Indonesia’s religious holiday allowance, or Tunjangan Hari Raya (THR), is a mandatory employee benefit. For accounting purposes, the key issue is separating when the THR obligation should be recognized from when it must be paid.
When Should a Company Recognize THR Expense?
THR is treated as a short-term employee benefit for accounting purposes. A company recognizes the expense and related liability as employees earn the benefit through their work. At each reporting date, the accrual should reflect the amount the company expects to owe based on current payroll information.
This is important for Indonesian subsidiaries reporting monthly results or reporting their results to a foreign parent company. Waiting until THR is paid can place employee costs in the wrong reporting period.
Need support with THR accruals? Contact MAP Resources Indonesia at info@mapresourcesindonesia.com
When THR is paid, the company reduces the accrued liability and records the cash payment rather than recognizing the expense again.
New hires, departures, salary changes, and changes to fixed allowances can affect the amount ultimately payable and should be reflected in the accrual.
Which Employees Are Entitled to THR?
Employees who have worked continuously for at least one month are generally entitled to THR. The rules cover employees under both indefinite-term employment agreements (PKWTT) and fixed-term employment agreements (PKWT).
Employees with at least 12 months of continuous service generally receive one month’s wage. Employees with at least one month but less than 12 months of service receive THR proportionately according to their period of service.
For employees whose wages are calculated daily, the applicable wage base is determined using the calculation rules for daily workers rather than simply using one month’s fixed salary.
Companies should distinguish between PKWTT and PKWT employees when employment ends shortly before the religious holiday. The rule preserving THR entitlement for employees whose employment ends within 30 days before the holiday applies to qualifying PKWTT employees and should not be treated as a general 30-day entitlement for every departing employee.
What Is Included in the THR Calculation?
The statutory calculation uses either the employee’s wage without allowances or basic salary plus fixed allowances, depending on the employee’s wage structure.
Variable allowances and other non-fixed payments are generally not part of the statutory THR wage calculation. Payroll teams should distinguish these payments from fixed allowances when calculating the amount due.
A collective labor agreement, employment agreement, company regulation, or established company practice may provide a THR amount that is higher than the statutory minimum. Where a higher amount applies, the accounting accrual should reflect the amount the company expects to pay.
When Must THR Be Paid?
THR must be paid no later than seven days before the employee’s relevant religious holiday.
For companies closing their accounts before the payment date, the THR expense and liability may already need to be recognized even though the cash payment has not yet occurred.
Preparing payroll before a religious holiday? MAP Resources Indonesia can assist at info@mapresourcesindonesia.com
Employers that pay THR late can face a fine equal to 5% of the THR amount due, without removing their obligation to pay the THR itself. Administrative sanctions may also apply for non-compliance.
How Is THR Treated for PPh 21?
THR received by an employee is employment income and is subject to PPh 21.
For permanent employees, the PPh 21 calculation during the year generally uses the applicable monthly effective tax rate, or TER. Because THR increases gross income in the month it is paid, it can increase the PPh 21 withholding for that month. The employee’s annual liability is then reconciled using the applicable annual calculation in the final tax period.
Certain qualifying employees and employers may also fall within the 2026 PPh 21 government-borne incentive, subject to the applicable industry, income, and administrative requirements.
Recognizing a THR expense in the accounts does not itself mean that PPh 21 has already been withheld from the employee. The payroll tax treatment follows the payment of the taxable employment income.
What Should Companies Prepare for an Audit?
Auditors may compare the THR accrual with payroll records, employee service periods, compensation data, and subsequent payments.
Facing a THR accounting or payroll reconciliation issue? Email MAP Resources Indonesia at info@mapresourcesindonesia.com
Companies should retain the employee calculation, payroll records, evidence of payment, and related PPh 21 records. Where the company pays more than the statutory minimum, it should also retain the employment agreement, company regulation, collective labor agreement, or other records showing why the higher amount is payable.
Manage THR Accounting and Payroll With MAP Resources Indonesia
MAP Resources Indonesia assists foreign-owned companies with accounting, payroll, PPh 21, employee-benefit accruals, and financial reporting in Indonesia. Contact us at info@mapresourcesindonesia.com.
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