On 2 February 2021, the government introduced Regulation No. 36 of 2021 on Wages (“Regulation 36/2021”) which, as its title suggests, will now serve as a framework that covers a wide range of aspects relating to wages (e.g. components, classification and minimum wage). However, in an effort to ensure the ongoing purchasing capacities of workers as laborers (“Workers”) across the country, as well as the overall stability of the national economy in line with current requirements, the government has now decided to issue Regulation No. 51 of 2023 on the Amendment to Regulation 36/2021 (“Amendment”), which has been in force since 10 November 2023.

Among the various aspects that have now been introduced under the Amendment is a new formula for the calculation of minimum wages (“Formula”) that will apply from 2024 onwards. However, various elements of the general public, particularly members of associations and/or unions of Workers, have voiced their concern regarding the newly introduced Formula, as some parties believe the new variables that said Formula utilizes to be insignificant in terms of efforts to improve the welfare of Workers. Nevertheless, despite the ongoing criticism, the government is insisting that the newly determined Formula has indeed been based on aspirations and inputs received from various elements of the general public.

Given the importance of the above-mentioned Formula for Workers and families across the nation, this edition of Indonesian Legal Brief (“ILB”) offers a summary of the new provisions that have now been introduced under the Amendment, specifically as they relate to the following matters:

1. Minimum Wage : Updated Formula; and
2. Alternative Formula for the Minimum Wage Adjustment Value.

Minimum Wage: Updated Formula

While maintaining the minimum wage classifications that were originally introduced under Regulation 36/2021 (i.e. provincial and certain regencies/cities that qualify), the Amendment now sets out a minimum wage that will be determined in line with the following areas:

Both Regulation 36/2021 and the Amendment mandate that provinces or regencies/cities (collectively referred to as “Regions”) with established minimum wages should adjust their respective minimum wages on an annual basis. However, the latter framework now explicitly states that said adjustments should incorporate certain variables (i.e. economic growth, inflation and a certain index). Said certain index is newly featured under the Amendment and its various aspects are summarized in the following table:

With the introduction of the above-described index, the currently applicable Formula, as set out under the Amendment, along with its adjustment value Formula, now break down as follows:

It should also be noted that in the event that the minimum wage adjustment value is lower than or equivalent to zero, then the applicable minimum wages will be the same as those that are applicable during the ongoing year. Moreover, the Amendment states that minimum wage value calculation results should now be rounded up by one rupiah unit.

By way of comparison, the previously applicable Formula, as set out under Regulation 36/2021, incorporated upper and lower thresholds for minimum wages and no longer features under the Amendment. Moreover, the above-mentioned formula for minimum wage adjustment value calculations is newly introduced under the Amendment.

Alternative Formula for the Minimum Wage Adjustment Value

The Amendment has introduced a new formula that should now be used to calculate the minimum wage adjustment value if the relevant Region’s ongoing minimum wage exceeds the following threshold:

If the above threshold is met, then the Amendment states that the following minimum value wage adjustment formula will be applicable:

While the above-described aspects for the determination of the alternative minimum wage adjustment value formula (i.e. index range of value and determining factors) are similar to those applicable to the regular wage adjustment value formula,[18] if the above PE has a negative value, then the applicable minimum wage should be the same as the applicable minimum wage for the ongoing year.

Source : hukumonline.com