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Revision to the Wage Scheme in Accordance with the Intended Omnibus Law

Current Wage Scheme

In purpose to increase competitiveness and boost up the investment in Indonesia, the Government of Indonesia, under the leadership of President Joko Widodo, plans to change the wage scheme for employee with a view to increasing. The current wage scheme in Indonesia is regulated under Government Regulation No. 78 of 2015 on Wages (“GR 78/2015”), which provides the calculation of a wage scheme on a daily basis. Furthermore, the employer must also comply with the minimum wage provision as stipulated in GR 78/2015. The amount of the minimum wage is decided by the government by taking into account to the need for a decent living, productivity and economic growth.

Further to the basis of wage scheme under GR 78/2015.

Based on GR 78/2015, wages is determined by:

  1. Unit of Time, where the wage will be paid based on daily, weekly or monthly basis; and/or
  2. Unit of results, where the wages will be paid in accordance with the result of the works conducted by employee as agreed by the employee and the employer.

 Revision to the Wages Scheme

The provisions of wage schemes will be further regulated under Omnibus Law Indonesia. The Omnibus Law Indonesia is a law intended to synchronize the over-lapping laws and regulations in Indonesia. According to the statement of Mrs. Sri Mulyani as the current Minister of Finance of the Republic of Indonesia, the government must overhaul a large-scale articles related to licensing in the investment sector in 72 laws through a new law, namely the Omnibus Law Indonesia, which will covers the provisions that is not previously regulated.

The Omnibus Law Indonesia is planned to have several clusters, including:

  1. Simplification of land licensing
  2. Investment requirements
  3. Employment
  4. Ease and protection of UMKM (Micro small and Medium Enterprises)
  5. Ease of doing business
  6. Research and investment support
  7. Government administration
  8. Imposition of sanctions
  9. Control of land
  10. Ease of government projects
  11. Special Economic Zones (KEK)

The new wage scheme will be further regulated in the cluster of Employment in the Omnibus Law. Once the Omnibus Law Indonesia is enacted, the wages calculation for employee will then use an hourly scheme in which, the wages will be paid to the employee in accordance with the exact working hours of the employee. As an example, the employee who has worked for 40 (forty) hours a week will get the wages of 40 (forty) hours multiplied by 4 (four) weeks multiplied by the wages per hour of the employee, per month. The description of the calculation is as below:

New Scheme = 40 hours x 4 weeks x wages per hour

Using the new scheme, the calculation of wages of one employee might be different compared to the other employee since the wages is calculated in accordance with the exact working hours of such employee in a month.

This new scheme is expected to bring the increase of the fairness of the wage system where the employee will be paid based on the hours of working. Besides, President Joko Widodo wishes that a change of wages scheme will improve the competitiveness so that it will help supporting the investment and economic growth in Indonesia.

 The application of the Omnibus Law Relating Labor Law

Regardless the expectation of the Omnibus Law to escalate the productivity of business activities and the investment climate in Indonesia, apparently based on the employee’s perspective, this new wage scheme will bring more benefits to the employer instead of the employee.

Therefore, President Joko Widodo and the Indonesian Government must finalize the concept of this new wage scheme to fit the intention of employee and the need of the employer in order to attain win-win-solution for both employee and employer. Although the similar wage scheme has been success-fully implemented in various developed countries, it appears that the implementation in Indonesia would not be that simple since there are lots of employment components that have been received by employee will be affected once the wage scheme is changed. For example, the calculation of (i) severance payment related to termination of employment; (ii) annual leave right and (iii) other employment components that refer to wages received must also be adjusted with the calculation of the new wage scheme.

Revising the labour law clearly is one of the sensitive subject that is being faced by the Indonesian Government. Until date, the Indonesian Government is still in discussion among themselves as well as taking note from the employees’ inputs. Nonetheless, the Indonesian Government is expected to produce a draft of the Omnibus Law related to the labour law by January 2020.


Published by: Pramanda Anggareni

Published on: 07 Feb 2020

Other link: legalbusinessonline

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