On 21 March 2017, Regulation No.1 of 2017 on Wage Structure and Scale (“MOM 1/2017”) was issued by the Minister of Manpower which now requires Indonesian employers to formulate and apply a wage structure and scale to all of their employees within a company. The wage structure and scale could range from the lowest to highest or vice versa and the factors to be taken into account include:
- employment position categories (golongan jabatan);
- position (job title);
- employment periods;
- education levels and competency.
The regulation aims to clarify any misunderstandings or conflicts that arise between an employer and employee regarding calculation of wage.
Key highlights of MOM1/2017:
1. Formulation and applicability of wage structure and scale
Employers are given the option to choose the formulation method of wage structure and scale either based on the methods explained in the attachment of MOM 1/2017 or other methods. The formulation of wage structure and scale applies to the following:
- position analysis in the form of job positions description
- position evaluation by way of valuing, comparing, and rating the job positions
- determination of wage structure and scale based on the capacity of the company and the applicable minimum wage.
Further, MOM 1/2017 also provides 4 examples of the wage structure and scale formulation methods, which can be adopted by employers as follows:
- the simple-rank method
- the two-point method
- the point-factor method (for existing companies)
- the point-factor method (for newly established companies).
The wage structure and scale is used as a guideline for the determination of wage of the employees and it must be in the form of a decision letter issued by the head of the company.
2. Notifications of the wage structures and scales
The employers must notify all of their employees regarding the wage structure and scale so as to enable them to receive information of the wage structure and scale based on their position.
The employers must also attach (a) the formulated wage structure and scale and (b) a statement letter that the wage structure and scale has been formulated and determined by the company when submitting:
- an application for company regulation validation and renewal; or
- an application for registration, extension, and renewal of collective work agreement to the relevant manpower office.
The wage structure and scale may be reviewed by the employers and employees who are affected by the review or change will need to be informed of the result.
3. Imposition of administrative sanctions
Previously there were no regulations which imposed administrative sanctions for not formulating a structure and scale for wages in the MOM No. KEP.49/MEN/IV/2004 concerning Wage Structure and Scale (“MOM 49/2004”). However, in Government Regulation No. 78 of 2015 concerning Manpower Wage and as further regulated in MOM 1/2017, if an employer fails to have and apply the wage structure and scale, such employer shall be imposed with administrative sanctions in the form of written warnings, placing limitations on the employer’s business activities, temporary suspensions of the use of partial or whole-production equipment and suspension of all business activities.
4. Grace period until 23 October 2017
MOM 1/2017 also provides a grace period whereby the employers must formulate and apply the wage structure and scale as well as inform their employees by 23 October 2017.
Notwithstanding the above, any wage structure and scale, which has been formulated and determined by the employers before the issuance of the MOM 1/2017 will remain valid.
This alert is for general information only and is not a substitute for legal advice.