Introduction

Wages are one of the essential elements in employment relationships. The Central Government (“Government”) determines wage policies to realize fair industrial relations. One of the important issues in wage policy is the minimum wage policy. The minimum wage policy is very crucial because its existence serves as a safety net in employment relations, which basically prohibits employers from paying employees at a rate below the standard minimum wage. The minimum wage consists of the Provincial Minimum Wage (“UMP”) and Regency/City Minimum Wage (“UMK”) with certain conditions.

The issuance of Government Regulation Number 51 of 2023 on Amendments to Government Regulation Number 36 of 2021 on Wages (“PP 51/2023”) is intended as a “development” to the provisions relating to minimum wages which were previously regulated through Government Regulation Number 36 of 2021 on Wages (“PP 36/2021”). PP 51/2023 is expected to equally improve worker well-being on the one hand and maintain the competitiveness of the business sector on the other. This article will outline various changes to the provisions related to minimum wages covered in PP 51/2023.

Discussion

PP 51/2023 essentially amends a number of minimum wage-related provisions that the governor uses as a guide when determining minimum wages. The subsequent sections will explain the various amendments to the provisions on minimum wages specified in PP 51/2023:

  1. Updated Variables in the Minimum Wage Calculation Formula
    The primary amendments outlined in PP 51/2023 pertain to variables in the formula used to calculate the minimum wage. If the minimum wage calculation formula specified PP 36/2021 comprises (i) upper limit, (ii) lower limit, (iii) economic growth, and (iv) inflation, PP 51/2023 determines that the variable of the minimum wage calculation formula consists of (i) economic growth, (ii) inflation, and (iii) certain index. Therefore, the minimum wage calculation formula does not incorporate any upper or lower limit variables.

    A certain index variable symbolized by α is a variable that represents the contribution of labor to the economic growth of a province or district/city. The value of a certain index falls within the range of 0.10 (zero point one zero) to 0.30 (zero point three zero), and the provincial wage council or district/city wage council determines it. Determining certain index involves assessing labor absorption, average wages, and other factors relevant to employment conditions.

  2. Governor’s Right to Override Provincial Wage Council Recommendations and Regent/Mayor Recommendations
    PP 51/2023, which amends the provisions of Article 28 of PP 36/2021, introduces a provision mandating the governor to independently determine the UMP based on the minimum wage calculation formula and ignoring the recommendation of the provincial wage council regarding the results of the UMP value adjustment results (“UMP Recommendation“), in the case of the UMP Recommendation submitted by the provincial wage council does not comply with the minimum wage calculation formula.

    The same arrangement also applies in determining the UMK. The governor cannot determine the UMK if the results of the regent/mayor’s recommendation regarding the UMK calculating results (“UMK Recommendation“) do not comply with the minimum wage formula.

    The aforementioned provisions were previously not regulated in PP 36/2021. This provision may be an instrument to ensure legal certainty and justice, both for workers and employers in the event that the provincial wage council or regent/mayor submits an UMP or UMK Recommendation resulting from a process that deviates from the applicable provisions.

  3. The UMK calculation uses the economic growth value at the district/city level
    If PP 36/2021 determines that the value of the economic growth variable used in the UMP and UMK calculation formula is provincial level economic growth. In PP 51/2023, a distinction is made, where in determining the UMP, the variable used is the provincial level economic growth value and in determining the UMK, the variable used is the district/city level economic growth value.
  4. Guarantee of Determining a Decent and Fair Minimum Wage
    PP 51/2023 provides protection that is more favorable to the interests of workers. This can be seen from the provisions of Article I point 3 which amends the provisions of Article 26 PP 36/2021. Consequently, Article 26 comprises provisions that mandate that the determination of the minimum wage will be the same as the value of the current year’s minimum wage, in the event that the minimum wage adjustment value is 0 (zero) or less. Furthermore, in Article I point 3 which introduces Article 26A, it is determined that the determination of the minimum wage for the following year is set to be equal to the value of the current year’s minimum wage, in the event that economic growth (as one of the calculation variables) is negative. This provision ensures that the minimum wage for the upcoming year will not be less than the minimum wage for the previous year.
  5. Arrangements for Minimum Wages for Provinces and Regencies/Cities resulting from Regional Expansion
    PP 51/2023 also introduces provisions regarding the determination of minimum wages for provinces and districts/cities resulting from regional expansion which were not previously regulated in PP 36/2021. Article I point 7 which introduces Article 28A determines that the minimum wage that first applies to the province resulting from regional expansion is the provincial minimum wage that applies to the parent province. Adjustments to the minimum wages for provinces resulting from the regional expansion that has been determined must be conducted in the following year.

    Meanwhile, for districts/cities resulting from regional expansion, Article I point 15, which introduces Article 34B, determines that, for the first time, the determination of the minimum wage for districts/cities resulting from regional expansion should be based on the minimum wage of the parent district/city or the provincial minimum wage if the parent district/city does not have its own minimum wage.

    This provision is crucial as a guideline for provinces or districts/cities resulting from regional expansion. It is understandable that in the first year of regional expansion, the administrative machinery of the newly formed province or district/city resulting from the regional expansion would surely face challenges in achieving optimal functionality. Hence, this provision can serve as a guide and provide legal certainty for policymakers in determining minimum wages in provinces or district/city resulting from the regional expansion.

  6. Arrangements for Minimum Wages for Provinces and Regencies/Cities resulting from Regional Expansion
    PP 51/2023 also grants the authority to determine the UMP and UMK to the governor ad-interim, thus the authority to determine and announce the UMP and UMK is currently held by the governor and governor ad-interim. This provision optimizes the previous provision which only grants the authority to determine and announce the UMP and UMP only to the governors.

Closing

PP 51/2023 serves as a legislative instrument that develops PP 36/2021 regarding the minimum wages regulation, especially in regard to improvements to the formulation for calculating minimum wages. The amendments to the minimum wage regulations are expected to generate justice and stability between the two opposing interests, namely workers and business actors. Amendments introduced by PP 51/2023 comprise revising variables in the minimum wage calculation formula, specifying minimum wage regulation for provinces and districts/cities resulting from regional expansion, and granting authority to the governor ad-interim to determine the UMP and UMK.

M. Faiz Putra Syanel and Avaya Ruzha Avicenna
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