The Indonesian Manpower Law stipulates the obligation of Employers to comply with local Minimum Wage regulations in determining the salary of their Employee. Learn more about the implementation of such laws and regulations.
“Employers are prohibited from paying wages lower than the Minimum Wage (as determined by the Regional Government.)”
–Article 90 (1) Law No. 13 of 2003
The implementation of Minimum Wage in Indonesia is stipulated in Law No. 13 of 2003 concerning Manpower (“Manpower Law”) is purposed by the Indonesian Government to ensure that all employees and workers have the right to earn an income or earnings that meets the livelihood that is decent from a viewpoint of humanity.
Such decent income or earnings refers to the amount that employees and workers earn from their work so that they can reasonably meet what they and their families need for living, including the ability to meet the need for food and drinks, clothes, housing, education, healthcare, recreation and old age benefit.
Furthermore, since the government enacted a new mechanism to determine minimum wages through Government Regulation No.78 Year 2015 on Wages, the formula to calculate the minimum wage should be adjusted every year based on an accumulation of the current fiscal year’s inflation and gross domestic product (GDP) growth rates.
SECTOR-BASED IMPLEMENTATION OF MINIMUM WAGE
While the Manpower Law stipulates of the employers’ obligation to comply with the minimum wage regulations, the implementation of minimum wage itself is determined by the Provincial and District/City Government, pursuant to the living conditions of each respective province and district/city.
This sector-based minimum wage local regulations reflects the minimum wage applying for each district/city. With more than thousands of districts/cities in Indonesia, each district/city has a different minimum wage from each other, which applies for employers of such district/city.
The regulation is issued in the form of a Governor Decree (Keputusan Gubernur) or a Governor Regulation (Peraturan Gubernur) at the end of each year, which applies at 1 January in the following year. Employers who have already pay a higher wage than the minimum wage determined are not allowed to lower their wages to match the amount determined in the regulation.
EMPLOYEES ELIGIBLE FOR MINIMUM WAGE
Article 1 point 3 of the Manpower Law defines an employee/worker as any person who works and receives wages or other forms of remuneration.
Pursuant to the Manpower Law, there are no exemptions to what kind of employee/worker are exempt from the Employer obligation to pay them with the prevailing minimum wage. Therefore, any person who works and receives wages or other forms of remuneration are eligible to receive at least minimum wage for their work.
LEGAL CONSEQUENCES OF MINIMUM WAGE NON-COMPLIANCE
Pursuant to Article 185 of Manpower Law, in the event an Employer does not comply with the minimum wage regulations, they shall be subjected to a criminal sanction in jail for a maximum of 1 (one) year and a maximum of 4 (four) years and/or 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).
HOW CAN SMART CONSULTING HELP YOU?
To ensure a smooth investment and business operation from the legal perspective, but also still focus on maintaining your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with prevailing manpower laws and regulations.
SMART Consulting is an Indonesian Corporate Legal Services firm. We have assisted local and multinational companies in handling their manpower legal matters, including matters related to employment of local workers and foreign expatriates. We also assist our Clients in compliance of manpower laws and regulations, including ones related to wage structure, and helping to draft employment agreements and contracts.
Contact Us Now to get your legal solution for your business goals, and still comply with the prevailing laws and regulations.