28 Oct 2020
Newsflash: Manpower Minister Advises Governors to Freeze Minimum Wage in 2021

The Minister of Manpower (“MOM”) has requested the country’s provincial governors to keep minimum wage rates for 2021 pegged at the same levels as 2020, meaning that workers on the minimum wage would receive no pay increase next year. The request is set out in MOM Circular No. M/11/HK.04/X/2020, issued on 26 October 2020.[1]

It should be noted that the setting of the minimum wage is the responsibility of local government rather than central government, not to mention that a circular is low down in the legal hierarchy. Thus, this present circular may well be ignored by some governors. Importantly, however, the media has reported comments by Jakarta’s deputy governor, Mr. Ahmad Riza Patria, to the effect that the administration in the national capital plans to follow the central government’s advice.[2] However, nothing has been confirmed as yet.

While there is no doubt that the minister’s decision will be warmly welcomed by hard-pressed businesses, it has further enraged organized labor following the Government’s decision to incorporate controversial labor market reforms in the Job Creation Bill (“JCB”, or Omnibus Bill, as it is familiarly known), despite promises earlier in the year that the relevant provisions would be deleted from the final version of the Bill.

In reality, of course, many workers are more concerned about losing their jobs than the labor-market reforms envisaged by JCB (despite what labor union leaders may say). Consequently, they have not joined union-organized street protests against JCB in their many millions and the general strike called by the unions quickly fizzled out. However, ordinary workers will most definitely be upset by a year-long wage freeze. Nevertheless, as the Government will no doubt be hoping, fears about Covid-19 and its impact on jobs should help curtail the scale and intensity of any protests.

About Indonesia’s Minimum Wage System

Currently, Indonesia’s minimum-wage regime is governed by the 2003 Manpower Law[3] and its ancillary regulations, particularly MOM Regulation No. 15 of 2018.[4]

Minimum-wage rates vary by geographical location around the country as they are determined at the provincial, county or municipal level, as the case may be. Higher minimum wage rates than the relevant local rate may also be set for specific sectors that are particularly profitable.

Under the changes envisaged by JCB, which significantly amends the Manpower Law, minimum wage rates will be determined at the provincial level by the governor. In certain circumstances, special minimum wage rates may also be set for counties and municipalities by the provincial governor. In all cases, rates should be determined based on economic and labor-market conditions, and take into consideration economic-growth and inflation data (this stands in marked contrast to an earlier version of JCB, which stripped out the inflation component from the minimum-wage calculation formula).

JCB also abolishes special sectoral minimum wage rates, while micro and small enterprises are to be exempt from minimum-wage requirements.

Unlike the 2003 Manpower Law, JCB no longer provides specific temporary exemptions from the minimum-wage requirement for employers that lack the financial capacity to pay. However, it is quite possible that such exemptions could subsequently be provided by the JCB’s ancillary / implementing regulations.

[1] Surat Edaran Menaker Nomor tentang Penetapan Upah Minimum Tahun 2021 pada Masa Pandemi Covid-19

[2] For example, see Tempo.co article titled “Soal Upah Minimum 2021, Wagub DKI Sebut Pemprov Akan Mengacu ke Pusat” at https://metro.tempo.co/read/1400045/soal-upah-minimum-2021-wagub-dki-sebut-pemprov-akan-mengacu-ke-pusat/full&view=ok

[3] Law No. 13 of 2003 on Manpower (Undang-Undang Nomor 13 Tahun 2003 tentang Ketenagakerjaan)

[4] Peraturan Menteri Ketenagakerjaan No. 15 Tahun 2018 Tentang Upah Minimum.

Contact us

Should you have any queries on the above or require legal advice as to how you can best protect your interests during this time of uncertainty, please contact the persons below, call us on +6221-2505125 or email us at info@abnrlaw.com.

Mr. Emir Nurmansyah (enurmansyah@abnrlaw.com)

Mr. Nafis Adwani (nadwani@abnrlaw.com)

Mr. Agus Ahadi Deradjat (aderadjat@abnrlaw.com)

This edition of ABNR News and the contents hereof are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained herein. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.