Payroll calculation in Indonesia | Why gross and net coexist
In Indonesian payroll calculations, both "gross (including tax)" and "net (excluding tax)" exist widely.
Why is there both "gross (tax included)" and "net (tax excluded)" in Indonesia?
In this column, we will explain the salary situation unique to Indonesia and its background.
Complex overtime pay calculations and a culture that welcomes overtime
An inseparable theme in payroll calculation in Indonesia is overtime wages (overtime pay).
Particularly among middle-aged to older employees, employees are still extremely motivated to work overtime and are characterized by a strong tendency to think, ``I want to work more and more overtime.''
The biggest reason isOvertime wagesThe premium rate is set very high compared to Japan.It's for a reason.
[Premium rate for overtime wages under current laws and regulations (in the case of a 5-day/40-hour work week)】
| type of labor | working hours | cutting growth rate |
| Usual employment days | 1hour | 1.5times |
| 2After the hour | 2times | |
| holiday | 8until the hour | 2times |
| 9hour | 3times | |
| 10Hour/11th hour | 4times |
Especially in the case of field workers, the base salary cannot be said to be high, so many people want to increase their income by working overtime.
For example, in a factory that operates 24 hours a day, there are many cases where employees would prefer ``2 shifts + 3 hours of overtime every day'' rather than ``3 shifts (no overtime)''.
If you worked full time, working 3 hours of overtime every day and 3 hours of overtime on Saturdays,295.5Overtime wages for hoursThis means that you will receive 2.5 times your regular wage in just one month.
Because of this strong focus on overtime pay and the complicated calculations, employees“I want to make sure that the amount I calculated for myself is correct.”I have a strong desire to do so. This is one of the reasons why I insist on net (take-home pay) settings.
Historical background that makes it impossible to feel safe without “internet settings”
If you only have overtime pay, you can also check your gross pay slip. However, income tax calculation in Indonesia is very complicated for employees.
In Japan, it is common to believe that the company must have calculated correctly.
butThe take-home culture has been rooted in the culture for a long time.In Indonesia, if there is even a slight difference between the amount you calculated and the actual amount paid, the meetingThis can lead to a sense of distrust towards the company and make it difficult to build a harmonious labor-management relationship.
Against this background, many companies decide that it is clearer and less troublesome to sign a contract based on the amount received (take-home pay), and choose online settings.
Internet setting income tax calculation mechanism
It is calculated by adding income tax (gross up) to the amount of take-home pay. This grossed-up amount is considered the ``employee's total wage,'' and the company deducts income tax from it and pays the tax, which exactly matches the ``take-home pay'' that the employee recognizes.
How will social insurance premiums be handled?
So, how are social insurance premiums handled?
In Indonesia, all employees are required to enroll in two types of social security, and each company has a ``company share'' and an ``employee share,'' but the response to online settings differs depending on the company.
-
Pattern A: The company also pays the employee's burden.
This is a case in which the company fully understands that ``online settings = the amount transferred to the employee's account,'' and the company pays the employee's social insurance premiums in full.
-
Pattern B: Deduct employee contribution from net wage
A case where only social insurance premiums (paid by the employee) are deducted from the net wage, based on the premise that "insurance premiums should be deducted from wages."
Calculation of social insurance premiums is not as complicated as income tax, so even if deductions are made as in pattern B, it seems to be accepted relatively smoothly by employees.
summary
I explained that in Indonesia, there are both "gross (tax included)" and "net (tax excluded)" payroll calculation methods.
Which calculation method is best for you and your employees?
At our company, Keystone Consulting Indonesia, we provide a lot of support for creating employment contracts and work rules that are deeply related to payroll calculations.
We provide support tailored to your company.
[For inquiries, please contacthereFrom (free initial consultation!) ]
