Negotiating employee benefits in Indonesia
Putting together a tax-efficient employee benefit package that benefits both you and the employee
Table of contents
As a foreign employer, you need to be well-prepared for negotiating employee benefits in Indonesia. Not only are some of the benefits required by the law, but a strong compensation package also helps you to attract and retain better employees.
In this article, we cover the most common types of benefits and how to go about them when putting together an offer to your employees.
Employee benefits required by the Indonesian laws
Social security program (BPJS Ketenagakerjaan)
BPJS Ketenagakerjaan is 10.24% from the employee’s monthly salary and covers things such as:
- Work-related accidents
- Old-age savings
Learn more about the BPJS programs.
Health security (BPJS Kesehatan)
Similar to the social security program, BPJS Kesehatan is calculated from the monthly salary. The rate is 4%.
Annual paid leave in Indonesia
Indonesian employees are entitled to 12 days of annual leave per year. If the employee has worked for less than a year, the number of annual leave days available is prorated (i.e. one day for every month worked).
Your employees have the right to get paid for the time they are sick, as long as they can provide a doctor’s letter that proves they are/were actually sick.
- First four months – 100% of the salary
- Being sick for longer than four months – 50% of the salary
You cannot fire an employee during sick leave.
An employee has the right to a total of three months of maternity leave. The employee can decide how much of the maternity leave to use before and after the delivery.
Employment benefits commonly expected by the Indonesian employees
There are various types of employee benefits that are not required by the law but that are commonly expected by Indonesian employees. Most of them depend on the location and the industry of the job position but there are a few common ones to expect when negotiating a contract.
One of the key reasons to offer employee benefits is that most of them are not taxed, meaning that your employees can get a higher compensation without increasing the tax burden to the company.
Your employees are likely to live far from the office, especially if your office is in Jakarta. Transportation costs can also be a big part of your employee’s salary.
Meal allowance can be offered in two ways – either you provide the employees with a budget to buy food with or you arrange a catering service to bring meals to the office. The latter might be easier and cheaper than you think so be sure to explore the options in your office area.
Private health insurance
Although your employees have the mandatory BPJS health program from the government, many Indonesian employees see it as less “worthy” than private health insurance.
There are two types of health insurance:
- Inpatient and Outpatient; private health insurers only provide both if your company subscribes to the Group Insurance. If you offer a separate health insurance, it is most likely that they will only get access to the inpatient benefits.
- Dental benefits; dental expenditures are probably really high for your employees to manage, this additional benefit will be very attractive considering many employers do not provide this.
It’s not uncommon for employers in Indonesia to lend money to their employees – either as an advance salary or even a bulk amount as a loan. The purpose for the employee is to make a bigger purchase, such as a house or car.
It’s also a great way to tie in the employee to the company for longer periods of time since the employee is unlikely (to be able to afford) to leave before the end of the loan term.
An example of a tax-efficient employee benefit package in Indonesia
The following is an example of the tax benefits of combining base salary with additional benefits. In both examples, the employee gets paid the same amount in total but the amount of tax is significantly different.
|Only salary||Salary combined with benefits|
|Base salary||Rp. 15,000,000||Rp. 11,000,00|
|Allowances||–||Meals – Rp. 50,000/dayTransportation – Rp. 70,000/dayPhone – Rp. 1,000,000/monthClothing – Rp. 500,000/month|
|Income tax||Rp. 1,100,000||Rp. 500,000|
Hiring employees legally in Indonesia
All of the employee benefits of course assume you have a way to legally hire employees in Indonesia. For that, you’ll have two options:
- Set up a company in Indonesia
- Use the employer of record service to put the employees on Emerhub’s payroll
The key difference between the two options is the amount of bureaucracy you are willing to handle. Setting up a company requires you to meet the foreign ownership restrictions, report quarterly investments, handle payroll, etc. It’s the best option if you plan to generate significant revenue directly in Indonesia.
The employer of record option is more efficient if your primary objective is to hire employees in Indonesia. Employer of record service means that all of the employment issues are handled by a third party, i.e. Emerhub, and you don’t need any legal presence in Indonesia.
Fill out the form below to discuss the best options for your specific situation.
Frequently Asked Questions about employee benefits in Indonesia
Every employee is required to receive the BPJS programs. Besides that, it’s common to offer meal and transportation allowance.
It is not required by the law. However, BPJS programs are still relatively new and they have a mixed reputation – many employees feel that the government-provided health insurance is not sufficient.
The employees are entitled to recieve an additional (pro-rated) once a year based on their religion. Muslims during Ramadan, Christians during Christmas, etc.
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