Why Indonesia’s THR Obligation Remains a Flashpoint for Employers Every Year

Each year, as Indonesia approaches major religious holidays, one issue consistently moves to the top of the employment agenda: Tunjangan Hari Raya (THR). For employers, THR is more than a cultural tradition or a goodwill payment—it is a statutory obligation with clear rules, strict deadlines, and real consequences for non-compliance.

Despite its long-standing place in Indonesian labor law, THR continues to generate disputes, complaints, and enforcement actions. This is partly because the rules apply broadly across employment types and partly because enforcement has become more visible and accessible to workers through digital reporting channels. In 2025, THR remains one of the most closely monitored aspects of payroll compliance.

THR is a mandatory religious holiday allowance governed primarily by Minister of Manpower Regulation No. 6 of 2016. Unlike bonuses or incentives, it is a legal right attached to the employment relationship itself. Employers cannot replace it with alternative benefits, defer it unilaterally, or make payment conditional on company performance.

The regulation defines THR as a payment equivalent to one month’s wage for eligible employees, calculated using basic salary plus fixed allowances. Variable components—such as overtime, attendance incentives, or performance bonuses—are excluded from the calculation. This distinction is often overlooked and remains a common source of miscalculation.

One reason THR compliance can be challenging is the breadth of coverage. Permanent employees are clearly entitled, but the obligation does not stop there. Fixed-term employees, daily workers, and piece-rate workers are also covered, provided they have worked for at least one continuous month.

Foreign employees are included as well, as long as they are employed under Indonesian contracts and paid through local payroll. Outsourced workers are also entitled to THR, although the responsibility to pay lies with the outsourcing company rather than the client.

In practical terms, if there is a recognized employment relationship under Indonesian law, employers should assume THR applies.

THR is not an “all or nothing” benefit. Employees with less than 12 months of service are entitled to a proportional amount. The calculation is straightforward: months of service divided by 12, multiplied by one month’s wage.

For daily or non-fixed wage workers, the regulation requires employers to calculate an average monthly wage, usually based on the last 12 months or the actual months worked if employment has been shorter. This ensures coverage for workers in sectors such as retail, hospitality, and manufacturing, where non-standard wage structures are common.

The deadline for THR payment is explicit: it must be paid no later than seven days before the employee’s religious holiday. For most employers, this means Idul Fitri, but the obligation also applies to other religious observances depending on the employee’s faith.

Installment payments are not permitted. Annual circulars from the Ministry of Manpower consistently reinforce that THR must be paid in full and on time. Employers who delay payment, even by a few days, are considered non-compliant.

What has changed in recent years is not the substance of the THR obligation, but the way it is enforced. The Ministry of Manpower now operates annual Posko THR, allowing employees to file complaints directly through official channels. These reports are often followed up quickly, particularly in urban and industrial areas.

Late payment triggers an administrative fine of five percent of the THR owed, payable in addition to the original amount. Beyond financial penalties, authorities may impose warnings, restrictions on business activities, or licensing consequences for repeat or serious violations.

For employers—especially foreign-owned companies—reputational risk can be as damaging as formal sanctions.

Certain situations repeatedly surface during THR season. New hires who joined shortly before the holiday are still entitled to a proportional payment. Employees whose contracts end before the holiday may still have entitlement depending on timing and contractual terms. Outsourced arrangements require careful coordination to ensure the provider fulfills its obligation.

Requests to split THR payments, or to delay them due to cash flow constraints, are not supported by the regulation. These requests, while common, carry legal risk.

THR is not treated as a minor administrative requirement in Indonesia. It is closely tied to social expectations and labor stability. Paying THR accurately and on time is widely seen as a marker of responsible employment practice.

For companies operating in Indonesia, particularly those with foreign management, THR compliance often becomes a benchmark for broader labor law adherence. Payroll errors during THR season can attract scrutiny that extends beyond the allowance itself.

As employment regulations become more transparent and enforcement more accessible, many companies are reassessing how they manage payroll and statutory benefits. Some choose to centralize calculations and documentation internally, while others rely on external partners to reduce compliance risk.

Advisors such as CPT Corporate are often referenced by employers seeking support with employment compliance, including THR calculations, payroll alignment, and Employer of Record (EOR) arrangements. The focus is less on outsourcing responsibility and more on ensuring consistency with Indonesian labor standards.

THR remains a yearly test of how well employers understand and respect Indonesia’s labor framework. While the rules themselves are not new, the consequences of getting them wrong are increasingly visible.

For employers, the lesson is straightforward. THR should be planned as a fixed compliance obligation, not treated as a discretionary expense. Clear eligibility mapping, accurate wage calculations, and early scheduling are essential to avoid last-minute disputes.

As Indonesia continues strengthening labor governance, THR will remain a focal point where regulation, culture, and compliance intersect—making it an issue no employer can afford to overlook.