Compensation Agreement Template for Indonesia

A Compensation Agreement spells out how much and in what ways an employee will be paid for their work. These contracts, common in Indonesian companies, cover your basic salary, bonuses, benefits, and any performance-based incentives that align with Ministry of Manpower regulations.

Beyond meeting the requirements of Indonesian labor law (UU Ketenagakerjaan), these agreements protect both employers and workers by clearly stating payment terms, work expectations, and compensation review periods. They're especially important for roles with complex pay structures, like sales positions with commissions or executive positions with stock options.

Use a Compensation Agreement when hiring employees for roles with complex pay structures in Indonesia. This includes positions with performance bonuses, sales commissions, profit-sharing arrangements, or specialized benefits packages that go beyond standard salary terms covered in basic employment contracts.

These agreements become essential when creating executive compensation packages, implementing new incentive programs, or establishing clear payment terms for remote workers. They're particularly valuable for multinational companies operating in Indonesia to ensure compliance with local labor laws while maintaining competitive pay structures that attract and retain top talent.

• Employee Compensation Agreement: Basic template covering salary, benefits, and standard performance incentives
• Hiring Bonus Agreement: Specifies one-time signing bonuses and related conditions
• Employee Retention Bonus Agreement: Outlines stay bonuses and long-term incentive structures
• Severance Pay Contract: Details termination compensation and exit terms
• Compensation For Non Compete Agreement: Covers payment terms for post-employment competition restrictions

• Company HR Directors: Draft and oversee Compensation Agreements, ensure compliance with Indonesian labor laws, and manage implementation
• Legal Counsel: Review terms, verify compliance with regulations, and adapt templates for specific situations
• Department Managers: Help define performance metrics and bonus structures for their team members
• Employees: Review, negotiate, and sign agreements as the primary beneficiaries of compensation terms
• Finance Department: Implement payment structures and ensure budgetary alignment with compensation commitments
• Ministry of Manpower Officials: Monitor compliance with minimum wage laws and labor regulations

• Employee Details: Gather full name, position, start date, and employment status per Indonesian labor regulations
• Compensation Structure: Define base salary, bonuses, allowances, and benefits that meet minimum wage requirements
• Performance Metrics: Outline clear KPIs and bonus calculation methods if including performance-based pay
• Payment Schedule: Specify payment dates, frequency, and method aligned with local banking practices
• Legal Requirements: Check current Ministry of Manpower regulations on mandatory benefits and allowances
• Company Policies: Review internal compensation policies and industry standards for competitive packages
• Document Generation: Use our platform to create a legally-compliant agreement that includes all required elements

• Identification Details: Full names, addresses, and roles of all parties involved
• Base Compensation: Clear statement of salary, meeting Indonesian minimum wage requirements
• Additional Benefits: Religious holiday allowance (THR), health insurance, and mandatory benefits
• Payment Terms: Schedule, method, and currency of compensation delivery
• Performance Metrics: Specific KPIs and bonus calculation formulas if applicable
• Working Hours: Standard hours, overtime rates per labor law UU No. 13/2003
• Termination Provisions: Notice periods and severance calculations
• Confidentiality Clause: Protection of compensation information
• Governing Law: Reference to Indonesian labor laws and dispute resolution

A Compensation Agreement differs significantly from an Agency Agreement in both scope and purpose. While both documents govern payment relationships, they serve distinct business needs in Indonesia's legal framework.

• Primary Purpose: Compensation Agreements focus on employee salary, benefits, and incentives, while Agency Agreements outline commission structures and terms for independent representatives
• Legal Status: Compensation Agreements fall under employment law (UU Ketenagakerjaan), whereas Agency Agreements operate under commercial law principles
• Payment Structure: Compensation Agreements typically include fixed salaries and benefits packages, while Agency Agreements usually focus on commission-based or performance-linked payments
• Duration: Compensation Agreements often run indefinitely with employment, but Agency Agreements commonly have fixed terms or project-specific periods
• Tax Implications: Employee compensation requires payroll tax withholding, while agency payments are treated as business-to-business transactions