Compensation and Benefits under Indonesian Employment Law

Legal Updates
Compensation and Benefits under Indonesian Employment Law
25 October 2018

By Fahrul S. Yusuf

The basic regulation regarding minimum wages in Indonesia is stipulated in Government Regulation No. 78 of 2015 regarding Wages (\"GR 78‚Äù) and Ministry of Manpower (\"MOM‚Äù) Regulation No. 7 of 2013. Wages are defined as basic earnings (salary) plus regular allowances. The aggregate wage must be greater than the regional minimum wage. Furthermore, the salary portion must be greater than 75% of the minimum wage. Employers that are not able to meet the regional minimum wage requirement may file a request with the MOM or other appointed official, directly or through a business association, for suspension of the application of the regional minimum wage at their company. Under Law No. 13 of 2003 regarding Labor (the \"Labor Law‚Äù), any company paying a salary lower than the minimum wage faces sanctions, unless it has been given approval to do so.

Wage Payments

Wages generally are to be paid in cash. However, certain other forms of payment may be used, as long as they do not take the form of alcohol or drugs. The non-cash portion shall not exceed 25% of the total wages. Wages must be booked in Rupiah, although they can be expressed as the Rupiah equivalent of a foreign currency. The frequency of payment of wages varies from weekly to monthly except for an employment contract for a period of less than one week.

Overtime Issues

Overtime is regulated under MOM Decree No. KEP.102/MEN/VII/2004 regarding Overtime Work and Overtime Pay, and is payable at the rate of one and one-half times the hourly wage for the first hour and twice the hourly wage thereafter. Overtime pay is calculated based on an employee\'s monthly wage, with the hourly wage being equal to 1/173 of the monthly wage.

If an employee\'s wages are paid on a daily basis, the calculation of one month\'s wage is 25 times that of the daily wage for an employee who works a six-day week, or 21 times for an employee who works a five-day week. If the wages of the employee are paid on a unit production basis, one month\'s wage is the average monthly wage over the last 12 months. However, if the employee has been working for fewer than 12 months, one month\'s wage is calculated based on the average wage received during the time worked, provided this amount is not less than the regional minimum wage. Overtime starts after the eighth hour if the company operates on an eight-hour working day with a five-day week, or after the seventh hour if the company operates on a seven-hour day with a six-day week.

Work Hours

Normal working hours are prescribed by the Labor Law as not more than seven hours per day and 40 hours per week based on a six-day workweek. With the written agreement of the employees (and the union, if the employees are unionized), a five-day workweek, with eight hours per day and 40 hours per week, can be used. Wages of employees who work five days per week must not be less than the wages of employees who work six days per week. Special rules apply in the oil and gas sector, including supporting services companies.

The five-day workweek is common among private companies since the government has applied a five-day week for civil servants and state-owned business enterprises. Regardless, after four hours of continuous work, an employee is entitled to at least 30 minutes of rest time. Reasonable time to perform religious observances also must be given, including for the Moslem prayer, which has to be performed five times each day.

Religious Holiday Allowance

Under MOM Regulation No. 6 of 2016 regarding Religious Holiday Allowance for Employees, employees who have worked for at least one month consecutively shall be entitled to receive a religious holiday bonus (Tunjangan Hari Raya or \"THR‚Äù). The amount of the bonus is 100% of the employee\'s latest monthly wage and will be pro-rated in the event an employee has been with the company for more than one consecutive month but less than 12 months. The one-month THR bonus shall be paid to all employees at the latest seven days before Hari Raya Idul Fitri, Nyepi, Waisak, Imlek, or Christmas each year, as applicable to each employee. In practice, most employees elect to receive THR before the Islamic holiday.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user\'s own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

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