Indonesia's salary determination system is shaped by a government-regulated minimum wage system, ensuring fair compensation for workers across the country. The minimum wage system in Indonesia is divided into three main categories: the Provincial Minimum Wage (Upah Minimum Provinsi or UMP), the Regency/City Minimum Wage (Upah Minimum Kabupaten/Kota or UMK), and the older term Regional Minimum Wage (Upah Minimum Regional or UMR), which has mostly been replaced by UMP and UMK in current regulations.

For global recruiters looking to hire Indonesian talent, understanding this system is essential for compliance with local labour laws and ensuring competitive wages. Here's a detailed look at how Indonesia's minimum wage system works, including the most recent updates.

Importance of Minimum Wages in Indonesia

Minimum wage laws are critical for protecting Indonesian workers from exploitation, ensuring that they earn a wage sufficient to meet their basic living needs. The Indonesian government revises minimum wages annually to reflect changes in inflation, economic growth, and the local cost of living. These laws apply to all employees, from entry-level workers to experienced professionals.

The minimum wage system plays a vital role in maintaining fairness across Indonesia's labour market, and for international recruiters, understanding these wage structures is key to building strong relationships with local employees and remaining compliant with Indonesian labour regulations.

Types of Minimum Wages in Indonesia

1. Provincial Minimum Wage (UMP)

The Provincial Minimum Wage (UMP) is set by each provincial government and acts as a baseline wage that applies to all workers within the province. UMP is determined by evaluating economic conditions such as inflation, productivity, and the cost of living in each province. It is designed to ensure that wages reflect the basic needs of workers, though individual cities or regencies can set higher minimum wages through the UMK.

2. Regency/City Minimum Wage (UMK)

The Regency/City Minimum Wage (UMK) is typically higher than the UMP and is determined at the local level based on economic conditions within a specific regency or city. The UMK is influenced by the cost of living and other factors unique to the local area, allowing wages to be adjusted for regions where living costs may be higher than the provincial average.

3. Regional Minimum Wage (UMR)

The term Regional Minimum Wage (UMR) was previously used but has largely been replaced by the UMP and UMK terms in official regulations. However, in some areas, UMR may still be referenced. Understanding these distinctions is essential for recruiters and employers managing payroll in different regions of Indonesia.

Determination of Minimum Wages

The process of determining the UMP and UMK involves the analysis of key economic indicators such as inflation, economic growth rates, productivity, and the cost of living. Government representatives, labour unions, and employer associations collaborate to reach a consensus on appropriate wage levels. The Ministry of Manpower plays a central role in finalising these wage rates to ensure fairness and compliance with national and local economic conditions.

Key factors influencing the determination of UMP include:

• Inflation and economic growth: Wages are adjusted to reflect inflation rates and the overall growth of the economy.
• Cost of living: Housing, transportation, food, and other essential costs are considered to ensure that the minimum wage is sufficient to meet basic needs.
• Labour market dynamics: The supply and demand for workers in specific regions or industries can influence wage levels, particularly for high-demand professions.

2024 Provincial Minimum Wages (UMP)

Here is the most recent list of UMP figures for each Indonesian province as of 2024:

• Aceh: IDR 3,413,666
• North Sumatra: IDR 2,710,493
• West Sumatra: IDR 2,742,476
• Riau: IDR 3,187,120
• Jambi: IDR 2,903,315
• South Sumatra: IDR 3,174,643
• Bengkulu: IDR 2,478,518
• Lampung: IDR 2,803,172
• Bangka Belitung Islands: IDR 3,348,479
• Riau Islands: IDR 3,408,722
• Jakarta: IDR 5,267,076
• West Java: IDR 2,464,923
• Central Java: IDR 2,291,514
• Yogyakarta: IDR 2,230,412
• East Java: IDR 2,540,285
• Banten: IDR 2,661,280
• Bali: IDR 2,953,550
• West Nusa Tenggara: IDR 2,371,407
• East Nusa Tenggara: IDR 2,123,994
• West Kalimantan: IDR 2,608,530
• Central Kalimantan: IDR 3,202,461
• South Kalimantan: IDR 3,228,151
• East Kalimantan: IDR 3,464,074
• North Kalimantan: IDR 3,251,702
• North Sulawesi: IDR 3,485,844
• Central Sulawesi: IDR 2,819,680
• South Sulawesi: IDR 3,341,838
• Southeast Sulawesi: IDR 2,834,329
• Gorontalo: IDR 2,886,386
• West Sulawesi: IDR 2,878,718
• Maluku: IDR 2,982,998
• North Maluku: IDR 3,003,786
• West Papua: IDR 3,654,740
• Papua: IDR 3,832,800

Regency/City Minimum Wages (UMK)

In many cases, cities and regencies set higher minimum wages than the provincial UMP. Here are a few examples of UMK for 2024:

West Java:

• Bandung: IDR 3,623,779
• Bekasi City: IDR 5,158,248
• Bogor City: IDR 4,171,722

Central Java:

• Semarang: IDR 3,020,189
• Surakarta: IDR 2,034,810

East Java:

• Surabaya: IDR 4,300,479
• Malang: IDR 2,970,502

Bali:

• Denpasar: IDR 3,069,717
• Badung: IDR 3,263,264

Factors Influencing UMP

Several factors influence the setting of UMP and UMK wages in Indonesia:

• Inflation and Economic Growth: As inflation rises or the economy grows, wages are adjusted to ensure workers can maintain their standard of living.
• Cost of Living: Wages are set to reflect local living costs, ensuring that basic needs such as housing and food can be met.
• Productivity: Increases in productivity can lead to higher wages as businesses generate more revenue and are able to invest in employee compensation.
• Labour Market Demand: In regions with higher demand for specific skill sets, minimum wages may be set higher to attract talent and remain competitive in the job market.

Beyond the Minimum Wage

While the UMP and UMK represent the baseline for wages in Indonesia, many companies offer salaries that exceed these minimums. Salary levels often vary depending on the employee’s role, experience, and the industry they work in. Companies may also conduct annual performance reviews to provide salary increases, ensuring that employees are rewarded for their contributions.

Recruiters should note that while adhering to minimum wage laws is essential, offering competitive salaries and benefits above the minimum can help attract top talent and improve employee retention.

Legal Framework on Wages in Indonesia

Understanding Indonesia’s wage laws is crucial for ensuring compliance with local regulations. Key requirements include:

• Public Holiday Leave: Employees are entitled to 16 paid public holidays annually.
• Annual Leave: Employees are entitled to 12 days of paid annual leave after one year of service.
• Sick Leave: Employers must provide paid sick leave based on the employee’s contract.
• Maternity/Paternity Leave: Female employees are entitled to three months of paid maternity leave, and male employees are entitled to two days of paid paternity leave.

Recruiters must ensure that they are up to date with these regulations to maintain compliance and foster positive working relationships with their Indonesian employees.

Conclusion

Indonesia’s minimum wage system plays a vital role in protecting workers' rights and ensuring fair compensation. For global recruiters, understanding this system is key to navigating local labour regulations and offering competitive salaries that reflect the economic conditions of each region. By adhering to UMP and UMK regulations and staying informed about the factors influencing wage determination, recruiters can effectively attract and retain top talent in Indonesia.