THR, or “Tunjangan Hari Raya”, is fondly referred to as the “13th Month Bonus” in Indonesia. It often causes confusion for foreigners when they come across it for the first time!
That is because it is unique to the archipelago. However, it is a fundamental part of local compensation packages and of high importance to society.
THR translates as “Holiday Allowance” and is a Guaranteed 13th Month Bonus, paid before an employees main religious holiday.
THR is mandatory under Indonesian law.
So, what are the THR Rules?
Tunjangan Hari Raya is currently governed by the Minister of Employment Regulation No. 6 of 2016 – Religious Festivity Allowance for Employees in Companies (“Regulation 6”). Regulation 6 replaced the previous Regulation No. PER-04/MEN/1994.
As per the law, companies must pay the THR Allowance to an Employee 1X per year and at least 1 week before the persons most important religious event.
Indonesia recognises 6 official religions. Depending on the persons religion, payment of THR would be before:
Idul Fitri for Muslims
Christmas for Protestants and Catholics
Nyepi for Hindus
Vesak for Buddhists
Chinese New Year for Confucians
However, the practice of many businesses has been to pay THR to Muslim employees before the Idul Fitri holiday and to non-Muslim employees prior to Christmas.
The THR Allowance is equivalent to 1 X Monthly Salary and Fixed Monthly Cash Allowances.
That is why it is commonly referred to as the “13th Month Bonus”.
It is payable in full to any employee that has worked for a company for at least 12 months before payment date.
However, for employees with a service period of less than 1 year but more than 1 month, the allowance is calculated proportionally.
For instance if 6 months has been worked – 6 months / 12 months = 0.5 – 50% of 1 months salary and fixed cash benefits is paid. If 3 months had been worked – 3 months / 12 months = 0.25 – 25% of 1 months salary and fixed cash benefits is paid.
THR is not due to anyone that has worked for a business for less than 1 month.
Freelance workers are also entitled to THR. Freelancers working for more than 12 continuous months receive one month’s salary – calculated based on the average salary received throughout the period. For Freelancers that have worked less than 1 year but more than 1 month, the bonus is calculated proportionally based on the average monthly salary throughout the period worked.
Above all, THR is compulsory and an employee’s work performance has no impact.
Alongside this, THR must be paid in the form of Indonesian Rupiah. In addition, Employers who are late in paying are subject to a 5% fine. Employers who do not provide THR are subject to administrative sanctions under the prevailing laws and regulations.
The above covers the basics. But each company has its own THR policies. For instance, we have seen some companies reward top level employees with 2X or even 3X monthly salary as their THR Allowance. In summary, it all depends on the remuneration policies of a company.
Why does Indonesia have a 13th Month Bonus?
Indonesia is considered a collectivist society, meaning higher importance is placed on the group rather than the individual.
Local communities are bound together by religion, community events and communal gatherings. People celebrate big religious festivals together as a community. Major religious events are a time of great enjoyment and the focal point to the yearly calendar.
However, the major ceremonies are also very costly. People often have to travel across the archipelago to go back to their home town. They need to buy a lot of food, new clothes and gifts.
In conclusion, THR ensures that the people have money at the time of the year when they need it most.
The 13th Month Bonus pays for the large communal celebrations and group worship. Allows society to gather together.
While you are here, please have a look at This Article which gives an overview of the Indonesian Income Tax Regulations.
For Businesses that are looking to Hire Executive Talent in Indonesia please submit your Enquiry Here. Or you can reach us through our Contact Details Here. A Consultant will respond within a few hours.