Minimum Wage in Indonesia

The local government determines the minimum wage based on economic and employment conditions. These comprise of the following variables:

Contributing Advisor

Cruisietta Kaylana

Senior Associate, Human Resources

• Purchasing power parity;
• Manpower absorption levels; and
• Median wage variables (the margin between 50 percent of the highest wages and 50 percent from the lowest 50 percent of the lowest wages from employees in the same position).

These variables are assessed based on existing data from the last three years. The wage council will also take into account economic growth or provision rate inflation, as well as the per capita consumption of working household members.

If the provincial, regional, or city minimum wage is currently higher than the sectoral minimum wage, then businesses will have to apply the provincial, regional, or city minimum wage.

Who does the minimum wage apply to?

The minimum wage applies to all workers with less than one year of working in the company. After one year, the employee is eligible to be paid in accordance with the scale of wages in the particular company, if they wish to do so.

Indonesia’s Minimum Wages for 2023

Minimum wage increase

Minimum wages across the country will increase by a maximum of 10 percent for 2023. Minimum wage is calculated using the below formula: 

UM (t+1) = UM (t) + (Adjustment of UM value x UM (t))

Where,

• UM (t+1) = the minimum wage to be determined; and
• UM (t) = the current minimum wage.

Further,

The following equation is used to find the figure of the adjustment of the UM value from the above formula.

Adjustment of UM value = Inflation + (EG x α)

• Inflation = refers to provincial inflation from September last year to September this year.
• EG = economic growth; and
• α = an index that describes the contribution of labor to economic growth, valued at a range of between 0.10 and 0.30.

Working hours

Normal working hours in Indonesia are 40 hours per week, which can be divided into eight hours per day for five working days or seven hours per day for six working days.

Working hours of less than 40 hours per week would be recognized if the company has the following characteristics:

• Undertake work that can be completed in less than 35 hours per week;
• Can implement flexible working hours; and
• Undertake work that can be completed outside a particular location.

Overtime

The overtime working hours are four hours per day and 18 hours per week, which does not apply to public holidays.

Collective labor agreements, company regulations, or employment agreements should specifically state which roles are entitled to overtime pay. If this is not expressed, then the employee will automatically be entitled to receive this payment.

The overtime payment is based on the employee’s monthly wage. Every hour, the calculation is applied, which is 1/173 times the monthly wage. The calculation of the overtime payment is also categorized by the day of the overtime: working days, weekends, or public holidays. The regulation does include provisions on employees that are exempt from overtime pay eligibility. These are:

• Employees that hold certain positions with responsibilities as thinkers, controllers, planners, executors, etc.;
• Workers whose working hours cannot be capped, such as those in managerial roles; and
• Workers that are paid high salaries.

Hourly wages for part-time workers

Part-time workers are now eligible for hourly wages — a first for Indonesia. Hourly wages are reserved for part-time workers only.

The formula for determining the hourly wage is as follows:

Hourly wage = Monthly wage/126

To calculate the daily wage:

Six working days/week

Daily wage = Monthly wage/25

Five working days/week

Daily wage = Monthly wage/21

The employer and employee are allowed to set their agreement, but the final salary should not be lower than the calculation using the aforementioned formulas. The agreed-upon wage structure must also be reported to the Ministry of Manpower.

The wage must be paid in Rupiah or the Rupiah equivalent of a foreign currency. Any non-cash portion in payment may not exceed 25 percent of total wages.

Minimum wages for micro and small businesses

Micro and small enterprises are exempted from paying the provincial, regional, or city-level minimum wage. However, their workers should be paid at least 50 percent of the average public consumption or 25 percent above the poverty line at the provincial level.

Deductions

Any deductions made from an employee’s salary must only be for one of the following:

• The payment of fines;
• Payment of damages caused by the employee (must not exceed 50 percent of the employee’s monthly salary);
• Salaries are paid upfront;
• Rent for property rented by the employer for the employee;
• Employee debts or installments to the employer; or
• Salary overpayments.

Sanctions

Employers who fail to pay their employees within the specified deadline can face a fine of five percent of the employees’ wage, every day, starting from the fourth day after the deadline. If the wage is unpaid after the eighth day, the employer will be imposed an additional one percent of the employees’ wage, per day.

Further, if an employer does not prepare a wage structure and wage scale for the employee, they can face the following sanctions:

• Written warning letters;
• Restriction on business activities;
• Temporary suspension of business; and/or
• Revocation of business license.