Wage Adjustments Allowed in Certain Labor-Intensive Industries

February 19, 2021

As a response to the COVID-19 pandemic, the Minister of Manpower issued Minister of Manpower Regulation No. 2 of 2021 dated February 15, 2021 on the Implementation of Remuneration in Certain Labor-Intensive Industries During the Corona Virus Disease 2019 (COVID-19) Pandemic (“Regulation 2”). Regulation 2 aims at protecting both the rights of the workers to their wages and the continuity of certain labor-intensive industries during these volatile times.

Regulation 2 permits companies within certain labor-intensive industries affected by the COVID-19 pandemic to agree with the workers to adjust the amount of the wages paid to workers along with its payment procedures. To this end, a company must enter into on an agreement with the workers (the “Wage Adjustment Agreement”).

Regulation 2 defines companies “affected by the COVID-19 pandemic” as those that have their business activities limited due to government policies which cause a portion or the entirety of their workforce not being able to perform the work.

The key provisions of Regulation 2 are as follows:

Criteria of Labor-Intensive Industries

Companies within labor-intensive industries fall under the scope of Regulation 2 shall fulfill the following requirements:

A company has at least 200 (two hundred) workers; and
The cost of the labor of such company constitutes at least 15% of the total production costs of the company.

In terms of industry coverage, labor-intensive industries encompass the following:

food, beverage, and tobacco industry;
textile and garment industry;
leather and leather goods industry;
footwear industry;
children’s toys industry; and
furniture industry.

Wage Adjustment Agreement

The Wage Adjustment Agreement must be made through a transparent and good-intentioned deliberation between the company and its workers, and must contain at least the following:

the amount of adjusted wages;
the procedures of the wage payment; and
the term of the agreement (which shall not be beyond December 31, 2021).

However, it must be noted that the amount of the adjusted wages must not be used as the basis for calculating the social security contributions, the termination benefits, and other rights of the workers. For the purpose of such calculations, the amount of the wages prior to the adjustment must be used instead.

In our view, Regulation 2 simply emphasizes the ability of a company (in certain industries) to agree with its employees to reduce the amount of the wages for a certain period of time (not beyond December 31, 2021).

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February 19, 2021

Please contact Caleb Sitorus (csitorus@aksetlaw.com), N. Sekar Lestari (nlestari@aksetlaw.com), or Johannes C. Sahetapy-Engel (jsahetapyengel@aksetlaw.com) for further information.

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