Indonesia Wage Regulation 2021

Overview

Indonesia's wage regulation landscape underwent a significant transformation with the issuance of Government Regulation No. 36 of 2021 on Wages (Peraturan Pemerintah Nomor 36 Tahun 2021 tentang Pengupahan), which serves as a crucial implementing regulation for the omnibus Job Creation Law (Undang-Undang Nomor 11 Tahun 2020 tentang Cipta Kerja, later revised by Undang-Undang Nomor 6 Tahun 2023). This regulation, enacted on February 2, 2021, aimed to streamline and simplify the complex web of labor regulations, particularly concerning wages, to foster a more conducive investment climate while simultaneously ensuring the protection of workers' rights. It replaced the previous Government Regulation No. 78 of 2015 on Wages, introducing several key innovations and adjustments to the wage system in Indonesia.

The primary purpose of PP 36/2021 is to provide a comprehensive framework for wage policy in Indonesia, addressing various aspects such as minimum wage determination, wage structure and scale, overtime pay, and non-cash remuneration. Historically, Indonesian labor law, primarily governed by Law No. 13 of 2003 on Manpower (Undang-Undang Nomor 13 Tahun 2003 tentang Ketenagakerjaan), laid the foundation for worker protection, including wage provisions. However, the Job Creation Law sought to harmonize and simplify regulations across various sectors, leading to the promulgation of derivative regulations like PP 36/2021. This regulation is a direct response to the mandate of Article 81 and Article 185 letter b of the Job Creation Law, emphasizing the government's commitment to a fair wage system that balances economic growth with worker welfare.

Key innovations introduced by PP 36/2021 include a revised formula for calculating minimum wages, which considers economic growth, inflation, and a specific index (alpha), moving away from the previous reliance on Decent Living Needs (KHL) as the sole determinant. It also introduced provisions for hourly wages for part-time workers, a significant change for Indonesia, and reinforced the obligation for employers to establish a clear wage structure and scale. The regulation underscores principles of non-discrimination and equal pay for work of equal value, aligning Indonesia's domestic laws more closely with international labor standards. The subsequent amendment, Government Regulation No. 51 of 2023, further refined the minimum wage calculation methodology, aiming to enhance workers' purchasing power and ensure national economic stability, particularly for the 2024 minimum wage adjustments.

Definitions

Government Regulation No. 36 of 2021 on Wages provides crucial definitions that underpin the entire framework of wage policy in Indonesia. Central to this regulation is the definition of 'Upah' (Wage), which refers to the right of a worker/laborer received and expressed in the form of money as remuneration from an employer to a worker/laborer, stipulated and paid according to a work agreement, collective labor agreement, or company regulations, including allowances for the worker/laborer and their family for a job and/or service that has been or will be performed. This broad definition encompasses various components of remuneration, ensuring that all forms of compensation are subject to the regulation's principles and oversight.

Another fundamental term is 'Upah Minimum' (Minimum Wage), defined as the lowest monthly wage consisting of basic wage and fixed allowances, or basic wage only, applicable in a province or district/city. This minimum wage is specifically designed for workers with a service period of less than one year. For workers with one year or more of service, their wages are guided by the 'Struktur dan Skala Upah' (Wage Structure and Scale), which is a systematic arrangement of wage amounts from the lowest to the highest, based on the job position, work period, education, and competence. This distinction is critical for understanding how wages are determined for different categories of employees within a company, ensuring a structured approach to internal pay equity.

The regulation also implicitly, and in line with broader labor law, upholds the principle of 'Upah Sama untuk Pekerjaan yang Sama Nilainya' (Equal Pay for Work of Equal Value). While not explicitly defined as a standalone term within the regulation's initial articles, the underlying principle of non-discrimination in wages is a cornerstone of Indonesian labor law, derived from Law No. 13 of 2003 and reinforced by international conventions. This ensures that remuneration practices are fair and do not discriminate based on gender, religion, ethnicity, or other protected characteristics. Furthermore, 'Pengusaha' (Employer) is defined as an individual, partnership, or legal entity, either private or state-owned, that employs workers/laborers by paying wages or other forms of remuneration. This definition clarifies the scope of entities obligated to comply with the wage regulations and their associated responsibilities.

Covered Employers

Government Regulation No. 36 of 2021 on Wages generally applies to all employers operating within the territory of Indonesia, regardless of their size or sector, who engage workers in an employment relationship. The regulation's broad scope ensures that its fundamental principles regarding wage determination, payment, and protection are universally applicable. This comprehensive coverage is consistent with the overarching Manpower Law No. 13 of 2003, which establishes a wide-ranging framework for labor relations across the nation, aiming to provide a baseline of protection for all workers.

While the core provisions apply broadly, there are specific nuances, particularly concerning minimum wage obligations. The minimum wage, which is set at provincial (UMP) and district/city (UMK) levels, is primarily applicable to workers with a service period of less than one year. For micro and small businesses, the regulation allows for wage determination based on an agreement between the employer and the worker, provided that the wage is at least equal to the net income of the micro and small business. This provision offers a degree of flexibility for smaller entities, recognizing their unique economic circumstances while still aiming to ensure fair compensation and prevent exploitation. However, these agreements must still adhere to the principle of non-discrimination and be reported to the relevant authorities.

There are no explicit size thresholds that exempt employers entirely from the wage regulation. Instead, the differentiation often lies in the specific application of certain provisions, such as the minimum wage calculation or the requirement for a formal wage structure and scale. All employers are mandated to develop and implement a wage structure and scale, taking into account the company's capability and productivity, and this must be announced to all workers individually. This requirement applies to all businesses, ensuring a degree of internal pay transparency and fairness across the board. The regulation does not specify phase-in periods for compliance, implying that all provisions are generally effective upon the regulation's enactment, with ongoing adjustments for minimum wage occurring annually based on the latest government regulations, such as GR No. 51 of 2023.

Employee Rights

Under Indonesia's Wage Regulation, specifically Government Regulation No. 36 of 2021, employees are afforded several fundamental rights designed to ensure fair and equitable remuneration. Foremost among these is the right to receive wages that are not less than the stipulated minimum wage, which is adjusted annually at the provincial and district/city levels. This minimum wage serves as a crucial safety net, particularly for workers with less than one year of service, ensuring a basic standard of living. Beyond the minimum wage, employees with a service period of one year or more have the right to be paid according to a transparent and established wage structure and scale within their company, which must be developed and implemented by the employer and communicated to them.

Workers also have the right to receive overtime pay for hours worked beyond the standard working hours, or for work performed on weekends and public holidays. The regulation outlines specific calculation methods for overtime, ensuring that employees are adequately compensated for additional work at premium rates. Furthermore, the regulation, in conjunction with the broader Manpower Law, reinforces the right to equal treatment and non-discrimination in the wage system, meaning that workers should receive equal pay for work of equal value, irrespective of gender, religion, ethnicity, or other protected attributes. This principle is a cornerstone of fair labor practices in Indonesia, aiming to eliminate wage disparities based on non-job-related factors.

To exercise these rights, employees are generally encouraged to first engage in internal discussions with their employers regarding any wage discrepancies or concerns. If internal resolution is not achieved, workers can file complaints with the local Manpower Office (Dinas Ketenagakerjaan) or the Ministry of Manpower (Kementerian Ketenagakerjaan). These government bodies are responsible for mediating disputes and enforcing labor laws, providing a formal channel for redress. Employees also have the right to form or join labor unions, which can collectively bargain on their behalf for better wages and working conditions, providing a collective mechanism for upholding their rights and ensuring their voices are heard in wage-setting processes. The regulation also implies a right to information regarding their wage components, as employers are required to announce the wage structure and scale to individual workers.

Pay Transparency Requirements

Indonesia's Wage Regulation, Government Regulation No. 36 of 2021, emphasizes a form of internal pay transparency rather than mandating broad public disclosure of salary ranges in job postings, which is more common in some Western jurisdictions. The regulation primarily focuses on ensuring that employees are aware of how their wages are determined and that the system is fair and non-discriminatory. A key requirement is that employers are obligated to develop and implement a 'Struktur dan Skala Upah' (Wage Structure and Scale) within their companies. This structure must be based on job position, work period, education, and competence, providing a clear framework for wage determination and progression.

Crucially, this wage structure and scale must be announced to all workers individually. This provision ensures that each employee understands the basis of their remuneration and how their pay relates to others within the company, promoting internal equity and reducing potential for arbitrary wage setting. While it does not require public disclosure of salary bands for external job applicants, it mandates transparency for existing employees regarding the internal wage system. The agreed-upon wage structure must also be reported to the Ministry of Manpower, adding a layer of governmental oversight to ensure compliance and proper implementation across various industries.

Furthermore, the regulation stipulates that wages must be paid in Rupiah or the Rupiah equivalent of a foreign currency, and any non-cash portion of payment may not exceed 25 percent of total wages. This ensures clarity and limits the extent of non-monetary compensation, contributing to overall pay transparency and ensuring that the majority of remuneration is in a tangible, liquid form. While explicit job posting salary range disclosure is not a direct mandate, the emphasis on a clear, documented, and communicated wage structure internally serves to prevent opaque wage practices and supports the principle of equal pay for work of equal value, fostering a more equitable workplace environment.

Reporting & Audit Obligations

Under Government Regulation No. 36 of 2021, employers in Indonesia have specific reporting and internal audit obligations primarily centered around their wage structures and compliance with minimum wage standards. A significant requirement is that employers must develop and implement a 'Struktur dan Skala Upah' (Wage Structure and Scale) and subsequently report this agreed-upon structure to the Ministry of Manpower. This reporting mechanism allows the government to monitor whether companies have established transparent and systematic wage determination processes, which are crucial for ensuring fairness and preventing arbitrary pay practices. The frequency of such reporting is generally upon initial establishment and any significant amendments to the wage structure, ensuring up-to-date information is available to authorities.

While the regulation does not explicitly mandate regular, comprehensive pay gap reporting in the same vein as some European countries, it does require employers to maintain accurate records of wages paid, working hours, and other employment-related data. These records are essential for demonstrating compliance with minimum wage laws, overtime regulations, and the established wage structure. Labor inspectors from the Ministry of Manpower or local Manpower Offices have the authority to conduct inspections and request these records to verify adherence to the law, ensuring that employers are meeting their legal obligations and workers are receiving their rightful compensation.

Audits, in the context of this regulation, are typically conducted by government labor inspectors, often in response to employee complaints or as part of routine compliance checks. These inspections aim to verify that employers are paying at least the minimum wage, correctly calculating overtime, and adhering to their reported wage structures. The methodology for such audits involves reviewing payroll records, employment contracts, and company regulations, as well as interviewing employees to corroborate information. While there isn't a specific mandate for external equal pay audits, the emphasis on non-discrimination and the requirement for a transparent wage structure implicitly encourage internal reviews to ensure equitable pay practices. The Ministry of Manpower's role is to ensure that the wage policy is implemented properly and that workers' rights are protected through these oversight mechanisms.

Governance & Enforcement Bodies

The primary governance and enforcement body for Indonesia's wage regulations, including Government Regulation No. 36 of 2021, is the Ministry of Manpower (Kementerian Ketenagakerjaan – Kemnaker) of the Republic of Indonesia. This central government ministry is responsible for formulating, implementing, and overseeing national policies related to manpower, including wages, industrial relations, and worker protection. The Ministry's Directorate General of Industrial Relations Development and Workers' Social Security, particularly its Directorate of Work Relationship and Remuneration, plays a direct role in developing and monitoring wage policies, ensuring their consistent application nationwide.

At the regional level, the provincial and district/city Manpower Offices (Dinas Ketenagakerjaan) serve as the local implementing and enforcement arms of the Ministry. These offices are responsible for the day-to-day administration of labor laws, including conducting inspections, investigating complaints, and facilitating dispute resolution related to wages. They work in close coordination with the central Ministry to ensure consistent application of national wage policies across different regions, acting as the first point of contact for employers and employees. The National Wage Council (Dewan Pengupahan Nasional) also plays a significant advisory role, particularly in the formulation and adjustment of minimum wage policies, involving representatives from government, employers, and trade unions to ensure a balanced perspective.

The process for filing a complaint regarding wage violations typically begins at the local Manpower Office. An employee or a labor union can submit a complaint, which will then trigger an investigation by labor inspectors. If a resolution cannot be reached through mediation or conciliation at the local level, the dispute may be escalated to the Industrial Relations Court (Pengadilan Hubungan Industrial) for adjudication. This court system provides a judicial avenue for resolving complex labor disputes, including those concerning wage discrepancies and non-compliance. The Ministry of Manpower also maintains a public information service and a legal documentation network (JDIH Kemnaker) to provide access to regulations and guidance, further supporting transparency and compliance efforts by making legal texts readily available.

Monitoring & Evaluation

Monitoring and evaluation of Indonesia's wage regulations, particularly Government Regulation No. 36 of 2021, are primarily carried out through a system of labor inspections and complaint investigations managed by the Ministry of Manpower (Kemnaker) and its regional offices. Labor inspectors (Pengawas Ketenagakerjaan) are authorized to conduct both routine and unannounced inspections of workplaces to ensure compliance with all labor laws, including those pertaining to wages. These inspections cover aspects such as adherence to minimum wage rates, proper calculation and payment of overtime, implementation of wage structures and scales, and non-discriminatory wage practices, ensuring a comprehensive review of employer compliance.

Complaints from individual workers or labor unions serve as a critical trigger for investigations. When a complaint is filed, the Manpower Office initiates a process that typically involves gathering evidence, interviewing parties, and attempting mediation or conciliation. The investigation aims to determine whether a violation has occurred and to facilitate a resolution between the employer and the employee. If a violation is confirmed, the labor inspector can issue recommendations or orders for corrective action, which are legally binding. The frequency of these audits and inspections is not strictly defined as a fixed cycle for all companies but is rather driven by a combination of risk assessment, sector-specific priorities, and the volume of complaints received, allowing for targeted enforcement.

Evaluation criteria for the effectiveness of the wage regulation include the rate of compliance with minimum wage standards, the prevalence of wage disputes, the fairness of wage structures, and the overall impact on worker welfare and purchasing power. The annual adjustment of minimum wages, which considers economic growth, inflation, and a specific index (alpha), is itself a form of ongoing evaluation and adaptation of the wage policy to prevailing economic conditions, as demonstrated by Government Regulation No. 51 of 2023. The government also monitors the impact of wage policies on employment levels and business competitiveness, using data and feedback to refine future regulatory adjustments. The Ministry of Manpower's JDIH (Jaringan Dokumentasi dan Informasi Hukum) portal provides access to legal documents, which supports transparency and allows for public scrutiny of the regulatory framework and its implementation.

Enforcement & Penalties

Enforcement of Indonesia's wage regulations, including Government Regulation No. 36 of 2021, is primarily the responsibility of the Ministry of Manpower (Kemnaker) and its provincial and district/city Manpower Offices. Employers found to be in violation of the wage provisions can face a range of administrative sanctions, fines, and in severe cases, criminal penalties. For instance, the most common violation, paying wages below the stipulated minimum wage, is strictly prohibited. The Manpower Law No. 13 of 2003, which forms the basis for wage regulations, outlines various penalties for non-compliance, ensuring a robust enforcement framework.

Administrative sanctions can include written warnings, restrictions on business activities, suspension of business operations, and even revocation of business licenses. These measures are typically applied progressively, starting with warnings for minor infractions and escalating for repeated or more serious violations. For example, if an employer fails to implement the required wage structure and scale or does not report it to the Ministry, they may first receive a warning before facing more stringent penalties, such as a temporary suspension of operations until compliance is achieved. The severity of the sanction is often proportional to the gravity and persistence of the violation.

Specific fine amounts and penalty ranges are often detailed in the overarching Manpower Law and its implementing regulations. For instance, violations related to minimum wage or overtime pay can result in substantial fines, which are intended to deter non-compliance and compensate affected workers. Under Article 185 of Law No. 13 of 2003, employers who fail to pay minimum wages can face imprisonment for a minimum of 1 year and a maximum of 4 years, and/or a fine of at least IDR 100,000,000 (approx. USD 6,500) and a maximum of IDR 400,000,000 (approx. USD 26,000). In cases of severe or repeated violations, particularly those involving exploitation or significant harm to workers, criminal liability may be pursued, leading to imprisonment for responsible individuals within the company. Workers or unions can appeal decisions made by labor inspectors or seek redress through the Industrial Relations Court system if disputes cannot be resolved through mediation, ensuring an avenue for judicial review and enforcement of their rights.

Relationship to Other Laws

Government Regulation No. 36 of 2021 on Wages operates within a broader legal framework, primarily serving as an implementing regulation for the Job Creation Law (Undang-Undang Nomor 11 Tahun 2020, subsequently revised by Undang-Undang Nomor 6 Tahun 2023). The Job Creation Law itself significantly amended and streamlined various provisions of the foundational Manpower Law No. 13 of 2003. Therefore, PP 36/2021 must be read in conjunction with these overarching laws, as they provide the legal hierarchy and context for its provisions. Articles of Law No. 13 of 2003 that were not explicitly amended or revoked by the Job Creation Law or its derivatives, including PP 36/2021, remain in force, creating a layered legal structure where the newer, more specific regulations build upon existing principles.

The regulation also interacts with other specific labor-related decrees and regulations. For instance, while PP 36/2021 provides the general framework for minimum wage calculation, subsequent Government Regulation No. 51 of 2023 specifically amends the minimum wage framework, introducing a new formula and criteria for annual adjustments. This demonstrates a dynamic legal environment where specific aspects of wage policy are continually refined through further regulatory instruments. In cases of conflict, the principle of *lex superior derogat legi inferiori* (a higher law overrides a lower law) generally applies, meaning the Job Creation Law and the Manpower Law would take precedence over a government regulation, and a newer regulation would typically supersede an older one on the same subject matter, ensuring legal clarity.

Furthermore, the wage regulation is complemented by laws concerning social security, specifically the National Social Security System Law (Law No. 40 of 2004) and the Social Security Administering Bodies Law (Law No. 24 of 2011), which mandate employer contributions for healthcare (BPJS Kesehatan) and employment protection (BPJS Ketenagakerjaan). These contributions cover old age security, work accident insurance, and death insurance, forming an integral part of an employee's overall compensation package and welfare. The regulation also aligns with the principles of non-discrimination and equal opportunity enshrined in Law No. 13 of 2003, which are further reinforced by Indonesia's ratification of international labor conventions, ensuring a comprehensive and equitable system for managing wages and worker welfare in Indonesia.

International Context

Indonesia's wage regulations, particularly Government Regulation No. 36 of 2021, are developed within a broader international framework of labor standards, reflecting the country's commitment as a member state of the International Labour Organization (ILO). Indonesia has ratified several key ILO conventions that directly influence its domestic labor laws, including those related to wages and non-discrimination. Notably, Indonesia ratified ILO Convention No. 100 on Equal Remuneration for Men and Women Workers for Work of Equal Value in 1957 (through Law No. 80 of 1957) and ILO Convention No. 111 on Discrimination (Employment and Occupation) in 1999 (through Law No. 21 of 1999). These ratifications obligate Indonesia to implement the principles of equal pay and non-discrimination in its national legislation and practices, which are reflected in the provisions of PP 36/2021 and the broader Manpower Law, ensuring alignment with global best practices.

The principles of equal pay for work of equal value and non-discrimination in remuneration are explicitly or implicitly embedded in Indonesia's wage policies, ensuring that workers receive fair treatment regardless of gender or other protected characteristics. While Indonesia's approach to pay equity may differ in specific mechanisms from, for example, the European Union's directives on pay transparency or mandatory pay gap reporting, the underlying commitment to fairness and equality is consistent. The ILO actively collaborates with Indonesia, providing technical assistance and monitoring the application of ratified conventions, as evidenced by the ILO's presence and programs in the country. This international engagement helps shape the evolution of Indonesian labor law, encouraging continuous improvement in worker protection and rights and fostering a more equitable labor market in line with global standards.

Implementation Timeline

Compliance Checklist

Sources and References