Employee Benefits in Indonesia: What You Need to Know

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With a booming population exceeding 275 million, Indonesia ranks as the world's fourth-most populous nation. With that population and skilled workforce make it an attractive option for businesses looking for remote employees. However, navigating local labor laws and offering competitive benefits can be challenging.

Employee benefits are additional compensation that is given to employees in addition to their salaries. These benefits can be in the form of cash, non-cash, or both.

The purpose of employee benefits is to improve the quality of life of employees and to attract and retain top talent.

What are Employee Benefits?

Employee benefits refer to non-wage compensation provided by companies to their employees in addition to their basic salaries. These benefits can take the form of monetary rewards or other provisions such as health insurance, life insurance, additional leave, company vehicles, and more.

The discretionary nature of these benefits means that there are currently no government regulations stipulating the specific amounts to be granted to private sector employees. Companies have the autonomy to establish their own policies regarding the allocation of these benefits.

The primary objective behind providing employee benefits is to enhance motivation, improve the well-being of employees, and meet their essential living needs. The provision of benefits also serves to instill a sense of appreciation among employees, fostering greater loyalty and positively improving their overall productivity.

Why Are Employee Benefits Important?

Providing benefits to employees is considered crucial for various reasons, benefiting both the company and its workforce. Here are reasons why employee benefits are important:

1. Enhancing Employee Well-being

Benefits promote better employee well-being by providing financial security and peace of mind. This enables employees to focus on their work, ultimately leading to increased productivity

2. Boosted Motivation and Satisfaction

Incentives like bonuses or performance-based benefits motivate employees to achieve goals and contribute more. Additionally, fair and transparent distribution of benefits contributes to higher employee satisfaction and a more positive work environment.

3. Increasing Employee Retention

Comprehensive employee benefit packages play a crucial role in reducing turnover rates. By providing valuable benefits, organizations can retain their top talent, leading to lower recruitment and training costs.

4. Fostering a Positive Organizational Culture

Providing benefits that demonstrate care and concern for employee well-being fosters a positive organizational culture. This contributes to creating an inclusive and supportive work environment, where employees feel valued and appreciated.

Read more: Employee Engagement: Definition, Strategies, & Benefits

Who is Entitled to Benefits in Indonesia?

Benefits for employees in Indonesia are comprehensively regulated by Indonesian Labour Law Act 13 of 2003. However, eligibility for company benefits varies and depends on individual company policies. However, some common groups of employees who typically receive benefits include:

1. All Full-Time Employees

These employees are usually entitled to various benefits, including health insurance, benefits, and other welfare programs.

2. Part-Time Employees

While eligible for benefits, the amount part time employees receive may differ from that of full-time employees. This can include benefits such as health insurance.

3. Contract and Permanent Employees

Both types of employees are eligible for benefits, although there may be policy differences regarding specific benefits for contract employees.

4. Employees with Specific Functions or Roles

Some benefits may be specifically targeted towards employees with certain roles, such as education benefits for those pursuing further education or mobility benefits for frequent travelers.

Freelancers and independent contractors fall under a different category and are typically not eligible for these statutory benefits. Yet, offering some supplemental benefits to contract workers can still be advantageous. Misclassifying employees and failing to provide them with the legally mandated benefits can lead to hefty legal penalties and increased employee turnover, highlighting the importance of proper categorization and adherence to labor laws.

Mandatory Employee Benefits in Indonesia

In Indonesia, both monetary and non-monetary benefits are obligatory for employees, essential for ensuring their well-being and satisfaction. The following are some mandatory employee benefits:

1. Health Benefit

This benefit typically includes health insurance or contributions to health funds, covering medical expenses for the employee and potentially their immediate family

In Indonesia, everyone has access to affordable healthcare through a government program called BPJS Kesehatan. This program, which stands for Badan Penyelenggara Jaminan Sosial Kesehatan, provides universal coverage to all Indonesian citizens. Launched in 2014, BPJS Kesehatan is funded by a mix of government subsidies and contributions from individuals and employers.

2. Pension Benefit

This benefit aims to ensure the well-being of employees upon reaching retirement and can be provided in various forms, including Old Age Security—a benefit offered by BPJS Ketenagakerjaan (a public legal entity in Indonesia that provide protection for workers to address specific socio-economic risks arising from employment relationships) to retirees who have contributed throughout their working lives.

3. Holiday Benefit (Thirteenth-month Bonus Salary)

This bonus is given to employees before major religious holidays to help them meet their needs during the festivities. In Indonesia, this is particularly important for holidays like Eid al-Fitr (Muslim holiday), Christmas (Christian holiday), Nyepi (Hindu holiday), Vesak (Buddhist holiday), and Chinese New Year.

4. Overtime Pay

Overtime pay compensates employees for working additional hours beyond their regular working hours. This benefit helps to ensure that employees are not overworked and that they are compensated fairly for their time. It can also help to improve employee morale and productivity, as employees are more likely to be motivated to work extra hours if they know they will be compensated for their time.

5. Maternity and Paternity Leave

Maternity leave allows expecting mothers to take time off work after childbirth to recover and bond with their new baby. Paternity leave provides similar benefits to fathers, allowing them to be present and supportive during this important time. These types of leave help to improve employee morale and loyalty, reduce stress and anxiety for new parents, and promote child development. Additionally, they can help to reduce employee turnover, as parents are more likely to stay with companies that offer generous leave policies.

6. Paid Sick Leaves

Paid sick leave allows employees to take time off work when they are ill without fear of losing pay. This benefit helps to prevent the spread of illness in the workplace, as employees are less likely to come to work when they are contagious. It also improves employee morale and productivity, as employees are able to take care of themselves and return to work when they are healthy. Additionally, paid sick leave can help employees recover from illness more quickly, as they do not have to worry about the financial burden of missing work.

7. Annual Paid Leave

Annual paid leave provides employees with the opportunity to take time off work for vacation, personal reasons, or other purposes. This benefit helps employees to relax and recharge, which can improve their overall well-being and productivity. It also allows them to spend time with loved ones and pursue personal interests. Additionally, annual paid leave can help employees to maintain a healthy work-life balance, which can reduce stress and burnout.

Supplemental Benefits For Employees in Indonesia

Employees may receive supplemental benefits in addition to their base salary. These additional perks and advantages play a pivotal role in both attracting and retaining top talent, fostering a more fulfilling and productive professional experience. Here are some supplemental benefits for employees in Indonesia.

1. Position Benefit

This benefit is given to employees with specific positions in the company, with the amount often reflecting the responsibilities held. There are two subtypes:

  • Structural Position Benefit: Based on the employee's position within the company hierarchy.
  • Functional Position Benefit: Based on the specific functions and responsibilities of the employee's role.

2. Performance-based Bonus

A performance-based bonus is a financial incentive awarded to employees based on their individual or team achievements and contributions to the company's objectives. This type of bonus is directly tied to an individual's performance appraisal or the accomplishment of specific goals, encouraging employees to strive for excellence and align their efforts with the organization's overall success. Performance-based bonuses serve as a tangible recognition of outstanding work, motivating employees to consistently deliver high-quality results and contribute to the company's growth and success.

3. Transportation Benefit

This benefit offers financial support for employee transportation costs, covering transport money (a fixed amount provided for daily commuting expenses) and vehicle subsidies (assistance with purchasing or maintaining a vehicle for work purposes).

4. Meal Benefit

This benefit is provided to employees, particularly those who work outside the office, have irregular or extended working hours, and work night shifts.

5. Family Benefit

This benefit is provided to married employees and may include a wife's benefit for non-working spouses and child benefits for children below 21 years old who are not employed.

Difference Between Fixed and Non-fixed Benefits

Employees may receive a variety of benefits in addition to their base salary. These benefits can be categorized as either fixed or non-fixed. Fixed benefits are directly related to the employee's job and are paid consistently alongside the monthly basic salary. Examples of fixed benefits include retirement benefits, family benefits for spouses and children, health insurance contributions, position-specific benefits, and long-service awards. 

In contrast, non-fixed benefits are awarded at irregular intervals, separate from the monthly salary, and may not be guaranteed at specific times. Non-fixed benefits might include meal subsidies, transportation assistance, and performance-based bonuses.

Budget for Employee Benefits

Benefits are a crucial component of an employee's salary in Indonesia, but their amount can vary depending on the company and individual employment contracts. However, Law of the Republic of Indonesia No. 11 of 2020 on Job Creation, specifically Article 94, sets a minimum statutory requirement for the percentage of basic salary in an employee's total compensation.

According to the law, the minimum basic salary must be at least 75% of the total salary. This means that the maximum percentage of benefits is capped at 25%, ensuring a substantial portion of an employee's income is guaranteed by the basic salary.

That concludes our guide to comprehending employee benefits in Indonesia. These benefits are crucial for enhancing employee well-being, satisfaction, and overall productivity. Their provision can be highly tailored to align with company policies. If you're considering hiring Indonesian employees through a remote system, discover your top talents on Talentport!

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