Indonesia: Minimum Wage Formulation

Last Updated: 16 February 2016
Article by Diana Kusumasari and Edly F. Widjaja

After 12 years from the enactment of Law No. 13 of 2003 on Manpower ("Manpower Law"), the Government of Indonesia has finally enacted Government Regulation No. 78 of 2015 on Wages ("GR 78/2015") as the implementation of Article 97 of the Manpower Law. GR 78/2015 was enacted to achieve the objective of sufficient income for workers to have a decent life. As many other manpower-related regulations, the enactment of GR 78/2015 has raised several mixed reactions.
We briefly highlight the noteworthy provisions of the GR 78/2015 below.


Generally, GR 78/2015 covers a wide scope of provisions related to wages which some of the provisions had been regulated in previously applicable regulations such as, Government Regulation No. 8 of 1982 on Wage Protection, Minister of Manpower and Transmigration Decree No. KEP.49/ MEN/2004 on Wage Structure atnd Scale, and Minister of Manpower Regulation No. PER-04/Men/1994 on Religious Festive Allowance.
We can also see further and clearer provisions related to employers' obligations concerning wages as well as new noteworthy provisions on the minimum wage formulation in GR 78/2015.

1. Decent Income Definition
GR 78/2015 provides a definition of decent income that was not provided by other previous regulations, that is, the worker's amount of income earned from the worker's work that sufficiently fulfills the life's need of the worker and his/her family. GR 78/2015 further provides that a decent income is given in the form of:

  • Wage (with or without allowance); and
  • Non-wage income (religious festive allowance, bonus, service pay for certain businesses and payment related to work facilities).

2. Obligation to Use Rupiah
GR 78/2015 is also in line with the obligation to use Rupiah for any transaction payment in Indonesia as required by Bank of Indonesia Regulation No. 17/3/PBI/2015 regarding the Obligation to Use Rupiah. It clearly states that all wages payment shall be made in Rupiah.
3. Obligation to Set Out Wages Structure and Scale
Under GR 78/2015, employer is obliged to set out wages structure and scale by taking into considerations the division, position, duration of employment, level of education and competency. This wages structure and scale shall be attached upon the application of legalization and extension of Company Regulation, or upon the registration, extension, and renewal of Collective Bargaining Agreement.
4. Obligation to Provide Evidence for the Wage Payment

Employer has to give the worker evidence of payment for the wages paid that should include the details of the wages received by the worker.

5. Minimum Wage
The enactment of GR 78/2015 has brought significant change in the determination of regional minimum wage which would include inflation rate and current gross domestic product in determining regional minimum wage. As we may have known that the previously applicable regulations did not provide any formula to determine minimum wage. It was determined by each province without any specific standard or method of calculation. Under GR 78/2015, the formula for determining the annual regional minimum wage shall be as follows:
Explanation: UMn= New minimum wage

UMt = Current minimum wage

Inflation rate = The inflation rate calculated from the last year

September to the current year September %Δ GDP rate = The GDP rate calculated from the growth of last year's 3rdand 4thquarter and the 1stand 2ndquarter of the current year.

UMn= UMt + [UMt x(Inflation rate + %Δ GDP rate)]


1. As of the enactment of GR 78/2015, governors are under the obligation to gradually adjust its provincial minimum wage that is still under the decent standard of living that shouldbedonenolater than four (4) years after GR 78/2015 comes into force.

2. For employers who have yet to provide a wages structure and scale, they should draft and determine the wages structure and scale and attach it to the application of legalization and extension of Company Regulation, or upon the registration, extension, and renewal of Collective Bargaining Agreement at the latest of two (2) years after the enactment of GR 78/2015.
Let us hope that the enactment of GR 78/2015 can provide a better standard of living for workers and clearer provisions for employers to deal with manpower and wages-related issues

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