Government Addresses Industrial Relation Problems Caused by the Pandemic

With the Covid-19 pandemic that has yet to show signs of abating anytime soon, the Government continues to implement the Micro Scale Public Activity Restriction (Pembatasan Kegiatan Masyarakat Berbasis Mikro or PPKM) at different levels. The pandemic has caused many employers to implement the work-from-home policies, if not reducing employees’ wages or laying off employees to closure.

In an effort to shed light on the public’s perception on determining the fair labor relation decisions at the workforce due to the pandemic, the Government has issued several regulations aimed at addressing these labor problems, such as the Minister of Manpower (the “MOM”) Regulation No. 2 of 2021 dated February 15, 2021 on Implementation of Remuneration in Certain Labor-Intensive Industries during the Corona Virus Disease 2019 (Covid-19) Pandemic (“Regulation 2/2021”) which governs wage adjustment in certain industries affected by Covid-19.

More recently, the MOM issued Decree No. 104 of 2021 dated August 13, 2021 on Guidelines on the Implementation of Industrial Relations During the Covid-19 Pandemic (“Decree 104/2021”). Decree 104/2021 is a guideline as to how business policies should be carried out in the industrial relations setting. With this decree in place, it is hoped that both employers and employees have more clarity in understanding their rights and obligations, as well as in implementing internal workforce arrangements to stay in accordance with government policies practice.

In our view, Decree 104, unfortunately, offers no new matters for employers as whatever employers wish to carry out, the consents of the employees are required. In general, employers are actually looking for the ability to determine certain matters without any consent from their employees.

We set out below the key provisions of Decree 104/2021.

  • Work Models During the Covid-19 Pandemic

As preventive measures to avoid face-to-face contact as ordered through the government’s Covid-19 restriction policies, two work models are now recognized — the Work From Office (“WFO”) model where employees work from their offices as usual or the Work From Home (“WFH”) model where employees carry out their work remotely, from their houses. As the Government will have varying iterations of the WFO and WFH policies depending on the situation at present, Decree 104/2021 requires that business entities should always refer and adapt to the latest Governmental policies, and recommends internal discretions covering on the (i) the maximum capacity for the WFO model; (ii) the reduced office hours; and (iii) alternation between the WFO and the WFH.

  • Remuneration or Other Rights of Employees

Remuneration and income protection for employees is another key matter regulated in Decree 104/2021.  This issue was also addressed in Regulation 2/2021. However, Regulation 2/2021 is only applicable for certain industries. Decree 104/2021 sets out the provisions on remuneration adjustments. As a general rule, any adjustment made to an employee’s remuneration or other rights must be based on a mutual agreement between the employer and the employee, with details as follows.

  • Remuneration for Employees Carrying Out the WFO/WFH Model

Employees facilitating the WFO, WFH or a combination of both models are still entitled to their pay. However, employers who are unable to fully pay the remuneration to their employees due to financial conditions may make adjustment to the employee’s pay. This adjustment must be based on an agreement between the employer and employee and must be conducted fairly and proportionately by considering the livelihood of the employees and the going concern of the business. However, Decree 104/2021 does not stipulate further regarding the calculation or examples on what constitutes ‘fair and proportionate’ adjustments.

  • Remuneration for Temporarily Furloughed Employees

Temporarily furloughed employees are still to be paid normally. However, if a furloughed employee’s employment contract or company regulation specifically governs furlough payment, the remuneration shall refer to such contract or regulation. If the employer is financially unable to pay the remuneration to their employees, then an adjustment to the wages based on mutual agreement can be made with the caveat that the employee shall still receive wages for the relevant month.

  • Adjustment on Remuneration/Other Rights of Employees

As stated above, any wage adjustment during the Covid-19 pandemic must be made based on a mutual agreement achieved from a family-like, good-faith, and transparent dialogue between an employer and its employees. The output of such agreement shall be stated in writing to be submitted to the employees, and reported to the Labor Office at the provincial level online, containing the following items:

  1. amount of wages;
  2. payment of wages (whether wages are to be paid directly or in stages); and
  3. duration of the agreement.

There is currently no further elaboration on this reporting procedure to the Labor Office.

It also is to be noted for employers, however, that the wage that will be used to calculate the social security premium and benefits, the termination benefits, and other rights shall be the wage before the mutually agreed adjustment and not after. This is again another unfavorable provision for employers.

  • Prevention of Employment Termination

Aimed at also preventing termination of employment by employers, Decree 104/2021 requires every employer, employees, employee’s associations, and the Government itself to work together in prioritizing an alternative solution in order to avoid termination of employment. Decree 104/2021 provides the following steps that may be taken by an employer to prevent employment termination:

  1. Adjusting workplace settings to cut production or operation costs of the company;
  2. Adjusting working hours by regulating work shifts, removing/reducing overtime, and reducing working hours or working days;
  3. Implementing temporary furloughing employees alternatively;
  4. Adjusting the amount of wages or payment method of wages;
  5. Gradually reducing employees’ facilities and/or benefits;
  6. Not extending a definite term employment contract that expires; and/or
  7. Granting pension for employees that have fulfilled the criteria or offering early pension.

Similar to wage adjustments, the abovementioned preventive steps must also be based on a bipartite dialogue through mutual consent. Only if all necessary actions have been taken but employment termination is still unavoidable, then employment termination may be sought and taken in accordance with the prevailing laws and regulations.

All in all, in our view Decree 104/2021 does not provide any new provision for employers that face difficulties due to the pandemic as any action taken by an employer requires the consent of its employees.



August 23, 2021

Please contact Johannes C. Sahetapy-Engel (, Clara Anastasia So (, or Caleb K. N. Sitorus ( for further information.



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