Guidelines for the Formulation of Mandatory Wage Structures and Scales for Businesses

Guidelines for the Formulation of Mandatory Wage Structures and Scales for Businesses

14 June 2017

The Ministry of Manpower ("MOM") issued Regulation No. 1 of 2017 ("Reg 1/2017") dated 21 March 2017 to implement wage structures and scales introduced in Government Regulation No. 78 of 2015 ("GR 78/2015"). The Reg 1/2017 revokes Ministry of Manpower and Transmigration Decision KEP.49/MEN/IV/2004 regarding the same ("Previous Regulation").

KEY CHANGES
 
The key changes from the Previous Regulation include the requirement to notify the wage structure and scales document ("Document") to all workers and to produce the Document each time an organization ratifies or renews its company regulations or when it registers, renews or extends its collective work agreement. 
 
The Document must be set by an organization's management through a decision letter. The format of the Document may be in the same form as examples contained in the Reg 1/2017. To set the wage structure and scales, the worker's classification, position, period of service, education and competence must be taken into account. Sample wage structures and scales set out are the simple ranking method, two point method, point factor method (applicable to established organizations), and point factor method (applicable to newly established organizations).
 

NOTIFICATION REQUIREMENT
 
Employers, who already have the Document before Reg 1/2017, are required to notify all workers within the organization through its management. Workers, pursuant to Reg 1/2017, include persons working for wages or any other form of compensation, thereby including temporary and permanent employees.
 
Additionally, the Document and a statement letter from management stating that the wage structures and scales are firmly established in the organization must be provided to the MOM when the organization ratifies or renews its company regulations or when it registers, extends or renews its collective work agreement. The Document may be amended and changes must be notified to workers affected by the amendment.

SANCTIONS
 
Reg 1/2017 requires employers, who have not had the Document before the regulations issued, to prepare the Document according to the Reg 1/2017 by no later than 23 October 2017. Employers who had the Document before the issuance of Reg 1/2017 and have not notified their employee, are required to effect notification at the latest on 23 October 2017.
 
Non-compliance with Reg 1/2017 may lead to the imposition of administrative sanctions by the MOM labor inspector. Although Reg 1/2017 is silent on the sanctions, pursuant to GR 78/2015, sanctions may take the form of (i) written warnings, (ii) business activity restrictions, (iii) suspension of some or all production equipment, and (iv) business suspension.

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