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Work and Wages

This page was last updated on: 2021-04-07

Minimum Wage

Every year the Central Government provides directions and policies for local governments (province, regency / city) in setting rules regarding minimum wage policies. Philosophically, the minimum wage policy is made to ensure that workers who are single and whose work period is less than 1 year have a decent life taking into account the conditions of the company, as well as the economic growth in the region. With directives and policies from the Central Government, local governments (both provincial, regency/ city) then set a standardized wage by taking into account regional economic growth factors and also inflation. Based on the 2 factors above, the results are discussed at the regency/city wage council level and then submitted to the regency/city who will then make a recommendation to the governor as a material for consideration in determining the minimum wage at the regency/city level.

Minimum wage rate is determined annually in accordance with the National Government's wage policy to ensure decent living taking into account labour conditions and economic growth. Minimum wage is generally set at provincial level and regency/city level (keeping in view the regional economic growth or inflation in the city/regency) by the Governor, following recommendations from the Provincial and/or District Wage Councils.   It is applicable only to single workers and workers with less than one year of service. Wages for workers with more than one year of service are guided by structure and scale of wages and/or discussed on a bipartite basis worker or their union and employer.

Minimum wage can also be set by collective agreement between employer and employee, provided that the amount of wage may not be less than what is determined by the government. Any agreement that specifies wages lower than those determined by Government is considered null and void.

The Minimum wage are determined based on economy and employment conditions, including purchasing power parity (the balance of purchasing power), the labor absorption rate, and median wages (the margin between 50 percent of the highest wages and 50 percent the lowest from the employees in the certain position. Purchasing power parity, labor absorption and median wage variables are calculated based on the average the last three years from the existing data.  If these requirements are not met, the Governor cannot determine Regency/City Minimum Wage for district/city that do not yet have Regency/City Minimum Wage.

Factors that determine the adjustment of the minimum wage, apart from taking into account the value of economic growth or provision rate inflation, also refers to the average per capita consumption of working household members. The wages are adjusted annually with upper and low limits of the minimum wage in the region concerned. The upper limit is determined based on average per capita consumption and the average number of household members, which works in every household. This average data uses the data in the region concerned. The value of economic growth or inflation use the existing data at Provincial level.

Based on Government Regulation No. 36 of 2021, the Provincial Governor is obliged to determine the provincial minimum wage where the calculation of the minimum wage adjustment value is carried out by the wage council.

National Wage Council provides suggestions and considerations to the central government in formulating the wage policy and developing a national wage system, while Regency/City Wage Councils sent their proposals to the Mayor who forwards it to the Provincial Governor. This proposal is shared with the Provincial Wage Council which sends final recommendation to the Provincial Governor.   The calculation of Provincial Minimum Wage adjustment is carried out by the Provincial Wage Council and then recommended to the governor. The Provincial Minimum Wages is stipulated by Governor's decision and announced no later than every 21 November of the current year and starting from 1 January next year.  If it on holiday, so the announcement will be made one day before.

If the Provincial Minimum Wage in current year is higher than the upper limit of Provincial Minimum Wage, then the governor is obliged to determine next year Provincial Minimum Wage the same as the current year.

The authority of the governor to set regency/city minimum wages as well as sectoral minimum wages is getting smaller. The Governor can determine the Regency/City Minimum Wage with certain conditions, the average economic growth in relevant regency/city in the last three years and higher than average growth of provincial economy. The value of economic growth minus inflation of relevant regency/city must always positive and higher than Provincial value for three years.

Regency/City Minimum Wage is determined after the determination of the Provincial Minimum Wage. Regency/City Minimum Wage must be higher than Provincial Minimum Wage.

The obligation to pay the minimum wage is exempted for micro and small enterprises. Thus, the determination of the minimum wage is returned to the agreement made by the worker and the company. The limits given by Government Regulation No. 36 of 2021 are only related to 2 things: First, the wages at the micro and small business level are at least 50% of the average consumption of the people at the provincial level.  Second, the agreed wage value is at least 25% above the poverty line at the provincial level.

Employers who are unable to pay minimum wages may be allowed to postpone the payment of such minimum wages once they have submitted a written request to the provincial government. Such request must be based on a written agreement between employers and worker or their unions representing at least 50% of the workers.

Compliance with the statutory minimum wages is ensured by the labour inspectorate. In the case of violation on the part of employer, a worker may file a complaint with the labour inspectorate. The Manpower Act on article 185 provides for criminal sanctions as follows: whosoever violates the provisions of law regarding payment of minimum wage is liable to a punishment of imprisonment ranging from one to four years and a fine of a minimum of IDR 100,000,000 (one hundred million rupiah) and a maximum of IDR 400,000,000 (four hundred million rupiah).

Source: §88, 88(A-E), 90(A-B), & 185 of the Manpower Act (Law No. 13 of 2003), last amended in 2020 by Job Creation Law (Law No.11/2020); Manpower Minister Regulation No. 3 of 2005 concerning the procedure of proposing candidates for membership of the National Wage Council; §43-44 of Government Regulation on Wages (No. 36 of  2021); Presidential Decree No. 107 Year 2004 on Wage Council

 

For more information on updated minimum wage rates, please refer to the section on minimum wages.

Regular Pay

A wage (upah) is the right of the worker that is received and expressed in the form of money as remuneration from the employer or the employer to workers, whose amount is determined and paid according to a [formal and written] work agreement (perjanjian kerja), a deal (kesepakatan), or laws and regulations, including allowances for the worker and their family for a job and or service that has been performed or will be performed.

Wages are determined based on the unit of time and unit of results. the unit of time is determined on an hourly, daily or monthly basis. Hourly wages can only be used for workers who work part time and based on an agreement between the employer and the worker. The agreement made must not be lower than the result of the calculation of the hourly wage formula, namely that the hourly wage is the result of a month's wages divided by 126. The daily wage is calculated based on the working time system. For companies that apply a work time system of 6 days a week, the monthly wage is divided by 25, while for companies that apply 5 days of work time, the monthly wage is divided by 21. For wages based on unit results, it is determined in accordance with the results of work agreed upon between worker and employer. Determination of monthly wages based on unit results is determined according to the average wages of the last 12 months received by workers. Wages may be paid on a weekly or fortnightly basis, provided that the calculation is based on the monthly wages. Wages may also be set and paid on piece rate basis.

Wages generally are to be paid in cash, legal tender. Wages must be determined in Rupiah, although they can be expressed as the Rupiah equivalent of a foreign currency. Certain other forms of payment may be used, as long as they do not take the form of alcohol or drugs.  The non-cash portion (in kind payment) may not exceed 25% of the total wages. These in-kind payments may be in the form of cost of meals, housing or childcare.

The wage components consist of basic wages, fixed allowances, and non-fixed allowances. The basic wage must make up at least 75% of the total wage (basic wages + fixed allowances).

The employer should not make deductions from wages that are not authorized by law, company regulations or collective bargaining agreement. Employers must properly inform workers about their wage payments and deductions. The wage deductions for lost or damaged goods cannot exceed 50% of the worker’s total monthly wage. Employers are prohibited from restricting workers’ freedom to use their wages (pressuring workers to buy goods from the enterprise store or shop or to other services such as meals or housing).

Employers who pay their workers’ wages late either by wilful misconduct or negligence have to pay a fine whose amount corresponds to a certain percentage from the worker wages. A worker may file an official request to the institution for the settlement of industrial relations disputes to terminate his/her employment relationship with his/her employer if the employer did not pay wages at a prescribed time for three months consecutively or more. During the industrial relations disputes is not settle yet (as regulated in Industrial Dispute Act), workers must continue to carry out their obligations. Employers can suspend workers who are still processing the termination of their employment, while paying them wages and other rights that they receive usually until the dispute settlement process completes.

Employers are required to keep payroll, which includes the total regular hours worked, total overtime hours worked, and any other period of time for which premium pay is required (for each worker). Workers must be provided with clear individual wage statements (pay slips) including wage deductions.

Ministry of Manpower Regulation No. 1 of 2017 on Wage Structure and Scale requires employers to determine the structure and scale of wages taking into account class, position,  years of service, education and competence of workers, which act as the guidelines for the employers in determining wages. Wages that are set out in the wage structure and scale are basic wages and thus do not include any allowances.

Employers are required to inform workers about the structure and scale of wages. In the light of company’s capabilities and productivity, employers shall also carry out wage reviews on a regular basis. The Regulation further requires employers to submit wage structure and scale to the Ministry of Manpower at the time of ratification or renewal of company regulations or registration, extension or renewal of collective bargaining agreement.

An employer may face the following sanctions if they do not prepare a wage structure and wage scale and does not inform employees about the wage structure and scale:

       i.          Written warning letters;

     ii.          Restrictions on business activities;

   iii.          Temporary suspension of business activities; and/or

   iv.          Revocation of the business license

Source: §01(30), 54, 88(A), 92, 92(A), 94, 95(2), 157A & 169 of the Manpower Act (Law No. 13 of 2003) last amended in 2020 by Job Creation Law (Act No.11/2020); §5 (2), 13, 22, 55, 57 Government Regulation on Wages (No.36 of  2021); Regulation No. 1 of 2017 on Wages Structure and Scale 

Regulations on Work and Wages

  • Undang-Undang no 13 tahun 2003 tentang Ketenagakerjaan / Manpower Act No. 13 of 2003
  • Keputusan Menteri Tenaga Kerja dan Transmigrasi No. 17 tahun 2005 tentang Komponen dan Pentahapan Pencapaian Kebutuhan Hidup Layak / Decree of Minister of Manpower and Transmigration No.17, 2005 on Living need components
  • Keputusan Menteri Tenaga Kerja dan Transmigrasi No.102/MEN/VI/2004 mengenai Waktu dan Upah Kerja Lembur / Decree of Minister of Manpower and Transmigration No.102/MEN/VI/2004 on Overtime Hours and Overtime Pay
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