Indonesia has the largest labour force in Southeast Asia and the labour cost is still considerably cheaper than its neighbouring countries. Despite the economic slowdown in 2020, it is still one of the world’s biggest and fast-growing economies, making it attractive for doing business in Indonesia. This article will discuss the minimum wages of labour cost and the termination compensation in Indonesia.
Minimum Wages of Labour Cost
The minimum wages (Upah Minimum Kerja or UMK) of labour cost in Indonesia vary across provinces. Government Regulation No 78/2015 stipulates a measured annual wage increase that takes into account the current financial year’s inflation and GDP growth rates. For example, the minimum wage rate for 2020 was calculated as follows:
National Inflation (3.39 percent per October 2019) + National Economic Growth (5.12 percent per October 2019) = 8.51 percent.
However, this formula will soon be replaced with that of the Omnibus Law as early as 2022.
In November 2020, the Minister of Manpower issued a circular requesting provincial governments not to raise the minimum wages for 2021 to help employers cope and recover during the COVID-19 pandemic. Therefore, the minimum wages for 2021 are expected to stay the same with a few exceptions.
2021 Minimum Wages of Labour Cost in Indonesian Rupiah
Aceh 3,165,030
Sumatera Utara 2,499,423
West Sumatera 2,484,041
South Sumatera 3,043,111
Riau 2,888,563
Riau Islands 3,005,383
Jambi 2,630,161
Bangka Belitung 3,230,023
Bengkulu* 2,213,604
Lampung 2,432,001
Bali 2,494,000
Jakarta 4,416,186**
Banten 2,460,968
West Java 1,810,351
Central Java* 1,798,979
Yogyakarta* 1,765,608
East Java* 1,868,000
West Nusa Tenggara 2,183,833
East Nusa Tenggara 1,950,000
North Sulawesi 3,310,723
West Sulawesi 2,571,328
Central Sulawesi* 2,303,711
Southeast Sulawesi 2,552,014
South Sulawesi 3,175,876
Gorontalo 2,568,900
East Kalimantan 2,981,378
North Kalimantan 3,000,803
West Kalimantan 2,399,698
Central Kalimantan 2,903,144
South Kalimantan 2,877,447
Maluku 2,604,961
North Maluku 2,721,530
West Papua 3,134,600
Papua 3,134,600
*) raised
**) raised, but only applicable to businesses not affected by COVID-19
As seen on the table, six provinces (Bengkulu, Central Java, East Java, Yogyakarta, Central Sulawesi and DKI Jakarta) still raised the minimum wages for 2021 despite the circular.
In addition to the monthly salary, employees are entitled to the Holiday Allowance — otherwise known as the 13th salary, which employers are obliged to pay every year. This article provides more information regarding the Holiday Allowances.
Termination Compensation
The Indonesian Manpower Law stipulates three types of compensation which are applicable to permanent employees upon termination of their employment.
1. Severance Pay (Uang Pesangon)
Severance pay is a lump sum payable to the terminating employee as a result of the termination of employment, provided with the following conditions:
- work period of less than 1 year — wage of 1 month;
- work period of 1 year or more but less than 2 years — wage of 2 months;
- work period of 2 years or more but less than 3 years — wage of 3 months;
- work period of 3 years or more but less than 4 years — wage of 4 months;
- work period of 4 years or more but less than 5 years — wage of 5 months;
- work period of 5 years or more but less than 6 years — wage of 6 months;
- work period of 6 years or more but less than 7 years — wage of 7 months;
- work period of 7 years or more but less than 8 years — wage of 8 months;
- work period of 8 years or more — wage of 9 months.
2. Long Service Pay (Uang Penghargaan Masa Kerja)
In addition to the severance pay, employer must also pay for the Long Service Pay. It is a cash benefit payable to the employee based on years of service. The calculation shall be the following:
- work period of 3 years or more but less than 6 years — wage of 2 months;
- work period of 6 years or more but less than 9 years — wage of 3 months;
- work period of 9 years or more but less than 12 years — wage of 4 months;
- work period of 12 years or more but less than 15 years — wage of 5 months;
- work period of 15 years or more but less than 18 years — wage of 6 months;
- work period of 18 years or more but less than 21 years — wage of 7 months;
- work period of 21 years or more but less than 24 years — wage of 8 months;
- work period of 24 years or more — wage of 10 months.
3. Compensation Pay (Uang Penggantian Hak)
- annual leave that has not been taken or are not yet expired;
- travel expense for returning the terminating employee and its family to the point of hire;
- other matters stipulated in work agreements, company regulations, or collective labour agreements.
Prior to the enactment of the Omnibus Law, the sanction for not complying with these regulations was unclear as the Manpower Law did not explicitly mention it. However, the Omnibus Law clearly states that employers who do not pay for the above-mentioned employees’ rights are subject to imprisonment for a minimum of one year and a maximum of 4 years, and a fine of at least IDR 100,000,000 and a maximum of IDR 400,000,000.
In practice, employers can negotiate with employees when there are disputes regarding the severance pay. This solution is called the Bipartite settlement. In this negotiation, the amount of severance pay and when it is to be paid to the employee can be determined upon agreement.
If there is no agreement between the parties within the bipartite negotiation, the parties can report to the local manpower office to conduct further negotiations which are mediated by a representative from the manpower office. This negotiation is called the Tripartite settlement.
Closing Thoughts of Labour Cost and Termination Compensation
Permitindo can assist you in providing the best solution to your business needs. If you have any concerns about labour cost and termination compensation that not addressed in this article, do not hesitate to reach out to us at anita@permitindo.com or by filling out this contact form. We look forward to hearing from you.
References
Law No 11/2020
Law No 13/2003
Government Regulation No 78/2015
Minister of Manpower Circular No M/11/HK.04/2020
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