Foreign employers in Indonesia generally cannot pay employees below the applicable minimum wage. Foreign-owned companies (PT PMAs) are subject to the same wage requirements as Indonesian-owned businesses.
Which Minimum Wage Applies to Foreign Employers in Indonesia?
Indonesia applies provincial minimum wages (UMP) and regency/city minimum wages (UMK). Where a regency or city has established a higher minimum wage, that rate applies instead of the provincial minimum.
Ensure your employee salaries meet Indonesia’s minimum wage requirements. Contact MAP Resources Indonesia at info@mapresourcesindonesia.com
Certain industries are also subject to higher sectoral minimum wages, which may be established at the provincial or regency/city level. The applicable rate depends on the employee’s work location and business sector.
Indonesia updated its minimum wage rules for 2026, including how regional and industry-specific wages are set. The new minimum wages took effect on January 1, 2026.
Minimum Wages for Employees with More Than One Year of Service
Indonesia’s minimum wage rates apply to employees with less than one year of service. For employees with at least one year of service, wages are determined using the company’s wage structure and scale.
The wage structure must consider company capacity, productivity, employee classification, position, length of service, education, and competence. Employers must communicate the relevant wage structure information individually to employees.
Annual minimum wage increases do not necessarily require identical percentage increases for every longer-serving employee. However, employers must ensure their wage structures remain compliant and update payroll to reflect applicable wage adjustments.
Which Salary Components Count Toward the Minimum Wage?
Where wages consist of basic salary and fixed allowances, their combined amount must meet the applicable minimum wage. Basic salary must represent at least 75% of that total.
Where employees receive only basic salary, the entire amount must meet the minimum wage.
Non-fixed allowances, overtime payments, and discretionary bonuses cannot compensate for a shortfall in the salary components counted toward minimum wage compliance.
Employers must also distinguish between an employee’s contractual salary and take-home pay. Lawful deductions, such as employee social security contributions and applicable income tax, may reduce the amount received without necessarily constituting a minimum wage violation. Unauthorized deductions cannot be used to undermine statutory wage protections.
Can Employers Legally Pay Below the Minimum Wage?
Micro and Small Enterprises
Qualifying micro and small enterprises are exempt from ordinary provincial and regency/city minimum wage requirements.
Wages may instead be agreed between the employer and employee, provided they meet both thresholds:
- At least 50% of average provincial consumption expenditure.
- At least 25% above the provincial poverty line.
Eligibility depends on statutory business criteria, including reliance on traditional resources and whether operations are technology-intensive or capital-intensive.
Part-Time Employees
Qualifying part-time employees working less than seven hours per day and less than 35 hours per week may receive hourly wages.
The minimum hourly wage is calculated by dividing the applicable monthly minimum wage by 126, a fixed figure used under Indonesia’s wage regulations to convert monthly minimum wages into hourly rates.
Get professional assistance with payroll compliance in Indonesia. Email info@mapresourcesindonesia.com to speak with our team
For instance, a monthly minimum wage of IDR 5 million (USD 279) produces a minimum hourly wage of IDR 39,683 (USD 2.22).
An eligible part-time employee may consequently receive less than the full monthly minimum wage, provided the hourly rate satisfies the applicable requirements.
Employment Contracts and Employee Consent
An employee’s consent does not override statutory minimum wage protections.
Employers cannot rely on employment contracts or voluntary acceptance of lower salaries to justify payments below the applicable minimum wage.
What Are the Penalties for Paying Below the Minimum Wage?
Employers that violate Indonesia’s statutory minimum wage requirements may face imprisonment of up to four years and/or a Category IV fine of up to IDR 200 million (USD 11,173), following the amendments introduced under Law No. 1 of 2026.
Employees may pursue unpaid wage differences through employment dispute procedures. Manpower inspectors can investigate violations, examine payroll records, and initiate enforcement proceedings.
Keep Your Payroll Compliant with MAP Resources Indonesia
MAP Resources Indonesia assists foreign-owned companies with payroll administration, salary structures, and Indonesian wage compliance. For assistance with payroll management, contact info@mapresourcesindonesia.com.
