Every worker has the right to a decent, humane living. The particular right is guaranteed by Article 27 paragraph 2 of the 1945 Constitution in conjunction with Article 88 paragraph 1 of Law No. 11/2020 on Job Creation stipulating that every citizen has the right to work and humane livelihood.
Since “a decent, humane living” carries different interpretations, governors have to set the Provincial Minimum Wage (UMP). In the case of a Regency/Mayoralty Minimum Wage (UMK), it is governors who have to set it based on the proposal from regent or a mayor in a particular regency or mayoralty.
The basis for the amount of UMP are economic and employment conditions, which include the level of purchasing power, the level of employment and the median wage which is adjusted every year. On the other hand, the amount of UMK is based on economic growth and inflation in each regency or mayoralty.
UMK is determined after UMP is set. UMP is determined by governor’s decision and announced no later than November 21 of the year. while UMK is determined by a regent/mayor decision and announced no later than November 30 of the year.
A company is obliged to give a worker a work agreement to determine issues such as the terms of work, the rights and obligations of the parties. A work agreement must be made in accordance with Article 124 paragraph 1 and paragraph 2 of Law No. 13/2003 on Manpower. The agreement contains the rights and obligations of employers and trade/labor unions as well as workers, at the very least.
Workers who work for an entrepreneur/company are entitled to receive wages and every entrepreneur is obliged to pay wages to workers in accordance with the agreement. Arrangements on wages are regulated in Government Regulation No. 36/ 2021 on Wage.
The wage policy is aimed at providing wage to fulfill a decent, humane life. One of the wage policies is the minimum wage, referring to the lowest monthly wage consisting of the basic wage including fixed allowances set by a governor as a safety net.
Article 7 paragraph 1 Government Regulation No. 36/2021 stipulates that wage components consist of:
- wages without benefits;
- basic wages and fixed allowances;
- basic wages, fixed allowances, and variable allowances; or
- basic wages and benefits are not fixed.
If the wage component consists of basic wages and fixed allowances, then the amount of the basic wages is at least 75% of the total basic wages and fixed allowances.
Provisions regarding the payment of wages are stipulated in Article 53 paragraph 3 of Government Regulation No. 36 /2021, specifying that the payment of wages by employers shall be based on work agreements, company regulations or collective labor agreements.
Prohibition of Employers Paying Wages Below the Minimum Wage
In principle, Law No. 11/2020 prohibits employers from paying workers wages lower than the minimum wage, as stipulated in Article 88 E paragraph 2 Law No.11/2020 in conjunction with Article 23 paragraph 3 Government Regulation No 36/2021.
Employers are required to pay wages to workers in accordance with the agreement, the amount of which shall not be lower than that stipulated by applicable regulations. The minimum wage regulation applies to workers with less than 1 year of work service in a company.
Minimum wage is set based on an agreement between an employer and a worker. However, the regulation on minimum wage is not applied for micro and small businesses. The amount of wage in micro and small businesses is determined based on an agreement between an entrepreneur and workers/laborers in a company based on the following provisions:
- 50% of the average public consumption at the provincial level at the very least; and
- the agreed wage value is 25% above the provincial level poverty line at the very least.
Based on data from the Central Statistics Agency (BPS), around 50.61% of workers were paid a monthly wage below the UMP) at the beginning of 2022.
In such a case, the workers can use their rights to settle industrial relations disputes as stipulated in Law No. 2/2004 on Settlement of Industrial Relations Disputes. The procedure is as follows:
- hold bipartite negotiations (between workers or trade/labor unions and employers) with a deliberation to reach a consensus.
- if within 30 days the negotiations do not reach an agreement, one or the parties shall register their dispute with the agency responsible for local manpower affairs. At this stage, it is necessary to submit evidence that bipartite negotiations have taken place, but failed to reach an agreement.
- After being registered with the agency responsible for manpower affairs, mediation is held.
- If the mediation does not reach an agreement, either party can file a lawsuit with the Industrial Relations Court.
In addition to a lawsuit at the industrial relations court, workers can also take criminal action by reporting it to the police.
Article 185 of Law No. 11 of 2020 stipulates that criminal acts for entrepreneurs who pay wages lower than the minimum wage are subject to imprisonment for a minimum of one year and a maximum of four years and/or a fine of at least Rp 100,000,000.00 and a maximum of Rp 400,000,000.
Supervision regarding wage is carried out by labor inspector at the ministry that administers government affairs in the manpower sector and/or the agency that organizes government affairs in the provincial manpower sector.
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