July 28, 2020 | Regulatory Updates


On October 23, 2015, the Government of Indonesia has enacted Government Regulation No. 78 of 2015 (“GR 78/2015”) as the implementation of the Article 97 of Law No. 13 of 2003 concerning Manpower. In addition, GR 78/2015 also revoked the previous Government Regulation No. 8 of 1981 concerning the Protection of Wages. GR 78/2015 was the focus of considerable controversy last year since most of the labors consider that this new regulation is not profitable and applicable toward their prosperity.

GR 78/2015 governs several new provisions regarding wages, one of the most notable provision is the new formula to calculate the provincial minimum wage. Besides that, GR 78/2015 also distinguishes between (a) wages and (b) non-income wages. Last but not least, GR 78/2015 governs the obligation for employers to construct a wage scale and structure which should serve as a directive to determine the wages of its employees. Following the enactment of such provision, employers are required to pay their employees in the Indonesian Rupiah currency. 

Distinction between Wages and Non-Income Wages

Pursuant to GR 78/2015, wage may consist of (i) wage without allowance; (ii) basic wage; or (iii) basic wage, fixed allowances, and non-fixed allowances. On the other hand, non-income wage may consist of religious holiday allowance, bonus, compensation for working facility and/or service money in certain line of businesses.

Obligation of the Employer to Construct a Wage Scale and Structure

The determination of an employee’s wage is determined based on time or results. In terms of wages for employees that are determined based on unit of time, GR 78/2015 obliges employers to compose a wage scale and structure for employees by taking certain circumstances into consideration such as level, positions, years of service, education, and competence (vide Article 14 of GR 78/2015). This provision is not applicable for wages of employees that are determined based on results.

New Formula for Calculating the Provincial Minimum Wage

GR 78/2015 introduces a new minimum wage formula as follows:

New minimum wage = current minimum wage + (inflation + % GDP annual increase during the year)

This provision is expected to reduce the uncertainty in regards to the annual minimum wage remuneration. The local government which is represented by the governor shall set the minimum provincial minimum wages based on the abovementioned formula. The governal may also determine the Provincial Sectoral Minimum Wages based on agreement with the employers association and the trade union in such related sector.

The Obligation to Use Rupiah for The Payment of Wages

Article 21 of GR 78/2015 stipulates that wage payment for all employees must be paid in the Rupiah currency. This provision does not distinguish between wage payment to an Indonesian or foreign national employee, which means that foreign national employees are also required to be paid in the Rupiah currency.