Procedures for Imposing Fines and Wage Deduction by Employer

Businessman counting eurosBackground

The procedures for imposing fines and wages deduction by the employer are regulated under Government Regulation No. 8 of 1981 on Wage Protection (“GR No. 8/1981”). Wage means a revenue as compensation given by the employer to the employee for a work or service performed by the employee, that is stated or assessed in the form of money as stipulated based on an agreement or prevailing laws and regulations, and paid under an agreement between the employer and employee, including allowances to the employee or its family.

Under Article 12 GR No. 8/1981, in principle, the wage should be given in the form of money. However, part of the wage can be given in another form, provided that the value of the other form cannot be more than 25% (twenty five percent) from the value of wage that should be received by the employee. The other form of wage shall not be made in the form of alcohol, drugs or ingredients of drugs.

Imposition of Fines

The imposition of fines towards violations can only be made if it is strictly regulated in a written agreement or company regulation. The amount of fines for every violation shall be made and stated in Rupiah. Elucidation of Article 21 paragraph (1) GR No. 8/1981 states that the amount of fines that is imposed by the employer cannot be used for the employer’s interest, or employer’s operational cost. If the employer has imposed a fine to an employee, then the employer cannot file a claim for damages or losses to the employee.

Deduction of Wages

The deduction of wages by the employee that is made for a third party can only be made if there is a power of attorney from the employee, except for the deduction of wages towards (i) employee’s obligation to the state, or (ii) employee’s retribution to the social security program as stipulated under the prevailing laws and regulations. Every power of attorney given by the employee can be drawn at any time by the employee. The wage deductions can be made for the following matters:

  1. fines, deductions, damages;
  2. house rent as rented by the employer to the employee under a written agreement;
  3. advances on wage, excess on wages that has been paid by the employer and loan installment by the employee to the employer, provided that the deduction shall be proven by a written evidence.

The wage deductions as mentioned above cannot be made more than 50% (fifty percent) from every wage payment that should be received by the employee. In the event of the employment termination, all the employee’s loans can be calculated with its wages.

Ivor Pasaribu

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