[Indonesia] Understanding Employee Salary Types

When setting up payroll in Indonesia, it’s important to choose the correct salary type for each employee. The salary type determines how income tax (PPh 21) and statutory contributions are calculated and who bears the tax burden — the employee or the employer.

Below is a breakdown of the available Salary Types in HReasily for Indonesia-based employees:

1. Gross

• Description: The employee bears the full tax burden.

• How it works: The income tax is deducted from the employee’s salary, and the employer pays the deducted tax to the government on the employee's behalf.

• Use case: Commonly used when the company does not offer tax benefits to employees.

2. Net

• Description: The employer bears the full tax burden.

• How it works: The employer pays the employee’s income tax in addition to their net salary. The tax is reported and submitted by the company to the tax authority.

• Use case: Typically used when a company wants to provide full take-home pay without deductions.

3. Gross Up

• Description: The employee’s tax is “reimbursed” through an additional allowance.

• How it works: The tax is initially calculated and deducted from the employee’s salary, but the employer provides a tax allowance to offset the tax amount. The employer still pays and reports the tax to the government.

• Note: Since the tax allowance itself is taxable, the actual tax paid may be higher than with the Net salary type.

• Use case: Common when companies want employees to see tax deductions on payslips while still receiving full take-home pay.

4. Mix

• Description: A combination of methods is used for different components.

• How it works: Employers can selectively decide which components are taxed under different salary types. For example, the company may provide a tax allowance (Gross Up) but deduct statutory contributions (e.g., BPJS) from the employee’s salary.

• Use case: Useful for companies with flexible benefit structures or unique payroll policies.

Which Salary Type Should You Choose?

The salary type impacts both employer costs and employee take-home pay. Be sure to align it with company policy and employee agreements, and consult with your tax advisor or HR team for compliance with Indonesian tax regulations.