When John, an expatriate manager, received his first salary slip in Jakarta, he was surprised. The “gross” figure in his contract looked generous, but after tax, BPJS contributions, and deductions, the “net” pay was much lower. This confusion is common for both foreign and local employees in Indonesia.

Gross vs. Net Pay

• Gross Salary: Total monthly income before deductions (tax, BPJS, pension, etc.).
• Net Salary: The take-home pay after all statutory deductions.

Employers must be transparent about which figure is stated in contracts, as miscommunication often leads to disputes.

Legal Framework

Indonesian law requires employers to withhold:

• Income Tax (PPh 21): Progressive rates from 5% to 35%.
• BPJS Ketenagakerjaan & Kesehatan: Mandatory social security contributions, split between employer and employee.
• Other Allowances: Companies often add meal, transport, or housing allowances, which may or may not be taxable.

Real Case in Indonesia

In 2022, a multinational in Surabaya faced a complaint when employees discovered that their “net salary” was actually gross, leaving them with smaller take-home pay than expected. The case was resolved through mediation but damaged the company’s reputation.

Best Practices for Foreign Employers

• Clarify Terms: State clearly whether salary is gross or net in the employment agreement.
• Explain Deductions: Provide transparent payslips showing tax and BPJS breakdown.
• Competitive Packages: Consider allowances (housing, meal, transport) to remain attractive in the talent market.
• Cultural Sensitivity: Recognize that Indonesian employees value certainty and clarity in take-home pay.

Conclusion

Understanding Indonesia’s salary structure is essential for compliance and employee trust. Employers who are transparent in gross vs. net pay and fair in allowances will build stronger, more loyal teams.

References

• Law No. 13/2003 on Manpower (as amended by Job Creation Law 2020)
• Ministry of Finance Regulation No. 101/PMK.010/2016 (Income Tax Article 21 Guidelines)
• BPJS Ketenagakerjaan & BPJS Kesehatan Regulations