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Employee Payroll Processing

legal due diligence indonesia

Processing Employee Payroll in Indonesia

Payroll processing involves the steps required to your employee salary on a regular basis (usually monthly basis). It involves the determination of the basic salary, tracking of working hours and overtime hours, calculation of additions (such as overtime and travel allowances) and deductions (such as taxes and social securities (BPJS)).

Our team of payroll consultants can help clients to establish a solid payroll process, mitigating the risks of non-compliance with manpower, tax and social security regulations.

Overview of Payroll process

Companies are required to implement a payroll for each employee they hire. Basically there can be three different types of employees in a company in Indonesia:

  1. The permanent employee. This employee has a permanent work agreement (Perjanjian Kerja Waktu Tetap – PKWT) with your company and is usually hired for permanent positions within the company.
  2. The fixed term employee, who works in your company on fixed term work agreement (Perjanjian Kerja Waktu Tidak Tetap – PKWTT). This type of employees are hired by a company for a fixed period of time, usually 1 or 2 years.
  3. The freelance employee, who works for a company based on a freelance contract (Perjanjian Kerja Harian Lepas). Freelance employees are paid based on the hours actually worked.

The pay period of employees depend on the policy of the company and the type of work agreement of the employee. The payroll process the tracking of working hours and overtime hours for each individual employee and pay out the salary and additional allowances (such as travel allowances) to each individual employee.  Before paying out an employee’s a paycheck, certain deductions must be made to the gross salary, including taxes and social securities.

A standard payroll process looks as follows:

legal due diligence indonesia

Detailed description:

  1. Employee and Company submit payroll data. At latest on the 23th day of the month, the employee submits its expenses from the previous expenses cycle and the company sends the payroll data of the employees to PNB Law Firm. The data include among others hours worked, overtime , leave taken, sick leave and expenses prepaid by the employee.
  2. Processing payroll. Once PNB Law Firm has collected all payroll data, we will calculate the salary of the employee, expenses to be reimbursed, payable taxes and social securities. We will share our calculations with the company for final approval.
  3. Payroll calculation confirmation. The company will review the calculations of PNB Law Firm and will issue an official approval. Upon receipt of this approval, PNB Law Firm will issue a payroll invoice to the company.
  4. Payment of salary and reimbursement of expenses. PNB Law Firm usually pays out the employee at the last day of the month, or in line with the general payroll policy of the company.