Provincial Minimum Wage to Surge, Companies May Call for Postponement

Kiki Amaruly Utami | Monday, 18 December 2017

Provincial Minimum Wage to Surge, Companies May Call for Postponement

Stipulation of Provincial Minimum Wage (Upah Minimum Provinsi/UMP) is a routine that workers/labors and companies long every end of year. It always comes along with hopes and worries. Workers surely hope that their wages will increase in line with the inflation and the decent living needs, while the companies worry that the UMP increment will exceed their companies’ financial ability. 

Therefore, government policy through Ministry of Manpower is highly required in mediating and maintaining harmonious industrial relations between both parties. For next year (2018), the Ministry of Manpower has stipulated the UMP increment of 8.71%. The policy refers to the assumption of national inflation of 3.72% and the economic development of 4.99%, as stated on Ministry of Manpower Circular Number B.337/M.NAKER/PHIJSK-UPAH/X/2017 on Dissemination of 2017 National Inflation Rate and Gross Domestic Product Development. The policy is the implementation of Article 44 Paragraph 1 and 2 of Government Regulation Number 78 Year 2015 on Wages.

Thus, as of January 1, 2018, the companies shall raise their workers’ wages at minimum equal to the determined percentage by the government. This obligation also refers to Article 90 of Manpower Law, in which the companies are forbidden to pay wages lower than the minimum wages. 

Should a company fails to pay the workers’ wages as determined by the government, the temporary solution is stipulated under Decision of Ministry of Manpower and Transmigration No. KEP-231/MEN/2003 Year 2003 on Procedure for the Application of Minimum Wage. 


Based on the policy, the companies may call for postponement of minimum wage no later than 10 days prior to the effective date of the minimum wage. However, there are steps and a set of requirements that shall be conducted and met by the companies to be able to conduct the postponement. 

First, the companies shall make written consent with the workers or the labor union. It means that bipartite agreement shall still be made between the companies and the workers.

Second, the companies shall call for minimum wage postponement to the Governor through an institution in charge of provincial manpower sector, enclosed by supporting documents. 

Further, the postponement that can be rendered by the government is in the following forms: 

  • a. Payment of the minimum wage that equals to the previous minimum wage; 
  • b. Payment of the minimum wage higher than the previous amount but lower that the new minimum wage; or 
  • c. Gradual increment of the minimum wage.

Postponement Application Document Requirements:

  1. Original written consent between the companies and the labor union or the workers of the company;
  2. The company’s financial statements comprising balance sheets, loss/profit calculation along with the explanation for the last two years that have been audited by Public Accountant;
  3. Copy of the company’s Deed of Establishment;
  4. Wage data based on worker/labor’s position in the company;
  5. Number of all workers/labors and number of workers/labors on whom the minimum wage implementation postponement is applied;
  6. Development of production and marketing for the last two years, as well as the production and marketing planning for the next two years.

Postponement Period

Provincial Employment Service Office can only render the UMP increment postponement to the companies for 12 months. It shall be taken into account that the minimum wage payment shall not instantly remove the obligation of the companies to pay the unpaid minimum wage during the postponement period to the workers. In other words, the unpaid minimum wage during the postponement period will be the companies’ liability that shall be paid to the workers. The mechanism of the wage underpayment settlement shall be a material stated in the consent between the companies and the workers. 

In case that the companies do not conduct the minimum wage increment neither call for postponement, they will be subject to penalty in the form of imprisonment for one year at minimum and four years at maximum and/or fine of IDR100 million at minimum and IDR400 million at maximum. Hence, the companies shall wisely respond to the wage increment and, in achieving mutual benefit, the workers shall increase their productivity. 

Mutual Interest

Under the industrial relationship context, the companies and the workers basically share common interest in ensuring the company’s going concern and development. Both parties even need each other. Even so, one thing to bear in mind is that each party has their own perception and interpretation that may differ and may cause conflict, notably concerning the determination of the UMP rate. 

There is nothing wrong with the workers demanding a high wage as long as it is in line with the contribution to the business development and taking into account the company’s financial ability. The same applies to the companies that they are allowed to conduct the postponement of wage increment provided that they are supported by strong rationales and approved by the majority of workers (union). 

The key is that there should be a constructive dialogue and the government shall be present as the mediator that embraces both parties. And, an industrial conflict should not result in bankruptcy and termination of employment that ultimately may give loss to both the companies and the workers. 

Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.


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