The Ministry of Employment (“Ministry”
) recently issued several regulatory frameworks in order to implement Government Regulation No. 78 of 2015
on Wages (“Regulation 78/2015”
). Among these regulatory frameworks, stakeholders are primarily anticipating the issuance of Ministry Regulation No. 1 of 2017 on Structures and Gradations of Different Wage Schemes (“Regulation 1/2017”
This anticipation is due to the fact that all businesses are required to formulate structures and gradations for different wage schemes (“Wage Schemes”
) that they may introduce while taking employment category, employment position, employment period, as well as the level of education and competency of their employees into consideration. Indeed, Article 5 of Regulation 1/2017 stipulates that, “The structure and gradations of different wage schemes are to be determined by the head of a company in the form of a decree.”
The formulation of any Wage Schemes themselves is to be based on core salary (upah pokok
). Generally, there are three stages involved in the formulation of Wage Schemes. The first stage encompasses position analysis, which specifically means defining information relating to each position in the form of a position description. The second stage involves a position evaluation, specifically an evaluation, comparison and ranking of the various positions. The third stage involves determining Wage Schemes based upon a company’s financial abilities whilst also taking the relevant applicable mandatory minimum-wage policy into consideration.
Note that, in accordance with prevailing laws and regulations, no given salary should be lower than the applicable minimum wage, which is the lowest amount of remuneration which can be provided to single, unmarried workers who have been working in their current positions for less than one year. Furthermore, any Wages Schemes which are regulated under Regulation 1/2017 are to be utilized as a guideline for the determination of any salaries which are based upon time credits. Employers are also obliged to inform all of their employees of any such newly formulated Wage Schemes and should enclose any such formulation in any application for the validation and renewal of company regulations (peraturan perusahaan
), or for the registration, extension and renewal of any collective work agreement (perjanjian kerja bersama
Any employers who do not formulate Wage Schemes or who do not inform their employees of any such scheme will be subject to the various forms of administrative sanctions which are stipulated under Ministry Regulation No. 20 of 2016 on Administrative Sanctions for Regulation 78/2015. Moreover, any employers who have yet to formulate and implement said Wage Schemes must formulate them in accordance with the provisions which are set out in Regulation 1/2017 by 23 October 2017 at the latest. This same deadline also applies to any employers who have already formulated the relevant Wage Schemes but who have yet to inform their employees.
Last but not least, Article 14 of Regulation 1/2017 stipulates that the effective enforcement of Regulation 1/2017 automatically repeals and replaces Ministry of Employment and Transmigration Decree No. KEP.49/MEN/IV/2004 on the Provisions of Structure and Gradations of Different Wage Schemes.
Regulation 1/2017 also sets out various examples of Wage Scheme formulations within its various Appendices as a resource for any confused employers. By way of illustration, Appendix IV to Regulation 1/2017 incorporates examples of three methods of Wage Scheme formulations, specifically: 1) Simple-ranking method; 2) Two-point method; and 3) Point-factor method.
The simple ranking method provides an example of Wage Scheme formulation for building-contractor companies and comprises of eight steps, as outlined below.
Firstly, determining employee positions and describing the duties and responsibilities of each position (i.e. architects have the authority to design blueprints, calculate the required budget and ensure that any construction activity does not violate the applicable laws and regulations; foreman/mandor
are responsible for overseeing and ensuring the quality of any work and that the work undertaken by various laborers proceeds according to the prescribed blueprints and timeline).
Secondly, formulating a list of positions and ranking them from the positions which encompass the easiest duties and responsibilities to those which involve most difficult duties and responsibilities (i.e. in sequential order: workman’s assistant, stonemason/tukang batu
, carpenter/tukang kayu
, foreman and architect). Thirdly, drawing up a table specifying the following columns: 1) Employment position; 2) Employment category; 3) Lowest salary; and 4) Highest salary. Fourthly, determining the lowest salary for the lowest position, which should also take the most commonly paid lowest salary for said lowest position, as well as the applicable mandatory minimum wage for the relevant region into consideration.
Fifthly, determining the highest salary for the lowest position, which should also take the most commonly paid highest salary for said lowest position as well as the financial abilities of company in question into consideration. Sixthly, determining the lowest and highest salary for each position using the same mechanisms as specified under the above fourth and fifth steps. Seventhly, incorporating the value of the lowest and highest salaries for each position into the previously drawn up Wage Scheme table (as specified in the third step). Eighthly, determining the category of each position.
The two-point method can be undertaken either manually or using a computer, and the example stipulated under Appendix IV to Regulation 1/2017 sets out an example of Wage Scheme formulation for minimarket companies. This method comprises of nine steps in total, ranging from the drawing up of a list of positions and salaries (i.e. sequence number, name, position and salary) to calculating the lowest and highest salaries for each category of positions according to the applicable formula which is specified under the Wage Schemes table-of-calculation formulae.
Finally, the point-factor method can be further categorized into point factor for any companies which have already commenced business operations, and point factor for newly established companies. The method used for companies have already commenced business operations comprises of three stages and eight steps in total. These stages include position analysis through the collection of information related to a certain position, evaluation of positions and the determination of Wage Schemes. Moreover, the above eight steps range from determining the lowest threshold of the lowest point value and the highest threshold of the highest point value as regards the calculation of the lowest and highest salaries for each category of positions according to the applicable formula, as specified under the Wage Schemes table-of-calculation formulae.
The point-factor method for newly-established companies applies to companies which have already set out lists of positions which are required in order to be able to undertake normal business operations, in spite of the fact that the company has yet to hire any employees and thus cannot yet determine valid salaries. This final method is basically similar to the method used for any companies which have already commenced business operations, as prescribed above, although there are several differences as regards the position analysis and position evaluation stages, as well as a sixth step (i.e. determining the lowest middle income for the lowest position category/positions which are categorized together due to having the lowest total points values).