The Indonesian government has recently issued the Regulation of the Ministry of Manpower No. 16 of 2024 on the Stipulation of Minimum Wages for 2025 (“Regulation 16/2024”), which came into force on 4 December 2024. This regulation requires all provincial governors to increase the Provincial Minimum Wage in 2025 (Upah Minimum Provinsi or “UMP”) and regency/city minimum wage (Upah Minimum Kabupaten/kota or “UMK” which must be determined by a Governor’s Decree. The issuance of Regulation 16/2024 constitutes the Government’s normative response to Constitutional Court Decision No. 168/PUU-XII/2023 (“Decision 168/2023”), which examined the formal validity of Law No. 13 of 2003 on Manpower (“Law 13/2003”), as most recently amended by Government Regulation in Lieu of Law No. 2 of 2022, which was subsequently ratified by Law No. 6 of 2023 (“GR 2/2022”). This amendment further refine the legal framework governing labor and wage policies. While this regulation prioritizes workers’ welfare, it also presents challenges for businesses, which must adapt their wage policies and ensure compliance with the new requirements.
Regulatory Developments
The issuance of Regulation 16/2024 introduces significant adjustments that play a pivotal role in transforming Indonesia’s wage structure and labour regulatory framework. This regulatory development mandates businesses to adapt to new wage-setting mechanisms, while also prompting broader evaluations of its economic implications, including potential challenges and its influence on national economic growth. This transition reflects the government’s ongoing effort to refine the legal foundations governing wage determination, addressing constitutional and structural concerns raised under the previous regulatory regime. The regulation introduces modifications aimed at aligning wage policies more closely with current economic realities and labour market dynamics. Below are the key points introduced by Regulation 16/2024:
| Key points | Regulation 16/2024 | Implication |
| Clearer definition of “Certain Index” in the context of wage regulation | Article 2 (5) Certain indexes are variables that represent the contribution of the workforce to the provincial economic growth by taking into account the interests of the Company and Workers/Laborers and the principle of proportionality to fulfill decent living needs for Workers/Laborers. | Previously, the certain index was regulated under Government Regulation No. 36 of 2021 on Wages (“GR 36/2021”) and its amendment, Government Regulation No. 51 of 2023 (“GR 51/2023”), which in Article 26 paragraph (3) stipulates that the certain index is a variable representing the contribution of labor to the economic growth of a province or regency/city. Under the newly issued Regulation 16/2024, the certain index is further clarified and refined through the introduction of the principle of proportionality. This marks a regulatory advancement, as it provides a more structured and transparent basis for calculating wage adjustments that reflect both macroeconomic conditions and labor productivity within each region. |
| The increase of the 2025 UMP | Article 2 (3) The 2025 UMP and UMK increase by 6.5% compared to the 2024 UMP and UMK. | It is important to note that the Regency/City Minimum Wage (Upah Minimum Kabupaten/Kota or “UMK”) must be set at a level higher than the UMP in accordance with the applicable regulatory framework. The determination of both the UMP and UMK considers several key economic indicators, including: (i) regional economic growth, (ii) inflation rates, and (iii) a specified certain index. |
| The new addition of Sectoral Minimum Wage (Upah Minimum Sektoral or “UMS”) | Article 7 (1) & (2) The Governor is required to determine the UMS. However, the Governor may determine the UMS Kabupaten/Kota | The developments introduced by Regulation No. 16 of 2024 include the reintroduction of the UMS for industries characterized by unique working conditions or higher labor demands. This provision aims to ensure that employees engaged in specialized, hazardous, or otherwise demanding sectors receive remuneration commensurate with the nature of their work, thereby upholding constitutional principles of fair and just wages. Furthermore, it is important to note that the UMS must be set at a level higher than the UMP, and similarly, the sectoral minimum wage at the city or regency level must exceed the applicable UMK. The UMS are determined for certain sectors that have: Different characteristics and risks of work from other sectors;Tougher job demands or required specialization. Furthermore, certain sectors eligible for sectoral minimum wages are listed under the Standard Classification of Indonesian Business Fields (Klasifikasi Baku Lapangan Usaha Indonesia). The exact amount of the sectoral UMS for each sector is stipulated in the Governor’s Decree issued by each respective province. |
Conclusion
The Regulation 16/2024 represents a significant shift in Indonesia’s labor policy, following the Decision 168/2023, which called for a clearer definition of certain terms to guide the determination of UMP. This regulation mandates a 6.5% increase in the UMP and UMK for 2025, a decision rooted in the constitutional imperative to ensure decent living standards for workers while balancing the interests of employers. Regulation 16/2024 further introduces UMS, establishing differentiated wage standards for sectors with unique risks or job demands, which aims to modernize wage policies and ensure that workers in specialized or hazardous sectors receive appropriate compensation.
Should you have any inquiries related to this regulation or wish to ascertain its impact on your business or personal interests, please feel free to contact us.
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