Overtime Rules for Small Businesses in Indonesia, Made Practical
When work hours become overtime, the 1/173 formula, multiplied holiday rates — a practical guide to calculating overtime pay, with worked rupiah examples.
“I’ll throw in a bonus later” — the most common sentence an Indonesian small business owner says when asking staff to stay late. Sometimes the bonus arrives; often it evaporates. And the employee stays quiet not out of goodwill but out of awkwardness. Until one day they resign and tell everyone within earshot that your shop “eats” overtime hours.
Overtime has actual math behind it, and the math is less scary than it looks. Small businesses that calculate overtime correctly are rare — and precisely because they’re rare, it becomes a genuine reason good people stay.
When do hours become overtime?
The general baseline: normal working hours are 7 hours a day on a 6-day week, or 8 hours a day on a 5-day week — either way about 40 hours weekly. Work beyond that, or work on the weekly rest day or a national holiday, counts as overtime.
Overtime is also capped — current rules limit it to roughly 4 hours a day and 18 a week — and it requires consent: employees may decline, and overtime instructions should be written down, even if just an unambiguous chat message. An important note before we continue: the figures and technical details here follow the rules generally in force at the time of writing; Indonesian labor regulations change and some sectors have special provisions, so always verify against current regulations.
The core formula: one hour’s wage is 1/173 of monthly pay
The number 173 raises eyebrows, but its origin is sensible: average monthly working hours (about 40 hours a week times 52 weeks, divided by 12 months) come out to roughly 173. So hourly wage equals monthly wage divided by 173.
From there, weekday overtime rates:
- First hour: 1.5 times the hourly wage.
- Second hour onward: 2 times the hourly wage.
Example: Fitri works the warehouse at a building supplies store in Bandung, monthly wage Rp3,460,000. Her hourly rate: Rp3,460,000 divided by 173 equals Rp20,000. One evening she works 3 extra hours receiving a late cement delivery. The math: first hour at 1.5 times Rp20,000 is Rp30,000; second and third hours at 2 times Rp20,000 are Rp40,000 each. Total for the evening: Rp110,000.
Once the pattern clicks, the rest is multiplication.
Holidays: different rates, noticeably fatter
Overtime on the weekly rest day or a national holiday is paid on a steeper ladder: the first several hours at 2 times the hourly wage, the next hour at 3 times, then 4 times. Where the steps fall depends on whether you run a 5-day or 6-day week. For businesses like restaurants and shops that open precisely on public holidays, this is required knowledge — or something you engineer around with scheduling, for instance granting a substitute rest day so the holiday becomes a normal working day with the day off shifted elsewhere. Both approaches are legitimate; pretending a public holiday is an ordinary day is not.
We dig into that scheduling strategy in our F&B shift scheduling article.
The overtime you don’t pay in money
There’s an option people forget: reducing the need for overtime itself. Routine overtime is usually a symptom, not the disease — stock counts that always overrun, suppliers who deliver at night, closing routines that drag because the daily recap is manual. Before perfecting your overtime math, it’s worth asking: does tonight’s late work need to exist at all?
Often it doesn’t. A daily sales recap that took an hour becomes a minute when the POS totals itself; stocktakes shrink when inventory records stay clean all month. The best overtime is the kind that never happens.
Record it, compute it, put it on the slip
For the overtime that genuinely must happen, three disciplines keep everything calm.
First, hours get recorded when they happen — not reconstructed at month-end. Digital attendance that stamps the clock-out time makes this automatic. Second, pay is computed with the formula, not “here’s fifty thousand, we’re square” — round numbers are almost always smaller than the legal math, and employees can google now. Third, overtime appears as its own line on the payslip, not blended into “bonus.”
If managing those three manually sounds tedious, that’s what payroll systems are for. In Tenavora, overtime hours flow from attendance into the correct multiplied rates and onto a tidy payslip — the owner approves rather than recalculates at midnight.
As for “I’ll throw in a bonus later”? Replace it with “it’ll be on your slip.” Shorter, clearer — and ten years from now your staff will still remember which shop counted their late hours honestly.