpower Act, an employee is entitled to take paid leave for the following reasons:

 

Type of Occasion Number of Days
Marriage 3 days
Marriage of employee’s child 2 days
Circumcision or baptism of employee’s child 2 days
Paternity (wife gave birth or suffered miscarriage) 2 days
Death of spouse, parents, parents-in-law or child 2 days
Death of other family member living together 1 day
Menstrual 1st 2 days

 

  • Termination

Either party may terminate the employment contract by giving the required notice period as stipulated in the contract.

Either party may terminate the employment contract without notice or waiting for the expiry of the notice by paying the other party a sum equal to the wages or salary of the notice period.

  • Severance Payments

Employers must pay an employee severance pay and reward for service if they terminate or dismiss an employee:

 

Length of Service Amount
Severance Pay
Less than 1 year service 1 month salary
1 year but less than 2 years 2 months
2 years but less than 3 years 3 months
3 years but less than 4 years 4 months
4 years but less than 5 years 5 months
5 years but less than 6 years 6 months
6 years but less than 7 years 7 months
7 years but less than 8 years 8 months
8 years or more 9 months
Reward for Service
3 years but less than 6 years 2 months
6 years but less than 9 years 3 months
9 years but less than 12 years 4 months
12 years but less than 15 years 5 months
15 years but less than 18 years 6 months
18 years but less than 21 years 7 months
21 years but less than 24 years 8 months
24 years or more 10 months

 

Compensation Pay
Balance earned annual leaves
Compensation for housing, medical and healthcare allowance 15% of severance and reward pay
Cost of transportation to point of hire

 

  • Retirement Age

With effect from 1 January 2022, the retirement age in Indonesia is 58 years old.

  • Minimum Wage

The Indonesia Government does not set a national minimum wage.

National Social Security System Act

The National Social Security System provides the following programs to all employees:

  • Health insurance
  • Work accident insurance (JKK)
  • Old age pension (JHT)
  • Life insurance (JKM)
  • Public pension (JP)

All employers and employees including foreigners are required to make monthly contribution to the Employee Social Security System (JAMSOSTEK).

The monthly contribution is based on the regular monthly salary or wages including all fixed allowances or benefits of the employee.

The monthly contribution rates to JAMSOTEK are:

Type of Social Security Contribution – % of Monthly Salary Remarks
Employer Employee
Health Insurance 4% 1% Cap at Monthly Salary of IDR12 million
Old Age Pension (JHT) 3.7% 2% No cap on monthly salary
Public Pension (JP) 2% 1% Cap at Monthly Salary of IDR9,077,600
Work Accident Insurance (JKK) ·      Lowest Risk: 0.24%

·      Low Risk: 0.54%

·       Medium Risk: 0.89%

·       High Risk: 1.27%

·       Highest Risk: 1.74%

0% No cap on monthly salary
Life Insurance (JKM) 0.30% 0% No cap on monthly salary
Total Monthly Contributions 10.24% – 11.74% 4%  

Income Tax

All employees are required to pay income tax based on their taxable income. The tax rates in Indonesia are progressive based on the annual taxable income.

The income tax rates are as follow:

Taxable Income (IDR) Tax Rate Tax Payable (IDR)
Up to IDR 50 million 5% 2.5 million
Over IDR 50 million but less than IDR 250 million 15% 30 million
Over IDR 250,000,001 but less than IDR 500 million 25% 62.5 million
Over IDR 500,000,001 30% 30% of relevant amount

 

Severance payments are excluded from the taxable income. However, the total amount of severance payments received is also taxable and the tax rates for severance payments are:

Taxable Income (IDR) Tax Rate Tax Payable (IDR)
Up to IDR 50 million 0%
Over IDR 50 million but less than IDR 250 million 5% 2.5 million
Over IDR 250,000,001 but less than IDR 500 million 15% 60 million
Over IDR 500,000,001 25% 25% of relevant amount

There are various tax reliefs or deductibles for individual and the common types are:

 Type of Relief Amount (IDR)
Individual 54,000,000
Spouse – not working 4,500,000
Each dependent  – maximum 3 4,500,000
Occupational expenses – 5% of gross income up to: 6,000,000
Employee contribution to old age pension (JHT) Actual amount of contribution
Public pension contribution (JP) Actual amount of contribution

Indonesia practices withholding tax, that is, the employee’s annual income is estimated or calculated at the beginning of the year and the annual tax is divided over 12 months and paid monthly by the employer.

The amounts paid are reconciled to the total tax liability at the end of the year and an annual tax return must be submitted.

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NuSmart is Oracle NetSuite SDN Partner, and Product Development Company focused on developing HRMS on NetSuite Cloud Platform. NuSmart is a very powerful Cloud-based HRMS software, with a vision to solve the challenges of HR processes from talent management to performance management, time management, payroll management, on boarding and exit formalities. We have it all in one HRMS software.

We understand the changing needs of the workforce so we provide an easy-to-use mobile application for employees so that they can apply leave, expenses and check their salary slip anytime on their mobile phone. With NuSmart all the information is readily available to the employees even when they are not in the office.

Our mission is to ease out the complications of HR processes.

Besides offering a complete cloud-based employee life-cycle management software, we do offer the following services:

  • Payroll Outsourcing
  • HR Consulting

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