What You Need to Know About Annual Bonuses in Indonesia

Expat employers and foreign professionals may have heard their local counterparts speaking of something called ‘THR’ in recent weeks. If you’re not yet familiar with Indonesia’s 13th month salary, here’s what you need to know about the archipelago’s equivalent to a Christmas bonus.  

Seeing as how employers in western countries like the US, UK and Australia all have their own versions of an end-of-year bonus for team members, it should come as no surprise that Indonesia has it too. However, instead of giving out bonuses near Christmas or New Year and because Indonesia is a Muslim-majority country annual bonuses (known as ‘THR’) instead come during the big Islamic holiday of Idul Fitri.

It’s an appropriate moment for bonuses due to the fact that it’s the longest period of time that locals get work off in Indonesia and, as such, they need extra cash to spend on family get-togethers and festive activities.   

If you’ve been in the archipelago for any extended amount of time, you are likely already familiar with this. But what you may not know is that it’s actually mandated by law that all Indonesian businesses must award THR bonuses to their Muslim employees. It’s not an optional thing nor can it be contingent based on the individual team member’s performance.

This update to the law was made pretty recently. On March 8, 2016, the Ministry of Employment issued Regulation No. 6 of 2016 on Religious Festivity Allowance for Employees in Companies (“Regulation 6”). Regulation 6 replaces Regulation No. PER-04/MEN/1994 of 1994 on the same matter (“Regulation 4”).

Global Business Guide (GBG) confirms this much. The research firm writes:

“Regulation 6 regulates the Religious Festivity Allowance (Tunjangan Hari Raya or as it is commonly known ‘THR’). THR is a mandatory benefit that must be provided to all employees in conjunction with the religious holiday observed by the employee (based on the employee’s religion).”  

Similar to Regulation 4, Regulation 6 says that all employees, whether they’re set up on a contract or not, are entitled to this bonus. For employees on a definite period contract, their contract must be valid during the time of the bonus payout.  

But Regulation 6 doesn’t stop with bonuses for Muslims. It encompasses other religions as well. For Christians and Catholics, a Christmas bonus is applicable. For Hindus, the bonus may be applied to Seclusion (Nyepi). For Buddhists, the bonus may apply to the holiday of Vesak (Waisak). It is unclear how Atheists should be treated (perhaps a lack of religion is simply unfathomable to Indonesian policy makers). But not to worry. For the sake of practicality and fairness, non-believers are still likely granted the THR bonus when Idul Fitri rolls around, as it will still be a time off of work when extra cash is needed.

Expats who are legally employed by an Indonesian company are entitled to an annual bonus, just like anyone else. If you are an expat entrepreneur, however, you may want to consider whether you want to give yourself the bonus, or just keep it in the company’s coffers.

If you employ locals, be sure you can cover all your team members’ bonuses before thinking about yourself. It will likely be more important to them than it is to you (the boss).

The THR Breakdown

According to GBG, an employee with a service period of 12 continuous months or more is entitled to a bonus in an amount equal to one month’s salary. An employee with a service period of one month or more but less than 12 months is entitled to a prorated bonus amount calculated using the following formula: (service period/12) x one month’s salary.

Bonuses must be given in the form of money. However, as long as an employee had agreed, up to 25 percent of the bonus may be provided in forms other than money. If an employee’s religious holiday occurs more than once in the same calendar year, the team member will be entitled to a bonus for each occurrence.

Supposedly (and it would be shocking if this were to actually be enforced throughout the archipelago), employers who are late in providing bonuses will be fined 5 percent of the bonus amount by the government. The fine will be managed and utilized for the employees’ welfare in accordance with the company regulations or the collective labour agreement of the employer. This sanction does not alleviate an employer’s obligation to provide bonuses to employees.

Employers who don’t provide bonuses for employees will be subject to administrative sanctions (stated by “Regulation 78”). These can include but may not be limited to written warnings, restriction of business activities, temporary or permanent suspension of some or all production facilities and suspension of business activities.

The law doesn’t make it clear how these sanctions would be delivered or imposed, but it seems likely that they would come in order of severity, meaning you’d probably be getting a bunch of written warnings before you actually got your business activities suspended by the Ministry of Employment.

That said, it would just be bad form in general to try to duck out of your responsibility as an employer to provide bonuses to your staff. After All, they are the ones who keep your business afloat in Indonesia and they deserve to have their hard work rewarded.

Smart business owners should plan their budgets and financial runways well in advance to anticipate THR bonuses. Keep in mind that because most people in Indonesia are indeed Muslim, the big time for bonus payouts will usually come during the month of June in the form of the Idul Fitri THR.    

 

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Leighton Cosseboom covers a variety of topics related to news, business, and technology in the region.


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