Religious Holiday Allowances in Indonesia Still Obligatory Despite COVID-19
- Indonesia’s Ministry of Manpower has reminded employers that payment of the religious holiday allowance (THR) is still obligatory despite the pandemic.
- The Ministry issued Regulation No. M/6/HI.00.01/V/2020 on May 8, 2020, which allows employers to postpone payment or pay in installments – pending agreement with employees.
- Any postponement in the THR payment must be fulfilled before the end of 2020, and failure to pay the THR can result in fines and the suspension of business activities.
On May 8, 2020, Indonesia’s Ministry of Manpower issued Regulation No. M/6/HI.00.01/V/2020 on the implementation of the payment of the religious holiday allowance (Tunjangan Hari Raya – THR) during the COVID-19 pandemic.The regulation reminds employers that paying the THR is mandatory despite the pandemic but for those unable to pay within the allotted time, the employer can postpone the payment or pay it in installments.
This does not eliminate the employer’s obligation to pay the bonus as in accordance with the Ministry of Manpower’s Regulation No. 6 of 2016 (Reg 6).
Businesses should consult the advice of qualified legal advisors to better understand how this regulation impacts their HR policies.
What is THR?
The THR is a yearly bonus given to employees at least one week before the start of the religious holiday observed by the employee (based on the employee’s religion), equivalent to one month’s salary (based on the period of employment). The recognized religious holidays for THR payment are:
- Eid-il-Fitri for Muslims;
- Christmas for Catholics and Protestants (considered as two different religions in Indonesia);
- Nyepi for Hindus;
- Vesak for Buddhists; and
- Chinese New Year for Confucianism.
The practice of many businesses in the country has been to pay the THR of non-Muslim employees prior to the Christmas holidays, and those of Muslim employees before the Eid-il-Fitri break.
Who is eligible to receive THR and how is it calculated?
All employees, whether permanent or contract-based are eligible for THR and it must be paid using Indonesian rupiah.
The amount paid is based on the employees’ service period. For employees working for more than 12 continuous months, they are entitled to THR equivalent to one month’s salary.
For employees who have served one month or more but less than 12 months, the THR is calculated on a pro-rata basis using the following formula:
(service period/12) x 1 month’s salary
Freelance workers are also entitled to THR. Those working for more than 12 continuous months must receive the equivalent of one month’s salary, which is calculated on the average salary they received throughout this period.
For those working more than one month and less than 12 months, the THR is calculated based on the average monthly salary throughout the employment period.
Religious holiday allowance still obligatory despite COVID-19
Regulation No. M/6/HI.00.01/V/2020 states that the THR payment is still obligatory despite businesses being impacted by the economic downturn caused by the pandemic.
The new regulation does allow employers who are unable to pay the THR in the allocated time, the opportunity to pay in installments or postpone payment (this must be done before the end of 2020). However, these options must be assessed with the agreement of the employee and must be reported to the Ministry of Manpower.
Fines for non-compliance
The regulation reiterates that businesses who fail to pay the THR will be fined five percent of the THR amount, which will be used for the employees’ welfare. Further, this sanction does not waiver the employer’s obligation to pay the THR.
In addition to financial sanctions, employers will be subject to administrative sanctions for failure to pay the THR. These are:
- Restriction of business activities;
- Permanent or temporary suspension of production facilities; or
- Suspension of business activities.