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Human Resource and Payroll Overview for PT PMA in Indonesia

Setting up and managing human resources (HR) and payroll for foreign investment companies, such as PT PMA (Penanaman Modal Asing), in Indonesia comes with unique challenges. Understanding the legal landscape and compliance requirements is crucial for smooth operations. This guide offers a detailed, client-focused explanation of the HR and payroll requirements for businesses setting up in Indonesia, focusing on the specific needs of foreign investors.

Taxation Requirements

Personal Income Tax

In Indonesia, employees are subject to progressive income tax rates, ranging from 5% to 35%. The rates are based on annual income and are deducted directly from employees’ salaries by their employer. These tax rates apply as follows:

5% for annual income up to IDR 60 million
15% for income between IDR 60 million and IDR 250 million
25% for income between IDR 250 million and IDR 500 million
30% for income over IDR 500 million and IDR 5 billion
35% for income over IDR 5 billion

Employers must withhold and remit the tax monthly with TER (Effective Tax Rate/ETR) scheme, and also issue annual tax withholding slips annually for employees to complete their personal tax filings.

Employer Tax Obligations

Employers must register with the tax office and obtain a Taxpayer Identification Number (NPWP). As part of their responsibilities, employers must:

Withhold employee taxes
Remit tax payments to the government
Report taxes through regular filings to the tax authorities

Working Hours & Leave

Working Hours

In Indonesia, the standard working hours are 40 hours per week. This can be arranged as either:

7 hours per day for a 6-day workweek, or
8 hours per day for a 5-day workweek

This is in compliance with Law No. 13/2013 on Manpower, juncto Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation.

Leave Entitlements

Annual Leave
Employees are entitled to a minimum of 12 days of paid annual leave per year (Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation).
Sick Leave
Employees are entitled to sick leave with a doctor’s note, and the duration is generally set by company policy.
Maternity Leave
Female employees are entitled to 3 months of maternity leave (1.5 months before and 1.5 months after childbirth) according to Article 82 of Law No. 13/2003.
Paternity Leave
Male employees are entitled to 2 days of paternity leave.
Other Leave
Additional leave may be granted based on company policy or collective agreements, including religious holidays, emergency leave, or unpaid leave.

Visa & Employee Guidelines

Foreign employees must have the appropriate visa to work in Indonesia. This includes:

KITAS (Limited Stay Permit)
A visa that allows a foreigner to stay and work in Indonesia for a specified period.
RPTKA (Work Permit)
Required by all foreign employees in Indonesia, this permit authorizes them to legally work in the country.

According to Ministry of Manpower Regulation No. 20/2018, employers are responsible for applying for and managing these permits. Employers must also submit a Wajib Lapor (Manpower Report) to the Ministry of Manpower, detailing the foreign workers employed.

Termination Regulations

Employment termination in Indonesia must comply with the provisions laid out in Law No. 13/2003 on Manpower. The termination process must adhere to the following guidelines:

Notice Period
Employees must be given advance notice, with the duration depending on their tenure with the company.
Severance Pay
Employees who are terminated for reasons other than serious misconduct are entitled to severance pay.
Dispute Resolution
Industrial relations disputes are resolved through mechanisms established by applicable laws and regulations. If all attempts at resolution have been exhausted without reaching an agreement, either party has the right to file a lawsuit with the Industrial Relations Court.

Unlawful or improper termination can lead to lawsuits and financial penalties.

Practical Payroll Setup Steps

Setting up a payroll system in Indonesia involves several steps, including:

Registration
Employers must register with the BPJS Kesehatan and BPJS Ketenagakerjaan (for labor benefits) and obtain a Taxpayer Identification Number (NPWP).
Collect Employee Data
Information required includes personal details, tax status, and dependents.
Payroll Calculation
Employers must set up a payroll system to compute salaries, taxes, and other deductions (such as social security and pension contributions).
Issuing Payslips
Employers must issue payslips every month, detailing the employee’s gross pay, taxes, deductions, and net pay.

Wage Standards

Minimum Wage
The minimum wage in Indonesia is determined by regional governments and can vary from one province to another. For example, the Governor of Jakarta sets the minimum wage for the capital city. Employers are obligated to pay their employees at least the minimum wage stipulated by the relevant local regulations.

Overtime
Employees working beyond regular working hours are entitled to overtime pay, calculated as follows:

1.5x the hourly rate for the first hour of overtime
2x the hourly rate for any subsequent hours of overtime (Government Regulation No. 35/2021, Article 31)

Compensation
All compensation must comply with written work agreements or collective agreements that align with the standards set by the Manpower Law. Compensation includes salary, bonuses, and allowances, which should reflect the employee’s duties and position.

Mandatory Contributions & Benefits

BPJS Ketenagakerjaan (Social Security)
Employers are required to contribute to BPJS Ketenagakerjaan, which includes coverage for work accidents, death benefits, pensions, and old-age security. Contributions are split between the employer and the employee, and they are governed by Law No. 6/2023.

Other Statutory Contributions
Employers are also required to contribute to other social welfare funds such as:

Pension Contributions: Contributions for employee retirement benefits, managed by BPJS Ketenagakerjaan.
Health Insurance: Contributions to BPJS Kesehatan, a mandatory health insurance program for all workers.

Medical Insurance Requirements

Employers in Indonesia are required to provide employees with health insurance under the BPJS Kesehatan scheme. This is part of the government’s Social Security Program, as mandated by Law No. 6/2023. The BPJS Kesehatan scheme covers a wide range of healthcare services, from routine medical check-ups to major hospital treatments. Both employers and employees contribute to the premiums.

Legal Compliance

Employers must comply with the following laws and regulations:

Law No. 13/2003 on Manpower: Governs employment relationships, wages, and working conditions.
Law No. 7/1983 on Income Tax (as amended): Governs employee income tax, withholding, and reporting obligations.
Law No. 24/2011 on Social Security: Covers employee health and pension benefits.
Ministry of Manpower Regulation No. 20/2018: Governs the employment of foreign workers in Indonesia.
Government Regulation No. 35/2021
Government Regulation No. 36/2021
Government Regulation in Lieu of Law Number 2 of 2022

Failure to comply with these regulations may result in legal consequences, including fines and penalties. It is essential for employers to stay updated with local labor laws to maintain compliance.

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