When expanding your company to Indonesia, you must learn the country’s compensation and benefits best practices. This includes providing the right level of compensation that meets Indonesia’s compensation laws and helps ensure your company stays compliant.
Indonesia compensation laws
Minimum wage rules depend on the employee’s work location. Each province sets a Provincial Minimum Wage (UMP), and some regencies or cities set a Regency/City Minimum Wage (UMK). Where a valid UMK applies, it is usually the relevant minimum wage. However, after an employee works more than 1 year, the minimum wage laws no longer apply, and the employer may renegotiate compensation with the employee.
Collective Bargaining Agreements (CBAs) can also dictate compensation laws in Indonesia. One agreement will cover the entire enterprise and is valid for up to 2 years. It may be extended once by written agreement for up to 1 additional year. Negotiations can start no earlier than 3 months before the existing collective bargaining agreement (PKB) expires., and companies should include wage growths and bonuses in those agreements. If not, they need to negotiate with employees to determine the right level of compensation for the position.
Guaranteed benefits in Indonesia
Indonesia benefits management plans must include statutory benefits required by law. This includes time off for the country’s 16 official national public holidays, separate from any year-specific collective leave days. Employees also get at least 12 working days of paid annual leave after completing 12 consecutive months of service.
Healthcare is part of the Workers Social Security Scheme in Indonesia funded through payroll taxes and the general budget. Employers must enroll employees in the system, including expatriates who work in Indonesia for at least 6 months.
Indonesia benefits management
Companies can consider offering additional benefits that are not mandatory to improve morale and dedication to the company.
Since much of the population of Indonesia is Muslim, companies should consider dispersing benefits differently. For example, eligible employees must receive a mandatory religious holiday allowance called THR. It is often compared to a 13th-month bonus, but it is a statutory payroll obligation tied to the employee’s religious holiday. It’s a religious day allowance paid no later than 7 days before the employee’s relevant religious holiday. For Muslim employees, this is generally Eid al-Fitr. For non-Muslim employees, it is tied to their own religious holiday, such as Christmas, Nyepi, Vesak/Waisak, or Imlek.
Restrictions for benefits and compensation
The biggest restriction for benefits and compensation is the need to establish a subsidiary before companies can hire employees and add them to payroll. The incorporation process can take weeks or months, depending on the type of entity.
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