Multiplier Logo
Loading Animation Image
Bg Indonesia

Benefits and Compensation in Indonesia

Indonesia has over 260 million people and is the 11th fastest growing economy in the world.

This means that the country is laden with both non-specialist and specialist jobs. However, in many industries, Indonesians are paid too little. Many workers in Indonesia work long hours with no overtime pay. They also receive low wages. It is estimated that about 50% of Indonesian workers earn less than $2 per day.

This is why understanding benefits and compensation in Indonesia is crucial. Employers can design shrewd benefits and compensation policies in Indonesia by understanding the competitive landscape, enabling them to hire and retain quality talent over their competitors.

This article will help you understand the technicalities behind designing a comprehensive benefits and compensation package in Indonesia.

What are Employee Benefits?

Employee benefits are the monetary or non-monetary compensation allowed for the employees apart from the regular compensation such as basic pay and other significant salary components.

Employee benefits are generally allocated to every employee of an organization to appease the employee and nurture them so that they do not leave an organization for a better job offer.

Compensation Laws in Indonesia

The Manpower Law of Indonesia ensures the employee receives a fair amount of compensation and the right to choose the type of employment. This law also protects the employee against unfair dismissal.

Both Indonesian employees and foreign expatriates are governed by the Ministry of Manpower [MOM] and the Manpower Law No 13/2003.

Apart from the Manpower law, the social security act governs the Social security organization BPJS. BPJS stands for Badan Penyelenggara Jaminan Sosial (Social Insurance Administration Organisation).

In addition, Law No. 11, the Year 2003 on Labour Relations regulates the relationship between workers and employers. It specifies the conditions under which an employer may dismiss an employee without notice or cause.

Omnibus Law

The Indonesian government passed the Omnibus Law in 2020, amending over 71 regulations in the existing employment laws. The law has affected laws around termination of employment, pension plans, social security, service leaves, fixed-term contracts, minimum wages, and overtime limits.

Below is a table that explains the amendments made to the Omnibus Law concerning benefits and compensation in Indonesia.

 Manpower lawOmnibus law
TerminationEmployers had to pay severance, service pay, and compensation pay to terminate their employees.

In instances of retirement, death, permanent disability, they were required to pay 2x severance pay.

Employers need to make the following payments on termination:
  • 1.75x Severance Pay for retirement
  • 1x Severance Pay in case of restructuring
  • 0.5x Severance Pay for reasons related to the employer being in financial difficulties
Long service leaveEmployees who have completed six years of service with the same company are entitled to a two month leave.The 2-month entitlement is no longer a statutory requirement. Any long-holiday entitlements are agreed upon between employers and employees in the employment contract, company regulations, and collective bargaining agreement.
Overtime limitsThe Manpower law fixes a statutory limit of 3 hours per day and 16 hours a week.The Omnibus Law has increased this limit to 4 hours per day and 18 hours per week.


‍The Constitutional Court of Indonesia has moved the Government to revise the Omnibus Law as it had deemed certain aspects of the law unconstitutional. Employers must be wary of any future amendments made to the law to remain compliant while hiring and designing a Benefits and Compensation policy in Indonesia.

How to Design An Employee Benefits Program For Employees In Indonesia?

Starting from medical allowance to children’s education allowance, employers could offer their employees many types of benefits to retain their talents instead of letting them walk out to the competitor.

The employees are given mandatory and variable benefits and the basic pay compensation package allocated to them based on the Ministry of Manpower law directives.

Although there is no minimum wage set by the Ministry or the National Wage Council, the minimum wage is decided based on various factors, including the economy and the general livelihood of the individuals in the country.

In short, employers should structure the salary with 75% of the amount allotted for the basic pay, and the rest, 25% is allotted for the fixed and variable benefits that go along with the compensation package.

When hiring employees from Indonesia, follow the Ministry of Manpower and Transmigration regulations.

Budget for  employee expenses

Every business process has a budget and a target allocated to it for smooth functioning and to achieve the targets set for the team. A budget needs to be allocated for the employees and the HR process. This budget would be for the Salary and Benefits paid for the employees and the cost per head incurred to operate the office. This varies from one industry to another. Thoroughly research competitors to stay on top of the league.

What to add to the payment package?

The benefits and allowances for the employees should be based on industry standards and requirements.  

In Indonesia, the benefits expected from employers are Healthcare Insurance, Pension Plans, and Accidental and Death Insurance, Food Allowances, Transportation Allowances, apart from the Guaranteed benefits indicated as a statutory requirement in the Manpower Law. 

Adding unexpected benefits to an employee’s payment package motivates them to perform better in their jobs. 

Design the benefits and compensation package

According to the statutory regulations and budgetary restrictions, employers must lay across a promising package that would fit the budget and also make employees happy.

Consider all the overheads involved in hiring, maintenance, and such expenses to create your benefits and compensation package.

What are the Mandatory Benefits Employers Offered in Indonesia

With over 17,000 islands hosting a high population, health care has been a persistent challenge. The existing wealth gap and the ever-complex healthcare system has called for the necessity to make health care insurance a mandatory benefit to be provided to the employees by employers. In 2014, the government passed laws making medical benefits mandatory to address the country’s health care issues. 

Over 80% of Indonesians have access to healthcare systems through government organizations.

The other benefits that are mandatory to employees are:

  • Pension or retirement benefits 
  • Workman compensation benefits 
  • Death benefits
  • Maternity leave
  • Paid sick leaves
  • Annual paid leave


Death benefits are not available to foreign expatriates and are mandatory only for Indonesian nationals and resident employees.

Employee Benefits for Expatriates

Unlike Indonesian employees, there is no statutory requirement to offer benefits or allowances for expatriates as part of their benefits and compensation package in Indonesia.

How Are Employee Benefits Taxed in Indonesia?

In Indonesia, the tax returns are filed on a self-assessment pattern. 

The taxes calculated for resident nationals need to include the basic pay received by the employees and their benefits. However, most benefits received in the form of fringe benefits (benefits in-kind) are excluded from the taxable income. For example, employers do not have to report employees’ medical expenses paid directly to a hospital since the benefit was not received as cash and was paid to a third party directly.

Apart from this, the following benefits are exempted from tax as well:

  • Profits after-tax from a partnership or other association
  • Gifts, donations, and inheritances
  • Compensation gained from Life and health insurance policies
  • Social security benefits are received for death and accidents. However, pensions that are withdrawn are taxable

In the case of an expatriate, the salary earned from Indonesia is entirely taxable. The social security benefit and the value-added tax are also taxable in the case of expatriates.

Supplemental Benefits For Employees in Indonesia

Some employers offer benefits that go beyond statutory compliance. There are many supplemental benefits provided to the employees. 

For example, some companies offer health insurance coverage, dental care, life insurance, additional holidays, free meals, flexible work hours, and ESOPs. These benefits go beyond the statutory requirements mandated by employment laws in Indonesia.

Fringe benefits for employees in Indonesia

There are many fringe benefits offered to employees to enhance their quality of life or make their compensation package rich and worthy of their work. 

Some of them are:

  • Medical insurance for the employees and their family members, 
  • Educational assistance for the employees or their children
  • Home rental allowance 
  • Food allowance tickets or passes
  • Transportation allowance or allowing employees a pick-up and drop facility from their place of residence
  • Retirement insurance
  • Mobile phone and internet allowance for the employees 
  • Accidental insurance

The fringe benefits vary from one employee to another based on their grade and position in the company.

How Can Multiplier Help Manage Benefits & Compensation in Indonesia?

In recent times, employees are becoming more aware of their rights and the value they offer in their workplace. Especially in countries such as Indonesia, where employees know labor laws, businesses need to ensure their talent is fairly and adequately compensated. 

A competitively planned benefits and compensation package for employees in Indonesia will go a long way in ensuring the right and best talent work for your company.

Here’s where Multiplier can help. Our SaaS-based solution can enable employers looking to hire and expand into the archipelago with benefits management in Indonesia. As your global employment solution, we can help you offer homogenous benefits to all your employees in Indonesia, which is locally competitive and relevant. Our EOR solution can also help you employ and pay employees in Indonesia without a subsidiary in the country.

A Step-by-Step Guide to Mastering the Art of Hiring in APAC

Apac Hiring Banner Bg

Need Reliable Help In Obtaining A Work Visa?

Table of Contents

World’s Preferred EOR/PEO Platform for a Global Workforce