On October 23, 2015, the Indonesian Government issued Government Regulation No.78 of 2015 (“Government Regulation on Wages”) as an implementation regulation of Article 97 Law No.13 of 2003 on Manpower Law (“Manpower Regulation”). The purpose of the Government Regulation is to provide sufficient legal basis for both Employers and Employees’ obligation in their Employment Agreement, Company Regulation, and Collective Labor Agreement.
A. HIGHLIGTED ISSUES
While most of the contents in the Regulation on Wages are copied word-by-word from provisions on wages in the Manpower Law, there are 2 (two) important issues that are newly regulated in the Government Regulation on Wages, which are:
- Employer’s Obligations concerning Wages.
- Minimum Wage in Indonesia; and
The issue that impacts Employers directly is the new obligations concerning wages that must be complied with. Whilst, the issue concerning Minimum Wage is directed to each Regional Government in Indonesia. While Employers are expected to deal with the consequences that results from new formulation of Minimum Wage which will rise every year, it is more urgent for Employers to ensure that their employment documents and actions comply with the new obligations under the Government Regulation on Wages, since failure to comply can lead to legal consequences in the form of administrative sanctions.
B. EMPLOYER OBLIGATIONS CONCERNING WAGES
Under the Government Regulation on Wages, employers must comply with and perform the following actions:
- Provide Religious Holiday Allowance (Tunjangan Hari Raya, or THR)
Employer must provide THR to its employee at the latest 7 (seven) days prior to the Religious Holiday. The amount of THR is 1 (one) month wage per Employee.
- Pay Service Fee for Certain Business Activities
Employers are obliged to pay Service Fee to their Employees for certain business activities, such as hotel, restaurant and other travel activities.
- Formulate the Structure and Scale of Wages
Employers must formulate the structure and scale of wages by taking into account the level, position, years of work, education and competence of the Employees. After such structure and scale are formulated, the Employers must inform all their Employees of the structure and scale of wages. The structure and scale of wages are attached to the application for Company Regulation renewal submitted to the Ministry of Manpower. For companies who has yet to comply with this provision, they have a 2 (two) years’ time limit since the issuance of the regulation, ending at October 23, 2017.
- Pay Wages within Time Limit
Employers must pay their Employees’ wages at the soonest once a week, or at the latest once a month, unless the Employment Agreement stipulates that the working period is less than 1 (one) week.
- Pay Fines as Stipulated
In composing Employment Agreement, Company Regulations, and Collective Labor Agreements, Employers and their Employees can agree to include fines as sanctions in case of violation of such provisions. The use of fines as sanctions are not mandatory in composing Employment Agreement, Company Regulations, and Collective Labor Agreements.
However, Employers must be aware that failure to pay such fines can result in the imposition of administrative sanctions to the Employers. In contrast, Employees face no such legal consequences.
- Prohibition to Deduct More Than 50% of Employees’ Wages
Employers are allowed to deduct wages of their Employees for fines, retributions, and advance pay for Wages. However, they are only allowed to deduct up to 50% of their Employees’ wages, and if they exceed the maximum amount of deductions, the Employers will subject to administrative sanctions.
Failure to perform any of the above actions will result in the imposition of administrative sanctions by the Indonesian Government, which will take the form of:
- A Written Rebuke;
- Restriction/Limitation of the Business Activities of the affected Employers/Companies;
- Temporary Termination of Partial or the Whole Production Tools/Instruments; and
- Freezing of the Business Activities of the affected Employers/Companies.
Employers must understand that imposition of administrative sanction does not remove the Employers’ obligations to pay their Employees.
C. FORMULATION OF MINIMUM WAGE
Minimum Wage varies between each province/region in Indonesia, however they all use the same formulation to calculate the Minimum Wage as stipulated in Government Regulation of Wages. The new formulation of Minimum Wage as stipulated in the Regulation on Wages is as follows:
* MW (Minimum Wage)
The Formulation of Minimum Wage is performed by each Regional Government every year. Employers in Indonesia can use the official formulation as projections to calculate their Employees’ wages in each province/region every year.
Until the issuance date of this Legal Brief, there are 8 (eight) provinces in Indonesia that are exempted from using the new formulation of Minimum Wage, due to their insufficient capacity to do so, which are:
- Nusa Tenggara Barat;
- Nusa Tenggara Timur;
- Maluku Utara;
- Kalimantan Tengah;
- Sulawesi Barat; and
- Papua Barat.
However, these provinces must adopt the Minimum Wage formulation at the latest 4 (four) years after the issuance of the Government Regulation on Wages. Therefore, we advise Employers to be aware of the Minimum Wage for the Employees working in the 8 (eight) provinces since they can not be calculated using the official formulation.
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