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Wage Scales Implementation by Companies in Indonesia


Determination of wage scales by company

All companies in Indonesia must implement wage scales for all job positions within their organization. The leadership of a company must formally approve the wage scales. In addition, the company must inform all employees of the company about these wage scales. After the mandatory internal procedures are completed, the company must submit the wage scales to the local manpower office for validation.

It is essential for the company to obtain a validation from the local manpower office for the following reasons:

  • Without the validation from the local manpower office, the company cannot validate its company regulations. This also applies to companies which have a collective labor agreement instead of company regulations; and
  • The company may be subject to government sanctions. Such sanctions can include warning letters, limitation of business activities, suspension of production facilities and suspension of business activities.

Once the company receives approval on the schemes, they will will remain valid for a certain amount of time. The company can determine the term of validity and can make amendments in case of any changes. When a company makes changes, these must be duly notified to the employees which will be affected by the changes. Companies do not need to seek approval from the employees on these changes.

Wage Scale Formulation Method

A company needs to formulate its wage scale in three stages:

  1. Analysis of position. In this first stage, the company will gather an overview of all current positions within the company.
  2. Evaluation of position. During the second stage, the company will evaluate each position within the company. Often this requires the harmonization of positions between departments. The company will also determine the employment level of each position within the company.
  3. Determination of wage structure and scale for the position in question. During the third and final phase, the company will outline the minimum and maximum wage for every position within a company.

The companies are free to use their own formulation methods. However as guidance, the ministry of manpower provides a clear explanation about the implementation of the following formulation methods:

  1. The simple-ranking method;
  2. The two-point method;
  3. The point-factor method (for already existing companies); and
  4. The point-factor method (for newly established companies).

Companies which require guidance or assistance in the preparation of the wage scales can contact our firm by filling out the form below. Our firm can also assist companies with the drafting and negotiation of the company regulations or collective labor agreement.