Provisions on Minimum Wage in Indonesia

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The government of Indonesia, through Government Regulation No. 36 of 2021 (GR 36/2021), has removed the sectoral minimum wage while setting up a provision for hourly pay for those working part time.

The provincial minimum wage will be the primary benchmark for businesses, and the governor of the province may also levy a city or regency minimum wage if an economic growth of that regency or city is greater than that of the province for the preceding three years.

The sectoral minimum wage has been put to end but their decrees issued prior GR 36/2021 will proceed until their expiry time

Preceding to GR 36/2021, leading industries in a province, could decide their minimum wage rate, also referred as UMSP (Upah Minimum Sektoral Provinsi). To be viewed as a leading sector or industry, the provincial wage council will commerce data collection and research concerning the specific industry to see if it satisfies the accompanying standards set by the Ministry of Labor:

  • The particular industry can produce increased value to an local economy
  • Should be higher than the provincial minimum wage generally by five percent and more
  • Includes an enormous number of organizations
  • The industry needs critical labor
  • The industry is export-orientated
  • The related trade and labor unions are in agreement with the proposal
  • The connected trade and labor unions are in conformity with the proposal.

As soon as, an industry is considered leading, the provincial wage council will help out with the labor unions, local trade and business owners from that industry for the determination of minimum wage. This proposal is then sent to the governor of the province for approval.

The provincial or district wage council will decide the computation of the monthly minimum wage. The local government will decide the minimum wage relying on the conditions of employment and financial stability.  These include the following variables: –

  • Manpower absorption levels
  • Median wage variables
  • Purchasing power parity

The minimum wage applies to all workers with less than one year of working in the organization. After one year, the employee is qualified to be paid as per the scale of wages in the particular organization, if they are desirous to do so. Moreover, organizations are no longer permitted to delay the payment of the minimum wage for their employees like before, except if they are classified as micro or small businesses.