Business Advice
October 21, 2024

Net Salary: Definition and how to calculate it

Written by
Galih Gumelar
Last Modified on
October 21, 2024

Managing employee salaries is an important part of corporate management. For financial professionals and business owners alike, a solid understanding of salary structures— - especially net salary — is essential to ensure accuracy and compliance.

In this article, you’ll learn everything you need to know about net salary, from its definition to how it is commonly calculated in Indonesia, and we will explain the key differences between net and gross salary. By the end, you’ll have a clear picture of what goes into these calculations and how to manage your payroll effectively.

What is a net salary?

In Indonesia, net salary is the total amount an employee takes home after deductions such as income tax (PPh) and National Health and Employee Programs (BPJS) contributions. This is the actual amount that an employee usually receives in their bank account once a month.

Having the knowledge of net salary, also known as take-home pay, helps employees to better understand their actual monthly income and how much tax and contributions have been deducted from their salary each month. In addition, employees no longer have to worry about paying taxes and deductions themselves if the companies they work for implement the net salary systems.

Net salary vs. gross salary: what’s the difference?

In the world of payroll, two terms often cause confusion — net salary and gross salary. Although they may seem similar, these terms are fundamentally different.

What is a gross salary?

Gross salary is total earnings before any deductions. If your company works with a gross payroll system, employees are responsible for calculating and paying their own income taxes and insurance contributions. This gives employees more insight into their gross earnings, but they also have to manage their deductions themselves.

For example, if a company offers an employee a gross salary of Rp7,000,000, this employee must independently pay taxes and insurance contributions of, for example, Rp500,000. Although the employee’s gross salary is Rp7,000,000, his actual net pay after these payments would be Rp6,500,000.

What is the net salary?

Net salary, on the other hand, is the amount left over after all deductions. When a company uses a net salary system, it deducts taxes and contributions before transferring the remaining salary directly to the employee. This simplifies the process for the employee, as the company takes care of the entire deduction process.

For example, if an employee is offered a gross salary of Rp7,000,000 and the company deducts Rp500,000 for taxes and insurance, the employee will receive a net salary of Rp6,500,000 without having to worry about additional payments.

How to calculate the net salary

For businesses, the correct calculation of employee salaries is crucial. The calculation of net salary usually includes two components: income and deductions.

Income

An employee's income can fluctuate from month to month due to various factors:

  • Base salary: the fixed monthly salary that forms the core of an employee’s income. According to Government Regulation No. 51 on Wages, the basic salary must account for at least 75% of the total basic salary plus fixed allowances if a company grants fixed allowances.
  • Allowances: Additional earnings outside the basic salary, which may be fixed or variable. Common examples are travel allowances and meal allowances.
  • Additional Income: Income earned for specific reasons, such as overtime pay or project-related fees.

Deductions

Deductions are expenses that are deducted from an employee’s gross income. Common examples are

  • Income tax (PPh)
  • The National Health Program (BPJS Kesehatan) contributions, which are set at 1% of the employee’s gross income
  • The National Employee Security Program (BPJS Ketenagakerjaan) contributions, which usually consist of:some text
    • Pension Insurance (JP), which requires a contribution of 1% of gross income
    • Old Age Security (JHT), which requires a contribution of 2% of gross income
  • Loan repayments, if applicable
  • Pension fund Contributions
  • Late payment surcharges

Example: Calculation of net salary

Let’s go through an example to illustrate how to calculate net salary.

Let us take an employee, Nia, who has the following income and deductions in June 2024:

Income:

  • Base salary: Rp7,000,000
  • Travel allowance: Rp1,000,000
  • Meal allowance: Rp1,000,000
  • Child allowance: Rp250,000
  • Overtime allowance: Rp300,000

Deductions:

  • Income tax: Rp300,000
  • BPJS Health: Rp150,000
  • BPJS Employment: Rp150,000
  • Loan repayment: Rp800,000
  • Pension fund contribution: Rp200,000
  • Late payment surcharge: Rp50,000

From this data, Nia knows that her total income for June is Rp9,550,000, while her total deductions amount to Rp1,650,000. To calculate her net salary, Nia subtracts the deductions from her total income:

Net salary = Rp9,550,000 - Rp1,650,000 = Rp7,900,000

As shown, Nia would receive a net pay of Rp7,900,000 in June. Of course, these figures may vary depending on company policies and regulations, but the basic structure of the net salary calculation remains the same.

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Global payments are offered by various providers through business accounts. Read our article to know more about types of business accounts and how to choose the best one for your business. There are many banks and fintech companies offering business accounts to businesses in Singapore. We have covered them all in our blog, you can click the links to view accounts offered by various banks such as DBS, OCBC, Maybank etc.

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No minimum balance is required to keep your SGD, USD, EUR, GBP and IDR Accounts activated.

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For a business account in Singapore, Aspire is an excellent choice. With a focus on startup and SME needs, Aspire offers a seamless and transparent banking experience.

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Is there a minimum balance required for Aspire Business Accounts?

No minimum balance is required to keep your SGD, USD and IDR* Accounts activated.

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Galih Gumelar
is a seasoned writer specialising in macroeconomics, business, finance and politics. With a writing history at CNN Indonesia, The Jakarta Post, and various other reputed organisations, Galih leverages his broad range of experiences to create insightful resources for those wanting to start a business.
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