Jurisdiction - Indonesia
Reports and Analysis
Indonesia – Minimum Wage, Outsourcing And Employee Claims.

14 November, 2013



There are several new and impending legal developments in Indonesia’s labor market that companies will want to take note of so that they can plan accordingly. This past year has seen a number of major developments in the legal and regulatory framework for labor and employment and some, such as those involving outsourcing and the minimum wage, have and continue to be quite contentious.


Here we highlight some recent labor law developments and take a look ahead at what companies might be able to expect through the rest of 2013.


Minimum Wage Increases


The minimum wage has been increased by 40% in most regions this year. Many unions have demanded that the salaries of all employees be arbitrarily increased by an amount equal to the increase in minimum wage.  In at least one case, the Labor Court has upheld that interpretation, with that decision now under appeal at the Supreme Court.


Many employers have successfully applied to regional authorities for exemption from the minimum wage increase on financial grounds. Hundreds of these exemption approvals have been recently overturned by the Administrative Court and those decisions are now under appeal at the Supreme Court.


Various union federations are now calling for strikes to demand minimum wage increases of up to 100 percent. The recent Presidential Instruction No. 9 of 2013, dated September 27, 2013, and Minister of Manpower and Transmigration (“MOMT”) Regulation No. 7 of 2013, dated October 2, 2013, provide that minimum wage decision making by regional governments must take into account the “Decent Living Component,” productivity and economic growth.


Increased Protection For Outsourced Workers


The Ministry of Manpower and Transmigration recently issued Regulation 19 clarifying the restrictions and requirements applicable to the outsourcing of labor supply and subcontracting of work between companies. The focus of attention has been on outsourcing – labor supply.  However, all subcontracts of services are subject to various new restrictions (i.e., non-core activities only), registration requirements for the service contracts themselves and various supporting documents under Regulation 19.


Some industry associations have issued the necessary Flowchart describing the core activities in their respective industries in contrast with the ancillary activities that can be subcontracted to service providers. Many industry associations have not yet issued such Flowcharts. All companies wishing to enter into or continue services agreements after November 19, 2003, must file their own Description of core vs. ancillary activities at the Ministry of Manpower and Transmigration, which must be consistent with the industry Flowchart.


The Ministry of Manpower and Transmigration recently published SE.04/Men/VIII/2013, dated August 26, 2013, regarding Guidelines for Implementing MOMT Regulation No.19 of 2012. This decree clarifies the procedures and forms to file outsourcing-related documents with the Ministry.


Outsourcing Of Labor Supply Restricted To Five Circumstances


Under Section 17(2) of Regulation 19, the type of work that can be delegated to a labor supplier must be “supporting services or activities that are not directly related to the main production process.” Section 17(3) states that “supporting services as intended by section (2) shall include (meliputi):


  1. cleaning services;
  2. catering services for employees/labor;
  3. security services;
  4. supporting services in mining and oil industry; and
  5. transportation services for employees/labor.”


The Ministry of Manpower and Transmigration recently issued a ruling letter to SSEK confirming that these are the only circumstances in which outsourcing of labor supply is permitted.


The Ministry also confirms that any activities outside of these five circumstances can be outsourced through a services agreement arrangement (rather than outsourcing of labor supply), provided that the intended activities fall within the ancillary activities identified in the relevant industry association Flowchart and user company’s Description as being open to outsourcing by services agreement.


Limitation Period on Employee Claims Struck Down


The two-year limitation period for employees to file claims for wages and benefits under Article 96 of the Manpower Law has been struck down by Constitutional Court Decision No.100/PUU-X/2012. Given the resulting increased risk of old claims, employers are well advised to properly document and process employee terminations.



For further information, please contact:

Richard EmmersonSoewito Suhardiman Eddymurthy Kardono

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