Indonesia’s approach to minimum wages is regionally adjusted and determined by a combination of economic and employment factors such as purchasing power parity, manpower absorption levels, and median wage variables. 

Overview of Wage Determination

Minimum wages are set by provincial or district wage councils that take into account local economic and employment conditions.
Factors influencing these decisions include purchasing power parity, the level of manpower absorption, and median wage variables, which assess the wage distribution within similar job positions.

Minimum Wage Regulations

All employers must comply with the minimum wage rates prescribed for their specific region. For example, a typical minimum wage in Jakarta might be set at IDR 4,400,000, which is the baseline that employers in the capital must at least pay. Minimum wages can vary significantly across different sectors due to the differing economic values and labor demands of each sector.

Average Salary Insights

Nationally, average salaries in Indonesia range from IDR 5,000,000 to IDR 7,000,000 per month, reflecting variations across different job types and educational levels. Employees in major urban centers like Jakarta often earn more than their counterparts in rural areas, reflecting the higher cost of living and concentration of high-paying industries in metropolitan areas.

In Indonesia, the personal income tax (PIT) structure is progressive, with rates ranging from 5% to 35% based on an individual’s taxable income. 

Taxation for Residents

Residents of Indonesia are taxed on their worldwide income, which means they must declare and pay taxes on income earned both domestically and internationally. This global taxation approach can be adjusted if there is a relevant double tax agreement (DTA) that might provide relief from dual taxation.

Non-Resident Taxation

Non-residents are only taxed on income sourced within Indonesia. However, the tax implications for non-residents can be mitigated by applicable DTAs, which might reduce or eliminate the tax owed in Indonesia depending on the treaties in effect with the non-resident’s country of tax residency.

Tax Rates for Individuals

The individual tax rates are as follows:

Up to IDR 60 million: 5%
Above IDR 60 million to IDR 250 million: 15%
Above IDR 250 million to IDR 500 million: 25%
Above IDR 500 million to IDR 5 billion: 30%
Above IDR 5 billion: 35%

Special Considerations for Expatriates

Expatriates working in Indonesia are subject to the same progressive tax rates under a self-assessment scheme. They must understand their status as tax residents or non-residents:

Tax Residents: Expatriates are considered tax residents if they stay in Indonesia for more than 183 days within a 12-month period or if they demonstrate an intention to reside in Indonesia.

Tax Exemptions and Reductions: The first four years of becoming a tax resident might allow expatriates to be taxed only on their Indonesian-sourced income, depending on their skills and the application of any DTAs.

In Indonesia, the regulation of working hours and overtime is designed to ensure a balanced work environment, as stipulated by GR 35/2021.

Standard Working Hours

Five-Day Workweek: Employees work eight hours per day, totaling 40 hours per week.
Six-Day Workweek: Employees work seven hours per day, also totaling 40 hours per week.

Flexible and Reduced Working Hours

Under certain conditions, companies may implement a shorter workweek:

Tasks Completion: Work that can be completed in fewer than 35 hours per week.
Flexible Hours: Companies that are able to implement flexible working schedules.
Remote Work: Tasks that can be performed outside a traditional office setting.

Overtime Rules

Overtime is regulated to ensure fair compensation and prevent overwork:

Daily Limit: Up to four hours of overtime are allowed per day.
Weekly Limit: Overtime should not exceed 18 hours in a week for regular days.
Public Holidays: Overtime on public holidays requires explicit agreement in employment contracts or company regulations.
Compensation: If not specified in employment documents, employees automatically qualify for overtime pay.

In Indonesia, the provision of leave for employees is comprehensive, encompassing public holidays, annual leave, sick leave, maternity leave, and other special leave categories.

Annual Leave

After one year of continuous service, employees in Indonesia are entitled to 12 days of paid annual leave. This policy facilitates essential rest and recuperation, promoting a well-balanced professional life. If not used within the year, employees can carry over their leave for six additional months.

Sick Leave

Indonesia does not set a fixed number of days for sick leave; instead, it offers a graduated payment system depending on the duration of the illness:

First 4 months: Full salary (100%).

Next 4 months: Reduced to 75% of the salary.

Following 4 months: Further reduced to 50% of the salary.

After 12 months: Salary is reduced to 25%.

Maternity Leave

The law provides three months of fully paid maternity leave, which includes 1.5 months before and after childbirth. In the event of a miscarriage, women are entitled to 1.5 months of paid leave, potentially extended upon medical advice. This provision supports maternal health and child welfare from pregnancy through postnatal care.

Paid Leave

In Indonesia, employees are granted paid leave for significant personal and family events to ensure they can attend to important life moments without financial worry.

3 days: Paid leave for an employee’s own wedding.
2 days: Paid leave for a child’s wedding, or when an employee’s spouse has childbirth or miscarriage.
2 days: Paid leave for a child’s baptism or circumcision.
2 days: Paid leave upon the death of a spouse, child, or parent.
1 day: Paid leave for the death of other immediate family members living in the same household

Employment contracts in Indonesia are regulated under distinct categories, primarily differentiated by the duration and nature of employment. Here’s an overview of the main types of employment contracts in Indonesia.

Fixed-Term Employment Contract (PKWT)

PKWT or Fixed-Term Employment Contract is suitable for specific projects or temporary tasks. The duration of a PKWT is capped at five years, and this term includes any extensions. Importantly, if the term or its extensions exceed this five-year limit, the employment is considered permanent or a Perjanjian Kerja Waktu Tidak Tertentu (PKWTT). Additionally, employers must register these contracts with the Indonesian Ministry of Manpower within a stipulated time after signing.

Indefinite-Term Employment Contract (PKWTT)

The PKWTT allows for more permanent employment arrangements and can be established either verbally or in writing. If the agreement is verbal, it must be followed by a formal written confirmation. Unlike the PKWT, there is no requirement for registering a PKWTT with government authorities. This type of contract does not have a specified end date, and termination can occur from either side under regulated conditions that require proper severance and compensation.

Considerations for Expatriates

Expatriates in Indonesia are hired under the PKWT, reflecting the temporary nature of their roles. It’s critical for these contracts to be bilingual to cater to the expatriate’s understanding, covering both Indonesian and English. Specific job positions may be restricted for expatriates depending on government regulations, and these contracts are essential for applying for a working visa.

In Indonesia, terminating an employment contract is regulated under strict legal frameworks to ensure fair practices and protect both employers and employees. Here’s a concise overview of the key aspects:

Legal Grounds for Termination

Employee-Related Reasons: These include violations of employment agreements after repeated warnings, prolonged illness exceeding 12 months, unauthorized absences, misconduct, reaching retirement age, or criminal conviction.

Company-Related Reasons: Termination might occur due to business insolvency, mergers, downsizing due to financial losses, or bankruptcy.

Indonesian law prohibits termination based on discrimination (e.g., race, religion, union membership), marital status, fulfilling state duties, performing religious rites, or during illness or pregnancy lasting less than 12 months.

Termination Process

Employers must provide a written notice detailing the reasons for termination, severance, and other entitlements well in advance. If the employee disagrees with the termination, they can object in writing within a set period, leading to potential mediation by the Ministry of Manpower or further legal proceedings.

Compensation Structure

Severance payments are calculated based on the length of service with an employer, according to the following scale:

Less than 1 year: 1 month’s salary
1-2 years: 2 months’ salary
2-3 years: 3 months’ salary
3-4 years: 4 months’ salary
4-5 years: 5 months’ salary
5-6 years: 6 months’ salary
6-7 years: 7 months’ salary
7-8 years: 8 months’ salary
More than 8 years: 9 months’ salary