Work and Wages

Minimum Wage

Every year the Central Government provides directions and policies for local governments (province, regency / city) in setting rules regarding minimum wage policies. Philosophically, the minimum wage policy is made to ensure that workers who are single and whose work period is less than 1 year have a decent life taking into account the conditions of the company, as well as the economic growth in the region. With directives and policies from the Central Government, local governments (both provincial, regency/ city) then set a standardized wage by taking into account regional economic growth factors and employment conditions.

The new provisions of Government Regulation No. 49/2025 on Wages follow the previous formula set out in Government Regulation No. 51/2023:

Minimum Wage = Minimum Wage for the current year + the Minimum Wage Adjustment Value to be determined.

And, the Minimum Wage Adjustment Value to be determined is calculated using the following formula:

Minimum Wage Adjustment Value = (Inflation + (Economic Growth x α) x Current Year’s Minimum Wage).

Based on the above formula, this means that the minimum wage in Indonesia is determined based on economic and labour market conditions, including variables such as economic growth, inflation, and a specific index. This specific index (denoted by the symbol α) is a new variable. This symbol α is a variable within the range of 0.5 to 0.9, up from the previous range of 0.1–0.3, thereby allowing for a higher wage increase. The determination of the value of this symbol α is carried out by the provincial/district/city wage council, taking into account the balance between the interests of workers and employers, and the comparison between the minimum wage and the cost of a decent standard of living.

The return of minimum wage setting that takes into account the cost of a decent standard of living in Government Regulation No. 49 of 2025 is mandated by Constitutional Court Decision No. 168/PUU-XXI/2023, delivered on 31 October 2024. This decision partially upheld workers’ challenges to the Job Creation Law, one of which concerned the minimum wage. Another requirement of the ruling on the subject of the minimum wage is the reinstatement of sectoral minimum wages at the provincial/regency/city level (UMSP/UMSK) and the strengthening of the role of the Wage Council.

After having been abolished by Government Regulation No. 36/2021, which stated that sectoral minimum wages were no longer applicable, under Government Regulation No. 49/2025, the Governor is now required to set the Provincial Sectoral Minimum Wage (UMSP) and may set the Regency/City Sectoral Minimum Wage (UMSK). Thus, the minimum wage consists of: a. the provincial minimum wage; b. the regency minimum wage subject to certain conditions; c. the provincial sectoral minimum wage; and d. the regency/city sectoral minimum wage subject to certain conditions.

The Governor may set the Regency/City Minimum Wage subject to certain conditions, that the average economic growth of the relevant regency/city over the last 3 (three) years is higher than the average economic growth of the province. The economic growth figure, net of inflation for the relevant regency/city, must always be positive and higher than the provincial figure over the 3 (three)-year period. Consequently, the regency/city Minimum Wage set is higher than the Provincial Minimum Wage.

The Sectoral Minimum Wage applies to specific sectors that meet two criteria: (1) work characteristics and risks that differ from other sectors and (2) heavier work demands or required specialisation. These specific sectors are listed in the standard classification of Indonesian business fields and are recommended by the provincial or regency/municipal wage council to the governor. The Provincial Sectoral Minimum Wage (UMSP) must be higher than the Provincial Minimum Wage (UMP). And the Regency/City Sectoral Minimum Wage (UMSK) must be higher than the Regency/City Minimum Wage (UMK).

The minimum wage can also be set by the collective agreement between employer and employee, provided that the wage may not be less than what is determined by the government. Any agreement that specifies wages lower than those determined by the Government is considered null and void.

The Wage Regulation stipulates that the Wage Council consists of: the National Wage Council and the Provincial Wage Council. If necessary, Regency/City wage councils may be formed. This is in line with the new regulations, which specify certain requirements that must be met when the Governor sets the Regency/City Minimum Wage and the Regency/City Sectoral Minimum Wage.

The National Wage Council provides suggestions and considerations to the central government in formulating the wage policy and developing a national wage system, while Regency/City Wage Councils send their proposals to the Mayor who forwards them to the Provincial Governor. This proposal is shared with the Provincial Wage Council which sends final recommendation to the Provincial Governor. The calculation of Provincial Minimum Wage adjustment is carried out by the Provincial Wage Council and then recommended to the governor.

The Provincial Minimum Wages is stipulated by Governor's decision and announced no later than every 25November of the current year and effective from 1 January next year. If it is a holiday, the announcement will be made one day before. While the minimum sectoral wage for a Province/Regency/City is determined by a governor's decree and announced no later than 5 (five) days after the minimum wage for the Province/Regency/City has been set.

The obligation to pay the minimum wage is exempted for micro and small enterprises. Thus, the determination of the minimum wage is returned to the agreement made by the worker and the company. The limits given by Government Regulation No. 36 of 2021 are only related to 2 things: First, the wages at the micro and small business level are at least 50% of the average consumption of the people at the provincial level. Second, the agreed wage value is at least 25% above the poverty line at the provincial level.

Employers who are unable to pay minimum wages may be allowed to postpone the payment of such minimum wages once they have submitted a written request to the provincial government. Such a request must be based on a written agreement between employers and workers or their unions representing at least 50% of the workers.

Compliance with the statutory minimum wages is ensured by the labour inspectorate. In the case of violation on the part of the employer, a worker may file a complaint with the labour inspectorate. The Manpower Act states that paying wages below the minimum wage is a criminal act and can be punished with imprisonment of at least 1 year and up to 4 years and/or a fine of at least Rp. 100,000,000.00 and up to Rp. 400,000,000.00. With the new Job Creation Law No. 6/2023 in conjunction with PP 49/2025, this sanction is also supplemented with administrative sanctions in the form of a written warning, restriction of business activities, temporary suspension of part or all of the production equipment, and freezing of business activities.

Source: §88, 88(A-E), 90(A-B), & 185 of the Manpower Act (Law No. 13 of 2003), last amended by Job Creation Law (Law No. 6/2023); Manpower Minister Regulation No. 3 of 2005 concerning the procedure of proposing candidates for membership of the National Wage Council; §43-44 of Government Regulation on Wages (No. 49/2025); Presidential Decree No. 107 Year 2004 on Wage Council

For more information on updated minimum wage rates, please refer to the section on minimum wages.

Regular Pay

Wages are a worker’s right, received and expressed in the form of money as remuneration from the employer to a worker, the amount of which is determined and paid according to the employment contract (formal and written), an agreement, or laws and regulations, including allowances for the worker and their family for a job and or service that has been performed or will be performed.

Wages generally are to be paid in cash, legal tender. Wages must be determined in IDR, although they can be expressed as the IDR equivalent of a foreign currency. 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 (in-kind payment) may not exceed 25% of the total wages. These in-kind payments may be in the form of the cost of meals, housing or childcare

The wage components consist of basic wages, fixed allowances, and non-fixed allowances. The basic wage must make up at least 75% of the total wage (basic wages + fixed allowances).

Wages are determined based on the unit of time and unit of results. The unit of time is determined on an hourly, daily or monthly basis. Hourly wages can only be used for workers who work part-time and based on an agreement between the employer and the worker. The agreement made must not be lower than the result of the calculation of the hourly wage formula, namely that the hourly wage is the result of a month's wages divided by 126.

• The daily wage is calculated based on the working time system. For companies that apply a worktime system of 6 days a week, the monthly wage is divided by 25, while for companies that apply 5 days of work time, the monthly wage is divided by 21.

• For wages based on unit results, it is determined in accordance with the results of work agreed upon between worker and employer. Determination of monthly wages based on unit results is determined according to the average wages of the last 12 months received by workers. Wages may be paid on a weekly or fortnightly basis, provided that the calculation is based on the monthly wages. Wages may also be set and paid on a piece rate basis.

The employer should not make deductions from wages that are not authorized by law, company regulations or collective bargaining agreements. Employers must properly inform workers about their wage payments and deductions. The wage deductions for lost or damaged goods cannot exceed 50% of the worker’s total monthly wage. Employers are prohibited from restricting workers’ freedom to use their wages (pressuring workers to buy goods from the enterprise store or shop or to other services such as meals or housing).

Employers who pay their workers’ wages late either by wilful misconduct or negligence have to pay a fine whose amount corresponds to a certain percentage of the worker’s wages. A worker may file an official request to the institution for the settlement of industrial relations disputes to terminate his/her employment relationship with his/her employer if the employer did not pay wages at a prescribed time for three months consecutively or more. While the industrial relations disputes are not settled yet (as regulated in the Industrial Dispute Act), workers must continue to carry out their obligations. Employers can suspend workers who are still processing the termination of their employment, while paying them wages and other rights that they receive usually until the dispute settlement process completes.

Employers are required to keep pay slip, which includes the total regular hours worked, total overtime hours worked, and any other period of time for which premium pay is required (for each worker). Workers must be provided with clear individual wage statements (pay slips) including wage deductions.

Government Regulation No. 49 of 2025 on Wage, regarding Wage Structure and Scale requires employers to determine the structure and scale of wages taking into account grade, position, years of service, education and competence of workers, which act as the guidelines for the employers in determining wages. Wages that are set out in the wage structure and scale are basic wages and thus do not include any allowances.

Employers are required to inform workers about their wage structure and scale. The Regulation further requires employers to submit wage structure and scale to the Ministry of Manpower at the time of ratification or renewal of company regulations or registration, extension or renewal of collective bargaining agreement.

An employer may face the following sanctions if they do not prepare a wage structure and wage scale and do not inform employees about the wage structure and scale:

1. Written warning letters;

2. Restrictions on business activities;

3. Temporary suspension of business activities; and/or

4. Revocation of the business license

Source: §01(30), 54, 88(A), 92, 92(A), 94, 95(2), 157A & 169 of the Manpower Act (Law No. 13 of 2003), Job Creation Law (Act No. 6/2023); §5 (2), 13, 22, 55, 57 Government Regulation on Wages (No. 49 of 2025); Ministry of Manpower Regulation No. 1 of 2017 on Wages Structure and Scale

Regulations on Work and Wages

• Undang-Undang No. 13 Tahun 2003 tentang Ketenagakerjaan / Manpower Act (Law No. 13 of 2003)
• Peraturan Menteri Tenaga Kerja No. 3 Tahun 2005 tentang Tata Cara Pengusulan Keanggotaan Dewan Pengupahan Nasional / Manpower Minister Regulation No. 3 of 2005
• Undang-Undang No. 2 Tahun 2004 tentang Penyelesaian Perselisihan Hubungan Industrial / Industrial Dispute Act (Law No. 2 of 2004)
• Peraturan Pemerintah No. 36 Tahun 2021 tentang Pengupahan / Government Regulation No. 36 of 2021 on Wages
• Keputusan Presiden No. 107 Tahun 2004 tentang Dewan Pengupahan / Presidential Decree concerning the Wage Council (Decree No. 107 of 2004)
• Undang-Undang No. 6 Tahun 2023 tentang Cipta Kerja / Job Creation Act (Law No. 6/2023)

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