---
title: Payroll Guide: Everything You Need to Know
url: https://www.gadjian.com/en/indonesia-labour-law/payroll
language: en-US
type: guide
last_updated: 2026-07-24
---
# Professional Payroll Guide: Your Compliance Companion
> Indonesia's payroll system is governed by the Job Creation Law and the Government Regulation on Wages, covering wage components, payment schedules, THR, and salary deductions. Employers who pay wages more than 3 days late face tiered fines.
## What is the payroll system?
The payroll system is the wage payment mechanism governed by the Job Creation Law (UU Cipta Kerja) and the Government Regulation on Wages (PP Pengupahan). Wages must be denominated in Indonesian Rupiah, paid in full each pay period (daily, weekly, or monthly), and must not exceed a one-month payment interval. The right to wages arises from the start of the employment relationship until its termination.
## Who is this guide for?
- Payroll & finance staff: to ensure payment schedules, wage components, and THR comply with regulations and avoid late-payment fines.
- Business owners & HR management: to understand THR obligations, wage deductions, and income tax on employee salaries.
## Key Points
"| Topic | Brief explanation | Relevant for |
|---|---|---|"
| Wage/Salary Payment | Must be in Rupiah, paid in full each period (daily/weekly/monthly), max. 1 month; more than 3 days late incurs a fine | Payroll, finance |
| Wage Components | Base salary (at least 75% of total when fixed allowances are included), fixed allowances, and variable allowances | Payroll, HR |
| Religious Holiday Allowance (THR) | Mandatory once a year, paid in cash no later than 7 days before the holiday, regulated under Minister of Manpower Regulation No. 6 of 2016 | Payroll, HR, employees |
| Wage Deductions | Maximum 50% of wages per pay period, including PPh 21 and BPJS contributions | Payroll, finance |
## How is employee THR calculated?
1. Determine the employee's length of service from their start date to the upcoming religious holiday.
2. If the employee has worked 12 continuous months or more, THR equals one full month's wage.
3. If the employee has worked more than 1 month but less than 12 months, THR is prorated: (months of service ÷ 12) × one month's wage.
4. Determine which wage components form the calculation base (base salary only, or base salary + fixed allowances) according to company policy.
5. Pay THR no later than 7 days before the religious holiday, exclusively in Indonesian Rupiah.
## How is THR taxed under the 2024 PPh 21 regulations?
Under Government Regulation No. 58/2023, THR is no longer taxed separately from regular salary. PPh 21 is applied to the total gross income in the month of payment (salary + THR) using the Average Effective Rate (Tarif Efektif Rata-rata / TER). This means that in the month THR is paid, the employee's gross income will be higher, potentially resulting in a higher effective tax rate for that month. (note: Indonesian tax regulations are frequently revised — verify the current number and year with an official source before publishing)
## Comparison
"| | Manual calculation | Using Gadjian |
|---|---|---|"
| Prorated THR calculation | Calculated manually per employee, prone to formula errors | Calculated automatically based on length of service & wage components |
| Late-payment fine tracking | Payroll team must calculate the tiered fine rates themselves | The system helps ensure payments stay on schedule |
| PPh 21 withholding in the THR month | Requires manual recalculation of the effective rate | Integrated with a PPh 21 calculator per Government Regulation No. 58 of 2023 |
## Data & references
- Job Creation Law (Law No. 6 of 2023) Article 81 Number 28 on the right to wages (note: Indonesian labor regulations are frequently revised — verify the current number and year with an official source before publishing)
- Minister of Manpower Regulation No. 6 of 2016 on the Religious Holiday Allowance (THR), including a 5% fine for late payment (note: verify the current number and year with an official source before publishing)
- Government Regulation No. 58 of 2023 on PPh Article 21 Withholding Rates (governs THR taxation using the Average Effective Rate/TER) (note: verify the current number and year with an official source before publishing)
- "PP Pengupahan" (the Wage Regulation) is referenced on this page without an explicit number. Based on Gadjian's separate labor-law guide page, this likely refers to Government Regulation No. 36 of 2021 on Wages. [NEEDS VERIFICATION: the specific regulation number is not explicitly stated on this payroll page]
## FAQ
**How is the religious holiday allowance (THR) calculated under the latest rules?**
THR is calculated based on length of service: employees with 12 or more continuous months of service receive one full month's wage; employees with 1–12 months receive a proportional amount calculated as (months of service ÷ 12) × one month's wage. THR must be paid no later than 7 calendar days before the relevant religious holiday and must be paid exclusively in Rupiah.
**What salary deductions are legally permitted by employers?**
Employers may deduct wages for: fines, damages, salary advances/loans, employee debt installments, rental of company assets, overpayments, and authorized third-party deductions. Mandatory deductions include Income Tax (PPh Article 21) and BPJS Kesehatan (health insurance) and BPJS Ketenagakerjaan (employment insurance) contributions. Total deductions must not exceed 50% of the employee's wage in any pay period.
**Are employees who are terminated entitled to THR?**
Yes. Permanent employees (PKWTT) who are terminated or resign within 30 days before a religious holiday are still entitled to proportional THR. However, contract employees (PKWT) whose contracts naturally expire before the holiday are not entitled to THR.
## Next steps
- [Try Gadjian free for 14 days](https://www.gadjian.com/en/demo)
Source: https://www.gadjian.com/en/indonesia-labour-law/payroll · Last updated: 2026-07-24