New regulations bring big changes to the Indonesian manpower sector

MOM Reg 16/2015 required: the employment of 10 local workers for every expatriate employee; work permits for non-resident Directors and Commissioners of Indonesian companies and for non-resident Patrons, Management and Supervisors of Indonesian foundations; and a temporary work permit for expatriates visiting Indonesia to attend certain ‘meetings’, customarily covered by a visit visa.

As a result of lobbying by various parties including the international Chambers of Commerce, the new MOM Reg 35/2015 amends MOM Reg 16/2015, by:

• eliminating the one-to-10 ratio for hiring expatriates;
• reducing the requirement for a temporary work permit to the following three activities, which no longer includes ‘attending meetings’: making commercial films that are otherwise authorised; performing audits, production quality control, or inspections of an affiliate in Indonesia for more than one month; and performing work related to the installation of machinery, electrical, after-sales service, or products in the business trial phase; and
• eliminating work permits for non-resident Directors and Commissioners of Indonesian companies, and non-resident Patrons, Management and Supervisors of Indonesian foundations.

New minimum wage formula and rupiah requirement: The other newly released regulation is Government Regulation No. 78 of 2015 regarding Wages (GR 78). This regulation introduces several important changes, notably concerning the calculation of provincial minimum wages and the requirement that all employees in Indonesia be paid in rupiah. GR 78 implements Article 97 of Law No. 13 of 2003 regarding manpower, and repeals and replaces Government Regulation No. 8 of 1981 regarding the protection of wages.

GR 78 introduces a new minimum wage formula for provinces to calculate their minimum wage each year, beginning in 2016. The introduction of the formula should bring certainty to the annual calculation of minimum wage and help create a more reliable business climate.

The new formula is as follows: New minimum wage = current minimum wage + (current minimum wage x (Inflation + percentage GDP annual increase during the year))

If the current monthly minimum wage is two million rupiah, inflation for the year was five percent and GDP growth was six percent, the calculation of the new minimum wage would be:
= two million rupiah + (two million rupiah x (five percent + six percent))
= two million rupiah + (two million rupiah x eleven percent)
= two million rupiah + 220,000 rupiah
= 2.22 million rupiah

The other significant change is that Article 21 of GR 78 requires that wages for all employees be paid in Indonesian rupiah. Article 21 does not differentiate between foreign and local employees. GR 78 does not provide a transitional provision for the application of Article 21, and while the effective date of GR 78 is October 23, 2015, it remains to be seen whether this requirement will be applied in practice. There are no sanctions in GR 78 for failing to comply with Article 21.

GR 78 also requires employers to prepare a wage scale and structure for employees by taking into consideration the group, positions, years of service, education and competence of employees. Employers must inform employees of this wage scale and structure, and GR 78 requires that a copy of the wage scale and structure be attached to company regulation registration or renewal applications.