Wage Structure and Scale based on the Government Regulation

Under article 14 of the Government Regulation, it was regulated that:

  1. The structure and scale of wages are determined by the company, taking into account the class, position, employment, education, and competence of the employees.
  2. The company must make the structure and scale of wages available to all employees.
  3. The company must attach the structure and scale of wages, when endorsing the company regulation or when registering collective labor agreement.

Paragraph 5 of the Government Regulations states that further implementing provisions are set by a Ministerial Regulation. The New MOM Regulation is the implementing regulation based on this paragraph 5.

Wage Formulation Methods

The New MOM Regulation sets three stages for the determination of wages:

  1. Analysis of the position of the employee;
  2. Evaluation of the position of the employee; and
  3. Determination of the wage structure and scale for the employee.

The New MOM Regulation sets out four methods for the formulation of wage structures and scales:

  1. The simple-ranking method;
  2. The two-point method;
  3. The point-factor method (for already existing companies); and
  4. The point-factor method (for newly established companies).

In this column we limit our explanation to the simple ranking method.

Simple Ranking Method

Under the simple ranking method, the company should make a list of all positions in the company. The list should clearly state the description of duties and responsibilities of each position. Next, the company should rank each position based on the complexity of the duties. Once the positions are ranked, the company should determine a minimum wage and maximum wage for each position.

Sanctions

The New MOM Regulation will be enforced as of October 23, 2017. If companies do not comply with the New MOM Regulation after that date, they may be subjected to:

  1. Written warning letters;
  2. Restrictions being placed on business activities;
  3. Temporary suspension of business activities; and/or
  4. Suspension of the business license, which would mean that the company may not perform any business activities anymore.

This column is provided by PNB Law Firm Jakarta

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