On 16 November 2017, the recently elected Governor of Jakarta stipulated the new provincial minimum wage of DKI Jakarta for 2018 in the amount of IDR 3,648,035.82 (or equivalent to approximately USD 270) through Governor Regulation No. 182 of 2017 ("GR 182"). Having completed consultation with employee and employer representatives, the anticipated new rate is an increase of 8.71% from the 2017 provincial minimum wage.

The stipulation of minimum wage

The minimum wage requirement will take effect from 1 January 2018. Under GR 182, employers who are unable to comply with the new wage rates can seek a postponement of its application to them from the Jakarta Manpower Office provided such an application is made at least 10 days prior to the effective date of GR 182.

Conditions to the minimum wage

Only employees with less than 1 year of service may be paid at a minimum wage rate. Government Regulation No. 78 of 2015 on Wages ("GR 78/2015") mandates that an employee and their employer must have bipartite discussions on wages once an employee has more than 1 year of service. In practice, many employees typically enjoy annual salary increments as a matter of course and are not paid at the minimum wage rate.

Component in determining minimum wage

In determining the minimum wage, GR 78/2015 mandates that the Governor considers the individuals' needs for a decent living (kebutuhan hidup layak) and economic productivity and growth.

The needs for a decent living are calculated based on the cost (per month) of certain items such as food and beverages, housing, education, health, and entertainment. The costs of components are set by the Minister of Manpower with input from the Indonesian National Wages Council. The Governor also takes into account the inflation rate and gross domestic products when determining the minimum wage.

Types of minimum wage

While the Governor determines the provincial minimum wage, GR 78/2015 also provides authority for the Governor to determine minimum wages at the municipal/city level. The minimum wage at the municipal/city level will be higher than the provincial minimum wage.

Minimum wages can also be applied by sector (as opposed to area). Sector based minimum wages will also be higher than provincial minimum wages. For example, Jakarta has minimum sectoral wages1 which, for example, cover the automotive sector, the insurance and banking sector, the tourism sector and the food and beverage sector. Determination of sectoral minimum wages will be by agreement between the relevant entrepreneur's association and the labour unions for that sector.

Key takeaways

Clients need to ensure which minimum wages (provincial, municipal/ city or sectoral) apply to them and ensure they are in compliance with the GR 182. This is to avoid the risk of having sanctions imposed including after random workplace inspections by the manpower office.