Obligations of Entrepreneurs to Formulate Wage Structures and Scales

Obligations of Entrepreneur, Formulate Wage Structures, ScalesA. Background

On 21 March 2017, the Minister of Manpower enacted the Minister of Manpower Regulation No. 1 of 2017 on Wage Structures and Scales (“Minister Regulation No. 1/2017”). The Minster Regulation No. 1/2017 is the implementing regulation of Law No. 13 of 2003 on Labor (“Labor Law”) which obliges entrepreneurs to formulate the structure and scales of wage.

The Minister Regulation No. 1/2017 revokes the Minister of Manpower and Transmigration Decree No. Kep.49/Men/2004 that previously regulated the provisions of wage structures and scales.

In addition, the determination of wage structure and wage policy is made in the framework of implementing the provisions of Article 92 Paragraph (3) of Law Number 13 Year 2003 concerning Manpower and Article 14 Paragraph (5) of Government Regulation Number 78 Year

B. Formulation and Enforcement of Wage Structures and Scales

The wage structures and scales are a composition of wage level from the lowest to the highest or from the highest to the lowest, which contain the nominal range of wages from the smallest to the largest for each grade of position.

Under the Labor Law, the wage structures and scales are formulated by considering the grade, position, years of service, education and competence of the workers. The wages that should be stated in the wage structures and scales are basic wages.

The Minister Regulation No. 1/2017 provides 3 stages that can be used by the entrepreneurs to formulate the wage structures and scales, as follows:

a.     Position Analysis

The position analysis is the process to collect and process the data of position as the information of position that is made in the form of description of position.

b.     Position Evaluation

Position evaluation is the process for evaluating, comparing, and rating the positions.

c.    Determination of Wage Structures and Scales

The determination of wages structures and scales is made by entrepreneurs based on the company’s ability by considering the prevailing minimum wage provisions.

The wage structures and scales shall be determined by the head of company in the form of the decision letter. The Minister Regulation No. 1/2017 provides sample of formulation of wage structures and scales that can be used by the entrepreneurs. The regulation however also provides flexibility to the entrepreneurs in using other method when formulating the wage structures and scales.

The wage structures and scales that have been determined are applied to the employees who have an employment relationship with the entrepreneurs in the company. The wage structures and scales are used as guidance for determining the employees’ wage  based on units of time.

A. Notification and Review of Wage Structures and Scales

The entrepreneurs shall notify the wage structures and scales to the employees individually. The notification that is made to the employees should be at least consisted of the wage structures and scales in the grade of position of the notified employees.

The entrepreneurs may review the wage structures and scales from time to time. If there is any change due to result of review by the entrepreneurs, then the entrepreneurs need to notify the employees that are affected by the change of wage structures and scales.

The wage structures and scales need to be attached when the company applies an application of (a) legalization and renewal of company regulation, and (b) registration, extension and renewal of the collective labor agreement.

In terms of the company apply for approval and updating company regulation of company; or registration, extension and updating the collective labor agreement the company must attach the Structure and Scale of Wage that has been appointed by shall be shown to the competent authority of the ministry or the provincial or districts/municipalities that administers government affairs in the area of employment. After document of Structure and Scale of Wage be showed, the competent authority must return the document of Structure and Scale of Wage at the same time. The review of Structure and Scale of Wage is done by the entrepreneur which then the result are notified to every concerned worker/laborer.

B. Administrative Sanction

The violations by entrepreneurs (a) in formulating the wage structures and scales based on the grade, position, years of service, education and competence of the workers, and (b) to notify the wage structures and scales to the employees, are subject to administrative sanctions according to the prevailing laws and regulations.


Michelle Suliyanto

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