Guidelines for the Formulation of Mandatory Wage Structures and Scales for Businesses

The Ministry of Manpower (“Ministry”) has issued Regulation No. 1 of 2017 on Wage Structures and Scales (“Regulation 1/2017”). Regulation 1/2017 sets out guidelines for employers as regards any determination of the relevant applicable wage structure and scale, as they are obliged to do under Article 14 (5) of Government Regulation  No. 78 of 2015[1] on the Minimum Wage (“Regulation 78/2015”).[2]
 
Prior to the issuanceof Regulation 1/2017, these same matters were regulated through Ministry of Employment and Transmigration Decree No. KEP.49/MEN/IV/2004 (“Decree 49/2004”).
 
Wage Structures and Scales
 
All businesses are now required to determine wage structures and scales for all positionswithin their companies through a consideration of the employment levels (golongan jabatan), positions, employment periods, education levelsand competence (knowledge, skills and work ethic) of all of their workers.[3]
 
Any such wage structure and scale must be approved by the relevant head of company and all workers must also be informed of any such wage structure and scale, according to their position. Note that any wage structure and scale and its letter of approval from the head of company are now mandatory documents if a company is wishing to validate/amend its company regulations or register/extend/amend a collective work agreement through a regency- or city-level employment agency.[4]
 
Wage structures and scales are to remain valid for certain periods, as determined by the company, and may be amended by the company, on condition that any workers which will be affected by said amendments are thus notified.[5]
 
Previously, under Decree 49/2004, a wage structure and scale was not a required document as regards the administration of any company regulation or collective work agreement.
 
Wage-Scheme Formulation Methods
 
Wage structures and scales are to be formulated in three stages, namely: 1) Analysis of position; 2) Evaluation of position; and 3) Determination of wage structure and scale for the position in question. Ultimately, any wage structure and scale must outline the minimum and maximum wage for every position and employment level within a company.[6]
 
As a guide for the formulation of wage structures and scales, Regulation 1/2017 sets out four methods which may be adopted by acompany, specifically:[7]