How Much Should I Pay the New Employee?

Wages are and always will be a very sensitive but essential topic for both employers and employees. For those who hire, the biggest concern is the return of investment. The salary should answer the question, “Is my employee worth it of the money I pay?” For the employees, the wages must not only help them survive but also encourage them to stay in the company.

Many factors, therefore, can affect how much you actually pay your new employee. For the sake of discussion, however, we’ll focus on the basics.

1. Minimum Wage

Indonesia maintains minimum wage for all workers, and no business should pay an amount lower than that, although it may file a postponement if it believes it cannot comply with the law.

How much the minimum wage is depends on the province and the result of the minimum wage formula (the new one took effect in 2015). Based on the calculations, the country’s gross domestic product (GDP) growth rate and inflation matter. However, the formula doesn’t apply to eight provinces whose minimum wage still falls below the cost of living mandated by the government. Instead, salaries can increase a minimum of 5 percent each year until 2019.

The minimum wage also varies according to what is agreed among the stakeholders, which include the trade unions, business owners, and the government. For example, in 2017, the minimum wage in Jakarta is now IDR 3.35 million (~$246), which is lower than what the employees wanted but higher than the previous wage, which was IDR 3.1 million (~$227).

Lastly, the actual salary can depend on the industry and the job. The more complex the position and the more in demand the industry is, the higher the wage can be.

Indonesia still has one of the lowest minimum wages in the world, but it’s also increasing rapidly over the last few years. Moreover, the wage formula ensures employees can look forward to higher salaries annually.

2. Social Security

Indonesia’s social security system is inclusive, and it’s mandatory for businesses to help employees build their benefits. For this reason, the government mandates cost sharing, which means both employees and employers contribute to the fund, especially for retirement and pension. Businesses have to pay 3.7 percent and 2 percent of the monthly salary, respectively.

Moreover, since the country wants to establish universal healthcare, companies must provide 3 percent of the employee’s monthly salary to it.

3. Overtime

Based on article No.77 of the Labour Law, companies may have to pay overtime when employees work:

·         More than 7 hours for those who work 6 days a week

·         More than 8 hours for those who work 5 days a week

·         During public holidays

·         During rest days of the employee

To calculate the overtime pay, you should consider the exact overtime hours, monthly wages, fixed allowances, and the nature of the day the employee rendered their overtime.

For example, employees who work overtime during weekdays will receive 1.5 times their hourly wage during their first overtime hour. In accordance with the regulation of Ministry of Manpower No.102 of 2004, it will increase for 2 times if the employee takes overtime during normal working days. However, if it's during the weekend, a rest day, or an official holiday, it will be started with 2 times hourly wage for the initial 7 hours, 3 times hourly wage for the eighth hour, and 4 times hourly wage for the overtime hours to 9 and 10.

Note that not all employees should be paid overtime. These usually include supervisors or implementers and planners. But their compensation should reflect their level of expertise, knowledge, and nature of their work.

Conduct Your Due Diligence Now

These costs are on top of the other employee-related expenses and responsibilities. One, you may have to pay for all the costs associated with work permits in Indonesia. Moreover, based on the law, you need to hire three locals for every one foreigner employee.

Hiring the right people then becomes necessary at the expense perspective. When you need to conduct due diligence, we highly suggest leaving it to the experts of Cekindo. We can perform a thorough pre-employment background check for as short as 1 week. Not only that, we provide other supportive services such as work permits processing and employee recruitment, as well as payroll processing.

Call us today at +622 180 660 900, and let us know how we can help you.


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