Foreign companies with employees in Indonesia can outsource payroll calculations and administration to a local provider rather than processing payroll internally.
What Does Payroll in Indonesia Cover?
Indonesian payroll calculates the amount payable to each employee after applying the relevant additions, taxes, and deductions. Remuneration can include base salary, fixed allowances, overtime, commissions, bonuses, and benefits.
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Indonesian employers generally withhold employee income tax, or PPh 21, from salaries and other taxable employment income. For permanent employees, Indonesia uses monthly effective withholding rates, known as Tarif Efektif Rata-Rata (TER), during the year. The final tax period reconciles the amounts withheld against the employee’s annual income tax calculation.
BPJS contributions create both employer costs and employee deductions. Under BPJS Ketenagakerjaan, Old-Age Security (JHT) contributions equal 5.7% of wages, comprising 3.7% from the employer and 2% from the employee. Pension Security (JP) contributions are 3%, comprising 2% from the employer and 1% from the employee.
The employer funds Death Security (JKM) at 0.3%. Work Accident Security (JKK) is also employer-funded, with rates ranging from 0.24% to 1.74% according to occupational risk.
BPJS Kesehatan contributions for private-sector salaried employees are generally 5% of the applicable monthly wage, with 4% paid by the employer and 1% deducted from the employee. The contribution calculation is subject to a monthly wage ceiling of IDR 12 million (USD 740).
Payroll must also incorporate the religious holiday allowance, or Tunjangan Hari Raya (THR). Employees with at least 12 continuous months of service are generally entitled to one month’s wages. Employees with at least one month but less than 12 months of continuous service receive THR proportionally, calculated according to their period of service.
New hires, departures, salary changes, bonuses, overtime, and other variable payments alter the calculation for the relevant payroll period.
What Additional Payroll Rules Apply to Foreign Employees?
A foreign employee’s Indonesian taxable remuneration may extend beyond salary paid by the Indonesian company. Housing, transportation, bonuses, insurance, and compensation paid by an overseas group company can affect the Indonesian tax calculation depending on their tax treatment.
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Tax residency affects how a foreign employee is taxed. A foreign national can become an Indonesian tax resident by residing in Indonesia, spending more than 183 days in Indonesia within a 12-month period, or meeting the applicable test for an intention to reside in Indonesia.
Certain foreign nationals with qualifying expertise can elect to be taxed only on Indonesian-source income for up to four tax years after becoming Indonesian tax residents. Income connected with work, services, or activities performed in Indonesia remains Indonesian-source income for this purpose even when it is paid outside Indonesia.
Foreign nationals working in Indonesia for at least six months must also be registered for applicable BPJS Ketenagakerjaan coverage. Foreign workers cannot participate in Pension Security (JP) or Job Loss Security (JKP), so their BPJS payroll treatment is not identical to that of Indonesian employees.
Can a Foreign Company Run Payroll Without an Indonesian Entity?
Payroll outsourcing does not provide an overseas company with a legal basis to employ workers in Indonesia. A PT PMA can employ staff directly while appointing a provider to process its payroll. This differs from an employer of record arrangement, where another entity formally employs the workers.
Representative offices operate under separate rules governing their permitted activities and employment arrangements. Payroll processing does not expand the activities a representative office is permitted to conduct.
What Changes When Payroll Is Outsourced?
The provider can calculate gross-to-net salaries, PPh 21, applicable BPJS contributions, THR, bonuses, overtime, final payroll, and other agreed payroll items. It can also prepare payslips and payroll reports using employment and compensation data supplied by the company.
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The employer supplies salary, allowance, bonus, new-hire, departure, and other employment data required for each payroll period. It also approves the completed payroll and provides the funds for salary and statutory payments.
Employment and compensation decisions remain with the employer rather than the payroll provider.
Payroll Services in Indonesia with MAP Resources Indonesia
MAP Resources Indonesia provides outsourced payroll services for foreign-owned companies operating in Indonesia. Contact us at info@mapresourcesindonesia.com.
