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Legal Updates | Indonesian Employment Law Update: Minimum Wage

There have been a couple of recent developments in Indonesia in regards to the monthly minimum wage that employers should take note of. 

2017 Minimum Wage for Jakarta

First, the Governor of Jakarta has issued a new regulation on the minimum wage for 2017 as stipulated under Regulation No. 227 of 2016 dated 27th October 2016 regarding the Jakarta Provincial Minimum Wage for 2017 (“Reg. 227”). Beginning on 1st January 2017, the minimum wage in Jakarta will be 3,355,750 IDR per month.

Under Reg. 227, companies in Jakarta are prohibited from paying workers less than 3,355,750 IDR per month. Companies can, however, seek to defer the application of the new minimum wage by submitting an application for postponement to the governor’s office no later than 10 days before 1st January 2017.

The Jakarta minimum wage will increase by 8.25% in 2017 from the previous year.

Deferral of Minimum Wage

In a related development, Indonesia’s Constitutional Court has issued Decision No. 72/PUU-XIII/2015 dated 29th September 2016 regarding Judicial Review of the Employment Law. The Constitutional Court found the phrase “but is not required to comply with the prevailing minimum wage provision for the period of deferment” in the elucidation of Article 90(2) of the Indonesian Employment Law to be unconstitutional and not legally binding.

Article 90(2) of the Employment Law provides that if an employer is unable to pay the applicable minimum wage, then the employer can defer payment of such minimum wage. The elucidation of this article suggests that when the period of deferral of the relevant minimum wage ends, the employer must start paying the minimum wage but is not required to pay the minimum wage during the period of deferral (i.e., the employer is not obligated to later pay the applicable minimum wage in arrears).

With this Constitutional Court decision, it would appear that even when an employer obtains approval to defer the implementation of a new minimum wage, the employer must later pay the applicable minimum wage in arrears for the period of deferral when the deferral period ends. Recognising that employers are only able to obtain approval to defer the application of a new minimum wage based on clear evidence of financial necessity, this decision is very controversial.

SSEK - 1st december 2016

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)