4 Factors to Consider When Relocating Your Production
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Indonesia’s Ministry of Manpower issued circular No. M/11/HK.04/X/2020 in late October 2020, which advised that due to the economic impact of the pandemic, regional governments should keep monthly minimum wage rates the same as 2020.
Of Indonesia’s 34 provinces, only five have decided to increase the minimum wage for 2021. The minimum wage in Indonesia is mandated through Government Regulation 78 of 2015 (GR 78/2015), which provides a formula for regional governments to calculate the percentage increase of the minimum wage. The formula is as follows:
National Inflation + National Economic Growth = Percentage Increase of Minimum Wage
The five provinces that have increased their minimum wage rate for 2021 are:
As such, the minimum wage for each province for 2021 will be:
Special requirements for Jakarta
Despite Jakarta increasing the monthly minimum wage, its government also issued Regulation 103 of 2020, which stipulates that businesses who are unable to meet the new wage obligations can opt to pay the 2020 rate of 4,276,349 rupiah.
To be eligible, businesses would need to apply to the Governor via the Head of the Jakarta Manpower, Transmigration, and Energy Agency for this clemency. The business should submit an application letter and statement letter to the agency in addition to a copy of their business licenses as well as the details of their employees.
The agency will evaluate each application and will take into consideration the growth value of their business sector during Q2 and Q3 of 2020, in accordance with data available from the Jakarta division of the Central Bureau of Statistics.
Moreover, the business needs to be engaged in one of the following sectors:
Businesses not covered under the aforementioned sectors can still apply to obtain the facility by submitting the relevant company credentials in addition to:
As the minimum wage for each province differs, foreign investors should seek the help of registered local advisors to help understand how these latest changes will affect their operations.