To attract investment and spur economic growth, Indonesia’s president passed a job creation law, or ‘Omnibus Law’ on 2 November 2020. The law provisions the simplification of licensing process while amending more than 75 existing laws, including the laws on the Minimum Wage System. This article details the specifics and cites updates regarding the Minimum Wage System in Indonesia.
Directed by the central government, the minimum wage policy is created by the state governments to guarantee single/unmarried laborers whose work period is less than a year, lead a decent life. The minimum wage standards are set concerning the regional economic growth factors and the prevailing inflation rates.
Moreover, Indonesia’s Government changed several minimum wage provisions in Government Regulation No. 36 2021 (GR 36/2021) to enforce the recently passed Job Creation Law.
Eliminating the sectoral minimum wages, the Indonesian government provisions hourly pay for part-time workers and benchmarks provincial minimum wage for businesses under GR 36/2021. However, sectoral minimum wages issued before GR 36/2021 will continue till their expiration. Moreover, a governor can set a regency/city minimum wage in case the regency’s economic growth exceeds the province’s for the last three years.
The following sections point out the key changes made with the introduction of the Omnibus Law:
|Previous Regulation||New Regulation|
|The province or district wage council determined monthly minimum wages based on the standard cost of living components as well as national and regional economic performance. The National Wage Council evaluated the standard cost of living components every 5 years.||The province or district wage council will carry out minimum wage calculations based on economic growth and per capita consumption of working household members. The local government will determine the minimum wage based on the factors for economic and employment conditions from data from the last 3 years.|
|Previous Regulation||New Regulation|
|Wages for workers/laborers with a working period of one year or more are negotiated in a bipartite manner between the worker/laborer and the employer.||The minimum wage applies to every worker/laborer with a working period of one year. In case it exceeds one year, the worker can choose to be paid on the wage scale of the company they work in. Also, the companies can’t postpone the pay date (except for MSMEs).|
The daily or the hourly wage (in Rupiah or Rupiah equivalent) will be based on the monthly wage divided by the total working days or the total working hours in a month, respectively. The working hour and the pay structure can be negotiated between the worker and the employer and hence, must also be reported to the Ministry of Manpower.
Micro and small enterprises are excluded from paying the minimum wage at the local level. However, their workers should be paid at least 50% of the average public consumption or 25% over the poverty line.
An employer can only deduct from the minimum wage if the employee has a fine or a debt due, caused damage, received an advance, been paid for in other ways like rent, or was overpaid.
The following penalties can be imposed if the employer fails to pay the minimum wage:
The payroll process has become complex and hectic in Indonesia as a result of many routine changes in government regulations. Moreover, having in-house payroll processing adds to the management stress, that’s why many enterprises prefer to outsource their payroll services to professionals who understand regulations related to tax and manpower in Indonesia.
Cekindo, a professional outsourcing and payroll provider in Indonesia and a representative of the global 3E Accounting network, ensures that your raw payroll data is processed following the latest regulations and shall provide other services such as tax advice, tax reporting, and post payroll audits so that you can focus on your core business activities.
Apart from the payroll services, Cekindo also provides recruitment and HR services. Our employment law consultation services ensure you stay on top of all legal compliance. As an employer of record (EOR), Cekindo can bear responsibilities like recruitment and drafting appointments or employment agreements.