All entrepreneurs, including Companies, which employ Employees in Indonesia have the obligation to structure and scale employee wages pursuant to the prevailing wage structure and scale regulations. Learn more regarding the structure and scale of wages and the obligation to comply with them.

Company obligation to structure and scale their employee’s wages is stipulated in Law No. 13 of 2003 concerning Manpower (“Manpower Law”), Government Regulation No. 78 of 2015 on Wages (“GR 78/2015”) as well as Minister of Manpower and Transmigration Ministerial DecreeNo. KEP.49/MEN/IV/2004 concerning Provisions on Wage Structure and Scale (“Ministerial Decree 49/2004”).

Wage Structure is defined as the hierarchy of wage levels (from lowest to highest or vice versa from the highest to the lowest). Whereas, Wage Scale is the range of the nominal value of wages pursuant to the grouping of Employee positions.

Article 92 paragraph (1) of Manpower Law stipulates that the employer (“Employer”), whether in the form of limited liability companies (“Company”) or individual entrepreneurs, shall formulate the structure and scales of wages by taking into account the level, position, years of work experience, education and competence of the Employee. Article 10 of the Ministerial Decree 49/2004 stipulated that the Technical Guidelines for Preparation of Wage Structure and Scale (attached in the Appendix of the Ministerial Decree) is a reference in preparing of the wages structure and scale which are made by observing the level, position, length of employment, education, and work competence of the Employee and by considering the employment capacity of the Employer, including the financial capacity of an Employer in hiring their employees (“Employee”).

In preparing the wages structure and scale in a Company, one must consider the technical and financial capabilities of each company and ensure that the lowest wages of the wages structure and scale is higher than the regional minimum wage (UMR) which applies in the domicile of the Company. If the Company has active branch offices and/or has stationed its employees in several provinces, the Company must ensure that all of such Employees are paid above the minimum wage applicable for each regency and/or city they are stationed at.

In the Appendix of Ministerial Decree 49/2004, it is stipulated that there are two methods of preparation of structure and scale of wages in Indonesia, which is:

  1. Simple Method
  2. Regression Method

It is also further stipulated in Article 14 of GR 78/2015, where the wages structure and scale shall be prepared by the company to pay attention on class, position, length of employment, education, and competence, then the wages structure and scale shall be notified to all Employees. Once the wages structure and scale has be prepared, it must be attached by the Company at the time of the request:

  1. Approval and renewal of the Company Regulation; or
  2. Registration, extension, and renewal of the Collective Labor Agreement.

Article 63 of GR 78/2015 stipulates that:

b. Companies who donot prepare and implement yet the wages structure and scale, are required to formulate and implement thewages structure and scale based on Government regulations and attach it to the application as stipulates in Article 14 paragraph (4) 2 (years) years since this Government Regulation.”

Therefore, Companies have until October 23, 2017 to prepare and implement the wages structure and scale for their Employee. Failure of the Companies to do so will result in subsequent sanctions against the Company in the form of administrative sanctions as follows:

  1. Written warning;
  2. Business Activities restriction;
  3. Temporary suspension of part or all of production equipment; and
  4. Suspension of Business Activities.

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 laws and regulations.

SMART Consulting is an Indonesian Corporate Legal Services firm.SMART has assisted Clients in dealing with matters related to Manpower Law, such as drafting, reviewing and registering the Employee Toolkit, including Employment Agreement, Collective Labor Agreement, and Company Regulations. We also provide advisory services regarding Employment matters, as well as assistance in conducting termination of employment and manpower dispute resolutions.

Contact Us Now to get your legal solution for your business goals, and still comply with the prevailing laws and regulations.
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