Definition of Wages
In our view, wage increases are something that workers generally hope for. They serve not only as recognition from the company for the employee’s dedication but also as a means of promoting employee well-being and productivity, ultimately bringing greater benefits to the company. This mutually beneficial relationship supports the continuity of business processes, driven by the shared motivation to advance the company.
However, it is important to note that each company may have different policies regarding wage increases, typically based on several factors such as increased duties and responsibilities, length of service, the value of the work performed, and overtime. These considerations are usually adjusted to reflect the company’s financial condition.
According to Article 1 point 1 of Government Regulation (GR) No. 36 of 2021, wages are defined as:
“The income received by employees or workers in the form of money as compensation from employers, determined and paid based on a work agreement, mutual agreement, or statutory regulation, including allowances for the employee and their family for work that has been or will be performed.”
Based on this definition, we conclude that wages are fundamentally an agreement between the employer and the employee, which can be outlined in a work agreement, company regulation, or collective labor agreement.
Wage agreements are generally aligned with the company’s wage structure and scale, which are part of internal regulations. The wage structure and scale provide a range from the lowest to the highest wages for each job classification and serve as a guideline for compensation.
Legal Basis for Wage Provision
From our review, neither the Manpower Law (as amended by the Job Creation Perppu) nor GR No. 36/2021 and its amendments explicitly regulate the percentage of wage increases for employees. Instead, the relevant legislation only requires that companies review wages periodically, as outlined in the following provisions:
- Article 81 point 31 of the Job Creation Perppu, introducing Article 90A to the Manpower Law in conjunction with Constitutional Court Decision No. 168/PUU-XXI/2023: “Wages above the minimum wage shall be determined based on an agreement between the employer and the worker/laborer or labor union in the company.”
- Article 81 point 34 of the Job Creation Perppu, introducing Article 92A to the Manpower Law: “Employers must review wages periodically, considering the company’s financial capacity and productivity.”
- Article 48 of GR 36/2021: “Employers must review wages periodically by taking into account the company’s financial capability and productivity.
Such wage reviews must be regulated in the employment agreement, company regulations, or collective labor agreement.”
Furthermore, the government sets minimum wage standards based on the province, regency/city, considering factors such as economic growth, inflation, and specific indexes. For more information, you can refer to the article Which Should Be Used: UMR, UMP, or UMK?
Based on the above explanations and in response to your question about salary increases, we reiterate that there are no legal provisions explicitly regulating the percentage of wage increases. Instead, employers are required to periodically review wages in line with company capacity and productivity. Thus, it can be concluded that the government does not regulate a standard percentage, frequency, or amount for salary increases. These are left to the discretion of individual companies and must be agreed upon in employment or collective agreements, taking into account two factors: the company’s financial ability and employee productivity.
Overtime Pay Provisions
Although the government does not explicitly regulate salary increase percentages, it does regulate overtime pay, particularly for work exceeding 40 hours per week, as referenced in your query.
Overtime work is defined under Article 1 point 7 of GR No. 35 of 2021 as follows:
“Overtime work is work performed beyond 7 (seven) hours per day and 40 (forty) hours per week for a 6-day workweek, or 8 (eight) hours per day and 40 (forty) hours per week for a 5-day workweek, or work performed on weekly rest days and/or official public holidays established by the government.”
Detailed provisions for calculating overtime wages are found in Articles 31 to 34 of GR No. 35 of 2021, along with further explanations.
If an employer fails to fulfill their obligation to pay overtime wages, they may face criminal sanctions of imprisonment ranging from 1 month to 12 months and/or a fine of IDR 10 million to IDR 100 million, as such violations are considered criminal offenses.
Legal References:
- Law No. 13 of 2003 on Manpower
- Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation (Perppu Cipta Kerja)
- Law No. 6 of 2023 on the Enactment of the Job Creation Perppu as Law
- GR No. 35 of 2021 on Fixed-Term Employment Agreements, Outsourcing, Working Time and Rest Time, and Termination
- GR No. 36 of 2021 on Wages
- GR No. 51 of 2023 on Amendments to GR No. 36 of 2021 on Wages