Are Contract Employees Taxed? Here's the answer!

A person’s employment status also affects their tax obligations. So, between permanent and non-permanent employees, there are differences in the tax provisions used, including for contract employee taxes. In Indonesian law, contract employees are commonly referred to as Specified Time Work Agreement (PKWT) employees. PKWT only applies to certain types of work, including work that is once completed, seasonal and temporary, or work that is expected to be completed in a short period of time (maximum three years). In addition, non-permanent contracts are also usually associated with new products, new activities, or additional products that are still in the trial or exploratory period. Yes, due to their temporary status, these contract or non-permanent employees fall under the category of non-permanent employees or casual employees. Then, are these contract employees subject to income tax like company employees in general? How are the provisions and how are they calculated? Check out the review here.

What is a contract employee?

As mentioned, contract employees are included in non-permanent employees or casual employees. According to the Directorate General of Taxes (DGT) Regulation No PER-16/PJ/2016, non-permanent employees or casual employees are employees who only receive income if the employee works, with the amount of income calculated based on the number of days worked, the number of work units produced, or the completion of the type of work from the employer. The form of income received can be called wages either unit, daily, weekly, or piecework which is generally paid using a monthly system.

Contract Employee Tax Provisions

Although the type of tax imposed on permanent employees and contract employees is the same, namely Income Tax Article 21, the tax provisions are different. This is because there are several special provisions in ITA 21 for contract employees, in this case, non-permanent employees or PKWT. Here are the details:

No withholding of Income Tax 21 if the employee’s income in a day has not exceeded IDR 300 thousand
Withholding PPh 21 is done if the employee’s income in a day is equal to or exceeds IDR 450 thousand, which is an amount that can be deducted from gross income (income above IDR 450 thousand = salary – IDR 450 thousand).
If a non-permanent employee earns a cumulative income exceeding IDR 4.5 million in one month, then the amount can be deducted from gross income.
Average daily earnings of employees is the average weekly wage, unit wage, or piece rate for each working day used.
The actual non-taxable income (PTKP) is for the actual number of working days
One day’s PTKP is used as the basis for determining the actual PTKP, which is equal to the PTKP per year of IDR 54 million divided by 360 days.
If the non-permanent employee participates in an old-age security or benefit program, then the contributions paid by the employee can be deducted from gross income.

Another provision that must be known regarding the tax provisions for contract employees, in this case non-permanent employees, is Minister of Finance Regulation No. 102/PMK/010/2016 concerning the Determination of the Part of Income in Connection with the Work of Daily and Weekly Employees and Other Non-Permanent Employees Not Subject to Income Tax Withholding.

From the Pemenkeu, there are several provisions that must be known, among others: 1. Income tax 21 for non-permanent employees or casual employees whose income is less than IDR 450 thousand per day is not subject to income tax withholding. 2. PTKP provisions do not apply if:

The gross income in question exceeds IDR 4.5 million per month
The income in question is paid on a monthly basis
Income in the form of honorarium
Commissions paid to hawkers and insurance outreach workers

Contract Employee Tax Calculation Example

To understand more about contract employee tax, consider the following calculation examples: 1. Budi is a one-year contract employee employed from May 1, 2021 to April 30, 2022. He receives a salary of IDR15 million per month with an unmarried status and no dependents. How is Budi’s PPh 21 calculation in 2022?

For fiscal year 2022, Budi’s working period is only four months, from January 1 to April 30. Thus, the tax is also calculated for four months, not 12 months.
Salary: IDR 15 million
Deducted by 5 percent office fee (max IDR 500,000): IDR 500 thousand
Net monthly income: IDR 14.5 million
Four months net income: IDR 58 million
PTKP: IDR 54 million
PKP: Net income – PTKP = Rp4 million
Income tax 21 per four months: 5 percent x IDR 4 million = IDR 200 thousand
Income tax 21 per month: IDR 50,000

2. Bagus is an employee who is not married. In January 2024, Bagus worked as a daily laborer and was paid IDR 125,000 for each job completed. In one week with six working days, Bagus can complete 24 TVs totaling Rp 3 million. So, how much Income Tax 21 is imposed on Bagus?

Salary per day: IDR 3 million / 6 = IDR 500 thousand
Salary above IDR 450 thousand: IDR 500k – IDR 450k = IDR 50k
Income Tax 21: 6 x (5 percent x IDR 50 thousand) = IDR 15 thousand

This is the explanation of contract employee tax. Now, of course, KH Friend has a better understanding of the differences in provisions and how to calculate them when compared to permanent employee taxes? For information, the deadline for reporting and paying this year’s annual individual income tax return will fall on March 31, 2024, you know. Well, don’t miss it, buddy!

KH Contact

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