Indonesia’s Omnibus Law: Provisions on Minimum Wage

Posted by Written by Ayman Falak Medina Reading Time: 4 minutes

Indonesia’s government, through Government Regulation No. 36 of 2021 (GR 36/2021), has eliminated the sectoral minimum wage while establishing a provision for hourly pay for part-time workers.

Under GR 36/2021, the provincial minimum wage will be the main benchmark for businesses, and the governor of the province may also impose a city or regency minimum wage if that regency or city’s economic growth is higher than the province’s for the last three years.

Although the sectoral minimum wage has been abolished, all sectoral minimum wage decrees issued before GR 36/2021 will continue until their date of expiry.

Prior to GR 36/2021, ‘leading sectors’ or industries’ in a province, could determine their minimum wage rate, also known as Upah Minimum Sektoral Provinsi (UMSP). To be considered a leading sector or industry, the provincial wage council will undertake research and data collection regarding the specific industry to see it fulfills the following criteria set by the Ministry of Labor:

  • The specific industry can generate added value to the local economy;
  • Must be higher than the provincial minimum wage (usually by 5 percent and higher);
  • Involves a large number of businesses;
  • The industry requires significant manpower;
  • The industry is export-orientated; and
  • The related trade and labor unions are in agreement with the proposal.

Once an industry is deemed as ‘leading’, the provincial wage council will cooperate with local trade and labor unions, and business owners from that industry to determine the minimum wage. This proposal is then sent to the governor of the province for approval.

How will the minimum wage be calculated?

Calculations for the monthly minimum wage are carried out by the provincial or district wage council.

The local government will determine the minimum wage based on economic and employment conditions.  These comprise of the following variables:

  • Purchasing power parity;
  • Manpower absorption levels; and
  • Median wage variables (the margin between the 50 percent of the highest wages and 50 percent from the lowest 50 percent of the lowest wages from employees in the same position).

These variables are assessed based on existing data from the last three years. In addition, the wage council will also take into account economic growth or provision rate inflation, as well as the per capita consumption of working household members.

If the provincial, regional, or city minimum wage is currently higher than the sectoral minimum wage, then businesses will have to apply the provincial, regional, or city minimum wage.

Who does the minimum wage apply to?

The minimum wage applies to all workers with less than one year of working in the company. After one year, the employee is eligible to be paid in accordance with the scale of wages in the particular company, if they wish to do so.

Moreover, businesses are no longer permitted to postpone the payment of the minimum wage for their employees like before, unless they are classified as micro or small businesses.

Hourly wages for part-time workers

GR 36/2021 stipulates that part-time workers are now eligible for hourly wages — a first for Indonesia. Hourly wages are reserved for part-time workers only.

The formula for determining the hourly wage is as follows:

Hourly wage = Monthly wage/126

To calculate the daily wage:

Six working days/week

Daily wage = Monthly wage/25

Five working days/week

Daily wage = Monthly wage/21

The employer and employee are allowed to set their agreement, but the final salary should not be lower than the calculation using the aforementioned formulas. The agreed-upon wage structure must also be reported to the Ministry of Manpower.

The wage must be paid in Rupiah or the Rupiah equivalent of a foreign currency. Any non-cash portion in payment may not exceed 25 percent of total wages.

Minimum wages for micro and small businesses

Micro and small enterprises are exempted from paying the provincial, regional, or city-level minimum wage. However, their workers should be paid at least 50 percent of the average public consumption or 25 percent above the poverty line at the provincial level.

Deductions

Any deductions made from an employee’s salary must only be for one of the following:

  • The payment of fines;
  • Payment of damages caused by the employee (must not exceed 50 percent of the employee’s monthly salary);
  • Salaries paid upfront;
  • Rent for property rented by the employer for the employee;
  • Employee debts or installments to the employer; or
  • Salary overpayments.

Sanctions

Employers who fail to pay their employees within the specified deadline can face a fine of five percent of the employees’ wage, every day, starting from the fourth day after the deadline. If the wage is unpaid after the eighth day, the employer will be imposed an additional one percent of the employees’ wage, per day.

Further, if an employer does not prepare a wage structure and wage scale for the employee, they can face the following sanctions:

  • Written warning letters;
  • Restriction on business activities;
  • Temporary suspension of business; and/or
  • Revocation of business license.

Our Omnibus Law series

Please view our other articles in our Omnibus Law series by clicking the links below:

Regulation No. 37 of 2021 (GR 37/2021) concerning the new unemployment benefit program

Regulation No. 5 of 2021 (GR 5/2021) concerning risk-based business licensing

Regulation No. 34 of 2021 (GR 34/2021), on the process of hiring foreign workers in Indonesia

Regulation No. 35 of 2021 (GR 35/2021) on fixed-term employment contracts, outsourcing, hours of work, and the procedure for the termination of employment

Regulation No. 10 of 2021 (GR 10/2021) on the positive investment list

Regulation No. 40 of 2021 (GR 40/2021) on provisions for special economic zones

 


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