Wage Structure in Indonesia

Wages and salaries are pivotal aspects of labor relations, frequently inquired about by employees. What exactly are the policies governing worker compensation and the wage system in Indonesia?

In this article, Epicareer for Employer provides a comprehensive overview.

According to Article 1, Number 30 of Law Number 13 of 2003 concerning Manpower (Law 13/2003), wages constitute the rightful monetary compensation received by workers from employers or providers of work.

This compensation is stipulated and paid according to work agreements, mutual agreements, or statutory regulations. It includes allowances for workers and their families for services rendered or to be rendered.

As per Article 88, Paragraph (3) of Law 13/2003 combined with Law Number 11 of 2020 on Job Creation (Law 11/2020) and Government Regulation Number 36 of 2021 (PP 36/2021), Indonesia’s wage system policies encompass:

• Minimum wages

• Wage structures and scales

• Overtime pay

• Compensation for absences or non-performance due to specific reasons

• Methods and forms of wage payment

• Components considered in wage calculations

• Wages as the basis for computing or disbursing other entitlements and obligations

The principles underlying Indonesia’s wage system policies, as stipulated by Law 13/2003, Law 11/2020, and PP 36/2021, include:

1. Ensuring that wage policies enable workers to earn income sufficient for a decent standard of living (Article 88, Paragraphs (1) and (2) of Law 13/2003, Article 2, Paragraph (1) of PP 36/2021)
   
2. Guaranteeing equal treatment for all workers under wage systems, without discrimination
   
3. Establishing the right to equal pay for work of equal value (Article 88A, Paragraphs (1) and (2) of Law 13/2003, Article 2, Paragraphs (2) and (3) of PP 36/2021)

Workers’ entitlement to wages begins upon the establishment of an employment relationship and ceases upon its termination (Article 3 of PP 36/2021).

According to Article 88B, Paragraph (1) of Law 13/2003, in conjunction with Law 11/2020 and Article 14 of PP 36/2021, wages are determined based on time units and output units.

The explanation is as follows:

Explanation of Indonesia’s Wage System Based on Time Units

Hourly Wage (Article 16 of PP 36/2021)

Hourly wages apply to part-time workers, defined as those working less than 7 hours per day and less than 35 hours per week. These wages are agreed upon by employers and workers, ensuring they do not fall below a calculated minimum using the formula: Hourly wage = Monthly wage / 126 (where 126 results from multiplying 29 hours, the median part-time work hours per week across all provinces, by 52 weeks, and dividing by 12 months).

Daily Wage (Article 17 of PP 36/2021)

For companies operating on a 6-day workweek, monthly wages are divided by 25. For those on a 5-day workweek, monthly wages are divided by 21.

Monthly Wage

Indonesia’s wage system based on output units (Article 18 and 19 of PP 36/2021) is determined according to agreed-upon work results. The amount is set by employers based on agreements with workers, reflecting the average wages received over the past 12 months.

Article 7, Paragraph (1) of PP 36/2021 outlines wage components, including:

• Wages without allowances/basic wages;

• Basic wages and fixed allowances;

• Basic wages, fixed allowances and non-fixed allowances;

• Basic wages and allowances are not fixed.

If the wage includes a basic wage alongside fixed and non-fixed allowances (points 2, 3, and 4), the basic wage must constitute at least 75% of the total amount of basic wage and fixed allowances.

Basic Wage

Constitutes the foundational compensation paid to workers based on the type or level of work, established through mutual agreement.

Allowances

Represent additional income beyond basic salaries for workers and their families, acknowledging services rendered or to be rendered under Indonesia’s wage system.

Minister of Manpower Circular Letter Number SE-07/MEN/1990 addresses employee allowances, aiming to incentivize and enhance worker discipline, diligence, and productivity.

Besides wage components as mentioned above, Non-Wage Income (Article 8 paragraph (1) of PP 36/2021) also includes:

Religious holiday allowance (THR), which is mandatory income for workers paid by employers before religious holidays.

Incentives Based on Job Position

Incentives can be provided by employers to workers in specific positions or jobs according to company policy.

Bonuses Linked to Company Profits

Bonuses can be given by employers to workers based on company profits, regulated in Employment Agreements, Company Regulations, or Collective Employment Agreements.

Compensation for Job Facilities

Companies may provide job facilities and/or compensation for job facilities to workers in specific positions or all workers when facilities are insufficient or unavailable. This is regulated in Employment Agreements, Company Regulations, or Collective Employment Agreements.

Management and Distribution of Service Money

Service money in specific businesses is collected and managed by the company. It must be distributed to workers after deducting reserves for risk mitigation and human resource quality improvement, as regulated by Ministerial Regulations.

Article 40 of PP 36/2021 regulates Indonesia's wage system. Employers are required to pay wages to workers who are absent from work and/or do not perform their duties in the following circumstances:

Unable to work due to:

1. Illness preventing them from performing their duties
   
2. Female workers who are ill on the first and second days of menstruation preventing them from performing their duties
   
3. Absence from work due to:
   

• Marriage

• Marrying off their child

• Circumcising their child

• Baptizing their child

• Wife giving birth or miscarriage

• Spouse, wife, parent, parent-in-law, child, and/or son-in-law passing away, or

• Other family members living in the same household as described in point 6 passing away.

Engaging in activities outside their work, such as:

• Fulfilling obligations to the state

• Performing religious duties mandated by their religion

• Carrying out duties of Labor Unions/Labor Unions with the employer's consent and can be proven by written notice, or

• Performing education and/or training duties from the company.

Exercising rest or leave rights, if workers are engaged in:

• Weekly rest rights

• Annual leave

• Long breaks

• Rest before and after childbirth, or

• Rest due to miscarriage.

• Being willing to perform promised work but the employer does not employ them due to the employer's own fault or constraints that the employer should have been able to avoid.

What wage systems exist in Indonesia?

• Wage Systems in Indonesia Time Rate Wage System.

• Output-based Wage System.

• Piece Rate Wage System.

Who determines wages in Indonesia?

According to Article 89 paragraph (3) of Law Number 13 of 2003 concerning Manpower, the Minimum Wage based on provincial regions is determined by the Governor, taking into account recommendations from the Provincial Wage Council and/or Regent/Mayor.

What is the difference between salary and wages?

The first difference between salary and wages lies in the employment status of an individual. Salary is given to permanent or contract employees. Meanwhile, wages are for freelancers, daily wage workers, seasonal workers, and piece-rate workers.

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Explore deeper knowledge:

• Indonesia's Employment Contract Essentials

• Indonesia's Working Hours and Overtime Regulations

• Hiring Employees in Indonesia: Employment Laws and Regulations

• Payroll System in Indonesia: Rules, Regulations, and Compliance

• Understanding Severance Pay vs Layoff Benefits in Indonesia

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