Avoid 9 Mistakes in Payroll Management in Indonesia

Avoiding common mistakes in payroll management is crucial to ensure compliance and employee satisfaction.

Paying employees on time according to their contracts is crucial for keeping them at your company. Payroll processing is a routine responsibility of the company to employees as a benefit for their contributions. Many foreign companies use payroll management services in Indonesia because it effectively ensures compliance with regulations and employee satisfaction.

The payroll process is a routine responsibility of the company to employees, as a benefit they have helped you with your work.

Because of this, many foreign companies enter Indonesia using payroll management services because it has proven effective in keeping their company compliant with regulations and employees satisfied.

Therefore, the focus of this article is to tell you about common mistakes in payroll management for global talent in Indonesia and explain how Payroll Management services and if you need more complete then service Employer of Record (EOR) can help solve this problem.

Avoiding Payroll Management Mistakes in Indonesia

image: Freepik

9 Common Mistakes in Payroll Management in Indonesia

  1. Misclassifying Employees

    Employee misclassification can get you in trouble with regulations and your own employees. Because each employee classification is different, there are different regulations that govern, as well as the rights and benefits that employees must obtain.

    You can read about the types of work contracts in Indonesia here.

    As an example Employee Indefinite Time Work Contract (PKWTT Contract) :

    • Minimum wage: Arranged by No. 36 of 2021, full-time employees must receive the minimum wage set by local governments.
    • Working Hours and Overtime: Regulated in Job Creation Law. Employees are entitled to overtime pay if they work more than 40 hours per week.
    • Annual leave: Entitled to a minimum of 12 days of annual leave after working for a full year.
    • Social Security: Full-time employees must be registered with BPJS Employment and BPJS Health, including old age, pension, work accident, death, and health insurance.
    • Hari Raya Allowance (THR): Entitled to THR once a year in accordance with Perpu No. 2 of 2022.
    • Severance pay: If laid off, you have the right to receive severance pay according to the length of service, as regulated in the Job Creation Law.

    And if a Specific Time Work Contract (PKWT)

    • Contract Duration: Maximum 5 years based on the UU Cipta Kerja. After that, you must become a permanent employee (PKWTT).
    • Minimum wage: Same as full-time employees, must receive the minimum wage set by the local government.
    • Working Hours and Overtime: Same as full-time employees, entitled to overtime pay if they work more than 40 hours per week.
    • Social Security: Depends on the agreement in the work contract, but most are still entitled to BPJS Employment and BPJS Health.
    • THR and Holidays: Contract employees are also entitled to THR and annual leave, depending on the length of service and contract terms.

    This does not include freelance, internship, or part-time, therefore many companies not only use payroll management services but also more complete ones, namely EOR (employee of record) to get more help.

  2. Inadequate Record Keeping

    Poor record keeping is one you should Avoid in Payroll Management because it can cause problems if your company undergoes an audit. 

    In Indonesia, companies are required to keep complete and accurate payroll records in accordance with applicable labor and tax regulations.

    Lack of adequate documentation can result in fines, sanctions, and other legal problems when the company is audited by labor or tax authorities.

    Apart from that, your employees have the right to know the details of their payments, including salary, overtime, and deductions. Data transparency can make them more comfortable with you.

  3. Missed Deadlines

    When payroll processing is late, it delays employee salary payments. This can harm your company by reducing employee productivity and causing them to lose focus at work.

    Even worse, citing data from Cipp.org.uk “One in five Brits (21%) have changed jobs after being paid late or inaccurately by their employer.”

    That number is equivalent to almost seven million workers on a national scale in the UK in 2019.

    in Indonesia itself, in Pasal 95 (2) Law Number 13 of 2003 concerning Employment regulates fines imposed on employers for late paying workers’ wages.

    This reads: Entrepreneurs who, through deliberate or negligence, cause delays in payment of wages, will be subject to a fine according to a certain percentage of the worker’s/labourer’s wages.

  4. Inaccurate Payroll Taxes

    PCompanies must comply with various tax regulations, including Income Tax (PPh) Article 21 calculations. Inaccurate calculations will often occur due to errors in income grouping, employee classification, and so on.

  5. Complications Due to Multiple Locations



    Handling Payroll for Multiple Locations
    image: Freepik
    Each country has different labor regulations, taxation, and employee benefits, but companies must comply with them to avoid fines and sanctions.

    This complexity includes aspects such as salary structures, tax reporting, data protection, and employee benefits that vary by location.

    Because of this, many companies choose to work with EOR Payroll Service who focus on local and certain regions rather than international ones, because they are more familiar with local regulations and their changes.

  6. Time Attendance Miscalculation

    Pmanual records or inefficient systems, cause salary and overtime calculation errors. As a result, employees may be paid less or more than they should, which can lead to legal issues and employee dissatisfaction or even harm your company.

  7. Bank Holidays

    When payday falls on a bank holiday, processing salary transfers via direct deposit will be delayed until the next working day. This delay can cause employees to receive their salaries late, leading to potential financial problems for them.

    To avoid this issue, it is crucial to be aware of weekends and holidays.

    If payday falls on a weekend or holiday, approve direct deposit payroll early. This ensures employees receive payment on the last business day before the weekend or holiday. For example, if payday is on a holiday Friday and you want employees to be paid on Thursday, approve the payroll by Tuesday.

    Importance of Accurate Record Keeping in Payroll Management
    image: Freepik

  8. No Appropriate Backup and Security

    Many companies do not backup data or purchase security software to protect their payroll information. As a result, their payroll systems are vulnerable to hacking and permanent data loss. Payroll data security is very important because it includes sensitive information such as salaries, account numbers, and employee personal data.

    This must be taken into account the cost of a data breach is not cheap, it’s even expensive.

    Morgan Lewis quote from Cost of a Data Breach Report 2023

    “The average cost of a data breach globally was $4.45 million in 2023, representing a 2.25% increase from 2022 when the average cost was $4.35 million.”

    Because it is important for mProtect payroll data through adequate backup and security, to reduce costs associated with data leaks.

  9. Heavy Reliance on Technology

    Even sophisticated payroll software requires professional help to validate data. Errors, like incorrect data entry or software bugs, can occur if data goes unvalidated. Manual checking prevents these issues, ensuring accuracy in salary and tax payments.

How to Avoid Payroll Management Mistakes with EOR Services

Managing payroll for global talent in Indonesia requires special attention to local regulations. These challenges can lead to payroll management errors, such as misclassifying employees, late payments, and tax calculation errors.

These errors can be financially and reputationally damaging to the company. Companies need to consider using Payroll Management and Employer of Record (EOR) services to handle all aspects of payroll properly, ensure compliance with local regulations, and maintain employee satisfaction.

By using these services, companies can ensure accurate, timely, and compliant payroll management, which helps maintain employee trust and satisfaction.

Abhitechprovide services for Payroll Management and Employer of Record (EOR) to help your company remain compliant and efficient in managing employee payroll. You can visit this page.

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