10 Nov 2020
Jakarta Ups Minimum Wage, Ignoring Central Gov’t Call for Freeze

Despite a recent circular issued by the Ministry of Manpower calling on provincial governors to freeze the 2021 minimum wage rates in their respective jurisdictions, the Jakarta provincial administration has opted to increase the minimum monthly wage payable in the province during 2021 by 3.27 percent to IDR 4,416,186.548 (USD 307.40[1]).

The administration’s decision is set out in Jakarta Gubernatorial Regulation No. 103 of 2020,[2] which was promulgated on Oct. 30, prior to the coming into force of the Job Creation Law (or Omnibus Law as it is familiarly known).

Besides containing the standard clause that affords exemptions for businesses that are financially unable to pay the minimum wage (“Standard Exemption”),[3] Reg. 103 provides an additional procedure under which businesses may seek exemptions from the minimum wage requirement should they be unable to pay as a result of the disruption caused by Covid-19 (“Covid-19 Exemption”). This Covid-19 Exemption is significant for a number of reasons:

1. In an important ruling in 2016, the Constitutional Court held that the Standard Exemption is not actually a full exemption but rather only permits a business to defer paying the full minimum wage, meaning that the employer has to pay the full minimum wage at some point in the future on a backdated basis (i.e., the wage increase must be backdated to the date of deferral);[4]
2. Tight requirements must be satisfied in order to avail of the Standard Exemption. For example, the deferral must be agreed to by the employees and, in the case of a corporation, audited financial statements for the previous two years must be submitted to the provincial administration. In addition, the company must furnish sales and production reports for the previous two years, and sales and production plans for the following two years.
3. By contrast, the Covid-19 Exemption does not appear to involve deferral but rather seems to be a full exemption, meaning that businesses will be legally permitted to continue paying the 2020 minimum wage rate throughout 2021. Thus, they should not have to worry about having to subsequently pay the full minimum wage rate on a retroactive basis at some point in the future.

While we do not as yet know what the criteria and requirements for the granting of Covid-19 Exemptions will be (they are to be set out in a directive issued by the Head of the Provincial Manpower, Transmigration and Energy Agency / Kepala DInas Tenaga Kerja, Transmigrasi dan Energi), it appears that they may be applied on a sectoral basis rather than an individual-enterprise basis. For example, there have been hints from the administration that businesses in the retail and mall, hospitality, tourism, property, trade, and food and beverage sectors, among others, will be eligible to benefit. It has also been reported in the media that some 80 exemptions were issued for businesses in the hospitality industry even though the directive had yet to be issued.[5] Thus, it looks likely that it will be significantly easier to avail of the Covid-19 Exemption than the Standard Exemption.

ABNR Commentary

While the Jakarta administration has ignored the central government’s calls for a minimum wage freeze, it has also accepted inescapable economic reality by establishing the Covid-19 Exemption mechanism for hard-pressed employers.

Given the devastating impact that Covid-19 has had on so many businesses across so many sectors, there is sure to be a flood of Covid-19 Exemption applications over the next few weeks. The big question is, does the Jakarta administration have the resources required to expeditiously process them or is this something that is going to drag on for months? If it does, things could get increasingly messy. However, if the reported granting of exemptions to some 80 businesses in the hospitality sector (ahead of the issuance of official criteria) is anything to go by, the application process may be little more than a formality.

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)

[1] Per 6 November 2020

[2] Peraturan Gubernur Daerah Khusus Ibukota Jakarta No. 103 Tahun 2020 Tentang Upah Minimum Provinsi Tahun 2021

[3] Detailed procedures for the application of the Standard Exemption mechanism are set out in Minister of Manpower and Transmigration Decree No. KEP.231/MEN/2003 on Procedures for Deferral of Minimum Wage Payment / Keputusan Menteri Tenaga Kerja dan Transmigrasi Republik Indonesia Nomor : Kep.231/Men/2003 Tentang Tata Cara Penangguhan Pelaksanaan Upah Minimum)

[4] Constitutional Court Decision No. 72/PUU-XIII/2015 (Putusan Mahkamah Konstitusi Nomor 72/PUU-XIII/2015)

[5] For example, see Antara article “Disnakertrans-E DKI setuju usulan 80 hotel terkait UMP tanpa kajian” at https://www.antaranews.com/berita/1823408/disnakertrans-e-dki-setuju-usulan-80-hotel-terkait-ump-tanpa-kajian

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.