New Indonesian Manpower Regulation: Minimum Wage Formula and Use of Rupiah to Pay Employees

The newly released Government Regulation No. 78 of 2015 regarding Wages (GR 78) introduces several important changes, notably concerning the calculation of provincial minimum wages and the requirement that all employees in Indonesia be paid in rupiah.

GR 78 implements Article 97 of Law No. 13 of 2003 regarding Manpower, and repeals and replaces Government Regulation No. 8 of 1981 regarding the Protection of Wages.

The main points of GR 78 are:

• Minimum Wage Calculation: GR 78 introduces a new formula for provinces to calculate their minimum wage each year, beginning in 2016. The introduction of the formula should bring certainty to the annual calculation of minimum wage and help create a more reliable business climate.

The new formula is as follows: New minimum wage = current minimum wage + (current minimum wage x (Inflation + % GDP annual increase during the year)) If the current monthly minimum wage is 2 million rupiah, inflation for the year was 5%, and GDP growth was 6%, the calculation of the new minimum wage would be: = 2 million rupiah + (2 million rupiah x (5% + 6%)) = 2 million rupiah + (2 million rupiah x 11%) = 2 million rupiah + 220,000 rupiah = 2.22 million rupiah

• Wages Must Be Paid in Rupiah: Article 21 of GR 78 requires that wages for all employees be paid in Indonesian rupiah. Article 21 does not differentiate between foreign and local employees. GR 78 does not provide a transitional provision for the application of Article 21, and while the effective date of GR 78 is October 23, 2015, it remains to be seen whether this requirement will be applied in practice. √Ç There are no sanctions in GR 78 for failing to comply with Article 21.

• Wage Scale and Structure: GR 78 requires employers to prepare a wage scale and structure for employees by taking into consideration the group, positions, years of service, education, and competence of employees. Employers must inform employees of this wage scale and structure, and GR 78 requires that a copy of the wage scale and structure be attached to company regulation registration or renewal applications.

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