What You Need to Know about Employee Salary

What You Need to Know about Employee Salary

Have you paid your employee salary fairly? Fair payment is one of the most critical elements that must be properly identified. The report says that 23% of employees need to know whether they are fairly compensated.

As the pay system is one of the critical elements in business operations, it is vital to consider the equitable distribution of employees’ wages and other benefits they receive from your company.

Meanwhile, you don’t want to lose money by setting unreasonably high wages, do you? It is, therefore, time to strike the right balance between our employees’ salaries. By doing so, the company’s payroll system can positively impact employees and companies. Ultimately, the overall performance of the enterprise also improves.

What We Need to Identify in Our Employee Salary

As business owners, we must stay current in determining the wages we should give our employees. So let’s learn the basics of the Indonesian wage structure. With regular working hours of 40 hours per week or about 8 hours per day, employees receive basic rights, including:

  • Accepting the regional minimum wage differs by province, district, and industry.
  • Receiving social insurance (BPJS Ketenagakerjaan) and a BPJS health care program.
  • Acquiring statutory leave or pay when employees do not take annual, maternity, sick, and personal leave under regulations.
  • Following the regulations, receive the religious holiday allowance (THR/Tunjangan Hari Raya).
  • Be paid overtime rates.

How Is Employee Salary Set in Indonesia?

There are three pieces of legislation that govern payroll in Indonesia:

  1. Manpower Law No 13/2003.
  2. Labour Dispute Resolution Act No 2/2004.
  3. Law No 21/2000 on Employee/Labour Union.

So here are the details of Indonesia’s wage bill with fixed and multiple variable components:

1. Basic Pay

Primary pay is the minimum wage for employees accepted to be paid for hours worked per day. The base or minimum wage differs by province, district, and sector. The formulation: base salary = hourly wage (as agreed) x number of hours worked.

2. Allowances

Fixed allowances are paid with the basic salary. But it is a financial extra that employees receive besides regular pay. The incentives consist of:

  • Social and Healthcare Security

Concerning social security and health, employees deserve two primary insurances: 1) BPJS Health (BPJS Kesehatan), which is responsible for health safety, and 2) BPJS Employment (BPJS Ketenagakerjaan), which is concerned with accidents at work, deaths, old age, pensions, and unemployment insurance.

Both employers and workers have to contribute monthly to these programs as a percentage of an employee’s regular monthly salary.

  • Overtime Pay

The average working hours of a typical employee in Indonesia are 1) 7 hours a day or 40 hours a week in a six-day week, and 2) 8 hours per day and 40 hours per week for 5-day workweeks.

When an employee works more than usual hours in a week, the work is counted as overtime. The overtime permitted is 3 hours a day and 14 hours a week. 

For the first hour of overtime, workers are paid 1.5% of their hourly wage. They are paid 2% of the hourly wage for the second hour or longer.

  • Religious Holiday Incentives (THR)

The Indonesian government has instructed each company to pay its employees financial support for religious celebrations. Every employee who completes a month of employment deserves the 13th month’s pay or is counted as a Tunjangan Hari Raya (THR) or Religion Allowance.


Companies need to understand the very detailed rules for their employee salary system. It may seem overwhelming, but you can hire a third party to do a better job. At Klique, we offer you better solutions about how to calculate employee salary fairly and efficiently.