Wage of Indonesian Employees Reregulated (1/3)
On October 23, 2015, the Ministry of Manpower issued regulation number 78 of 2015 concerning Wage (New Regulation). The New Regulation is replacing the old regulation number 8 of 1981 concerning the Protection of Wage (Old Regulation). The New Regulation is a far more detailed implementation of regulations concerning wage/salary for employees in Indonesia compared to the Old Regulation and covers more subjects. In this first out of a three series column, we discuss the salary structure, non-wage and calculation of wage.
Basic Wage, Fixed Allowances and Variable Allowances
The New Regulation regulates that the wage of employees in Indonesia can be structured as follows:
1. Salary without any allowances
2. Salary with fixed allowances, where the basic salary must be at least 75 percent of the basic salary and fixed allowances combined
3. Salary with fixed and variable allowances, where the basic salary must be at least 75 percent of the basic salary and fixed allowances combined
Income Which is Not Considered Wage
An employee in Indonesia can also receive income from their employer which is not considered a salary, the so called non-wage, which includes the following types:
1. Religious Holiday Allowance, also known as THR (Tunjangan Hari Raya)
2. Bonuses, which may be based on the profit of the company over a certain year
3. Work facilities compensation, such as position allowance for certain job positions
4. Service compensation for certain businesses
Types of Calculation of Wage
The New Regulation defines two ways in how the employee wage can be calculated. The wage can be either based on:
1. Unit of time are set based either daily, weekly or monthly. The New Regulation now implements the requirement to for each employer to add a wage scale structure to the Company Regulations or Collective Labor Agreement of the company. If such wage scale structure is not added, the Company Regulations or Collective Labor Agreement will not be approved by the labor authority. The wage scale structure was already regulated in manpower regulation number KEP-49/MEN/IV/2004 concerning Conditions On Wage Structure and Scale, however was not yet enforced by the government until now. Under the New Regulation this seems to be changed.
2. Unit of result are based on the amount of work performed, which are set in the employment agreement between the employer and employee.
In next week’s column we will discuss, among others, the payment of wage during absence as regulated by the New Regulation.