Indonesia Covid-19 affected- Economy and its Ramification on the Determination of the 2021 minimum wage

At the beginning of 2020, not one person in Indonesia, including policy makers, thought that Covid-19 would become a global pandemic that negatively affected the economy. As is well known, the macroeconomic assumptions noted in the 2020 State Budget show economic growth of 5.3%. This figure is obtained from Indonesia’s economic growth in 2019 to the second quarter of 2020. Until recently, the Minister of Finance of the Republic of Indonesia stated that in the worst case scenario, Indonesia’s economic growth rate could reach – 0.4%. Meanwhile, the Coordinating Minister for Maritime Affairs and Investment stated that the bad impact of Covid-19 on the Indonesian economy will be felt for the next 5 years.

Further, several economists predict that the unemployment rate in 2020 and 2021 will increase sharply compared to 2019. At the end of 2019, the Government of the Government is targeting the 2020 unemployment rate to fall to 4.8%. As a result of the pandemic, the National Development Planning Agency (Bappenas) estimates the Open Unemployment Rate (TPT) in 2020 will reach 8.1% to 9.2% and the unemployment rate is estimated to increase by 4 to 5.5 million people. Furthermore, in 2021, the TPT is estimated to reach a range of 7.7% to 9.1%.

The decline in Indonesia’s economic growth rate and the increase in unemployment during the Covid-19 period likely caused by a decrease in consumption power that parallel to the decline of national consumption activities, decline in production and other economic transactions (trade and investment), economic stagnation, and social turmoil.

In this gloomy of economic future, how will the country approach the issue of annual minimum wage increase?

The general informal protocol of determining next year minimum wage prescribe a central government directive, in this case from the Minister of Manpower, to the regional governments and its local officers to start the discussion on minimum wage. Usually this directive is issued every end of July to early August of the current year. The discussion will include related stakeholders such as the employer/industry association, trade unions, and the relevant government agency. Manpower Minister Regulations stipulates the issuance of the provincial minimum wage on 1 November, and the regent/city minimum wage by the latest on 21 November. Of the calculation formula, the same Regulation as delegated by the contentious Government Regulation No. 78 of 2015 prescribed the formula of the minimum wage calculation based on economic indicator of national inflation rate and gross domestic growth.The National Regulations on Minimum wage also stipulate the determination of minimum wage to be held annually.

Considering the Indonesia Labour Regulations does not adopt the contract law of force majeure principles; at the face value, the determination of the 2021 minimum wage should go through the normal process. Then again, if the economic indicator shows a strong indication of negative growth, will the number of the 2021 minimum wage decrease compare with the current 2020 minimum wage? Even if the relevant stakeholders agreed to increase the 2021 minimum wage, could the industry implement it? Also, the tight labour market in the era of pandemic likely exacerbate non-conformance of minimum wage anywise.

Looking at the challenges, there are several points the national stakeholders and policy makers could consider to address the 2021 minimum wage:

-Delay increment of the minimum wage for at least one year and have the 2020 minimum wage applied until 31 December 2021.

-The Government to create a periodic price interventions for basic commodities including providing subsidy, together with economic stimulus package for strategic industry in Indonesia to keep consumption, production and unemployment rate in an acceptable level.

-Labour policy makers and relevant stakeholders to review the annual minimum wage determination to a longer period of 3-5 years, and start conversing about one national minimum wage, one provincial minimum wage and industry specific minimum wage which could cut the complexity of labour remuneration regime in Indonesia, increase social dialogue between all actors and increase market flexibility.

-Increase labour force skills and adaptability to fit with the new industry normal.

-Adopt force majeure principle in the Indonesia labour regulations that include a fair and just contingency mechanism.

What is going to happen in the next few months concerning the 2021 minimum wage is as unpredictable as the discourse of when the pandemic would end. Hopefully, these last 4 months of the 2020 will as well serve as a learning curve for the labour policy makers to find the fittest solution for an ever difficult problem.

Guidance for the New Normal in the Workplace

Not long after the President of Republic of Indonesia announce that Indonesian shall live alongside the Covid 19 and adapt to a new normal, the Minister of Health issues Decree No. HK.01.07/ MENKES/328/2020 concerning Guidelines for Prevention and Control of Coronavirus Disease 2019 (COVID-19) in the Office and Industrial Workplace to Support Business Continuity during (the) Pandemic.

The summary of the guidelines for a workplace is as follow: –

a. Companies required forming a Covid-19 Handling Team in the workplace consisting of the leadership, staffing section, K3 section and Health workers who are strengthened by a decree from the Management.

b. Management shall establish policies and procedures for workers to report every case of suspected Covid-19 (symptoms such as fever or cough, runny nose, sore throat pain, or shortness of breath) to be monitored by health workers.

c. Do not treat positive cases as a stigma.

d. Work from home arrangements by determining essential workers who need to keep working  or come to work and workers who can do work from home.

e. At the entrance of the workplace take a temperature measurement using thermo-gun, and before entering work apply Covid-19 Risk Self-Assessment to ensure workers who will come to work are not infected by Covid-19.

f. Limit overtime so workers can properly rest. If possible, avoid shift 3 (work time which starts at night until morning). Shift 3 is arranged in particular for workers aged less than 50 years.

g. Require workers to wear masks since traveling to / from home, and while at work.

h. Regulate the nutritional intake of food provided by the workplace, select fruits that contain lots of vitamin C such as oranges, guava, and so on to help maintain endurance. If possible workers can be given vitamin C supplements.

i. Ensure that all work areas are clean and hygienic:

-conduct periodic cleaning using appropriate cleansers and disinfectants (once every 4 hours). Especially door handles and stairs, elevator buttons, shared office equipment, areas and other public facilities;

-maintain workplace air quality by optimizing air circulation and sunlight entering the workspace, cleaning air conditioner filters.

-provide facilities for washing hands (soap and running water), instructions at the location of hand washing facilities and post educational posters on how to wash hands properly. As well as providing a hand sanitizer with a minimum alcohol concentration of 70% in places that are needed (such as entrances, meeting rooms, elevator doors, etc.);

-physical distancing in all work activities-arrangement of inter-worker distance of at least 1 meter in each work activity (work desk /workstation arrangement, seat arrangement in the canteen, etc.).

-campaigning the Healthy Living Community Movement (Germas) through Healthy Lifestyle and Clean and Healthy Lifestyle (PHBS) in the workplace such as balanced food and regular exercise. Wash Hands With Soap (CTPS). Encourage workers to wash their hands when they arrive at work, before meals, after contact with customers / meetings with others, after the bathroom, after handling objects that might be contaminated. Avoid using personal tools together such as prayer tools, cutlery, and others.

j. Educate workers about COVID-19

The Minister of Health Decree in question also guide employers to immediately report and coordinate with the community health center (PUSKESMAS) or Local Health Office when their workers are suspected or infected by Covid-19.

Worker’s Wage During the Global Pandemic: Can Employers Pay Workers Less if they Agree?

The Minister of Manpower has asked the provincial Governors to implement wage protection during the Covid-19 Pandemic (Covid-19) as stated in the Circular Letter of the Minister of Manpower No. M/3/HK.04/III/2020 concerning Protection of Workers and Business Continuity in the Context of Prevention and Control of Covid-19 issued on 17 March 2020. The Circular Letter noted one of the recommendations of the Minister of Manpower as follow: -Companies that restrict (suspend) business activities due to the policies of their respective local governments in preventing and overcoming COVID-19, causing some or all of their workers unable to work, taking into account business continuity, changes in the amount and manner of payment of wages are made per an agreement between employers and workers.

The writer would like to focus on the last point above. Problematic statement of “…changes in the amount and manners of payment of wages are made per an agreement between the employers and workers “likely to violate the wage regulations. Further, according to the tenet of the Indonesia Administrative Law, a Circular letter is an administrative recommendation, instruction, or guidance for executive officials or agencies to carry out certain things that are considered essential and urgent. Still, on the subject matter, the primary source of positive law in Indonesia remains unclear. A circular letter is basically a policy from Administrative officials, such as Ministers or Governors, instead of legal products. It is only played a role as internal instruction and recommendations. Thus, there is no legal consequence for not complying with Circular Letters. Further, Circular Letter substance should not oppose superior laws or regulations. If there is a conflict between Circular Letters and Laws or Regulations, the eminent Laws and Regulations take precedence.

After a plethora of dissenting opinions about the incapability of positive laws to maintain the protection of workers wage during the Pandemic, on 15 February 2021, the Minister of Manpower enacted the Minister of Manpower Regulation No. 2 of 2021 concerning the Implementation of Wage in Certain Labour Intensive Industry During the Covid-19 Pandemic. Article 6 of the respective Regulation stated the following:
Article 6
(1) For certain labor-intensive industrial companies affected by the Corona Virus Disease 2019 pandemic (COVID-19) can make adjustments to the amount and how to pay wages to their workers.
(2) The adjustment as referred to in paragraph (1) shall be done based on an agreement between the employer and workers.

The Minister of Manpower Regulation in question does not explicitly state the possibility of paying less than minimum wage per se. This perhaps is a way to circumnavigate Article 88E paragraph (2) of the amended Labour Act No. 13 of 2003 and Article 23 paragraph (3) of the Government Regulation No. 36 of 2021 stipulating that employer must not pay workers less than the minimum wage. However, Article 6 in question is problematic as an agreement shall determine the wage amount. Even if the agreement shall be made in “good faith,” as implicitly mentioned in Article 7 paragraph (1) of the Minister of Manpower Regulation No. 2 of 2021, it dismisses the uneven power relations between employers and workers. Indonesian workers’ inherent weak bargaining position, emasculating even more by economic contraction as the Pandemic effect, likely resulted in a coerced or forced agreement to be paid less than minimum wage.

The proponents of this type of regulation likely claimed that wage by agreement is better off than the worse off no work no pay (Article 93 paragraph (1) of the amended Labour Act No. 13 of 2003). Then again, the no work no pay concept in the National Labour Regulations applies when the worker did not come to work because of their negligence. With the issuance of the Decree of the Head of the National Disaster Management Agency regarding movement restriction to the suppression and control of Covid-19 infection, the negligence element is not met.

What about the negligence element implied in the Labour Act No. 13 of 2003, which annulled the concept of no work yes pay in the situation when workers are ready to work, but employers could not provide work because of preventable reasons? In the case of the global pandemic status of Covid-19, the employer negligence element is not met either. Thus, at face value, it could be argued that the freedom of contract principle is used in determining worker’s wages in this unpreventable situation.

This assertion, however, has one major flaw. Freedom of contract as stipulated in Article 1338 of the Civil Code comes with its legal conditions. One of the conditions specified by Article 1320 of the Civil Code is a permissible cause. According to Article 1337 of the Civil Code, a permissible cause is construed as what is agreed upon must not conflict with the law or provide less protection. Thus, any agreement between employers and workers on wage arrangement during the Covid-19 pandemic which amount likely lower than the wage provisions stipulated in the applicable laws and regulations has no legal value or void.

Circling back to the labour law reforms discourse. It is worth considering as fundamentally labour regulations a derivative of contract law and force majeur is a principle of contract law, to have National Labour Regulations adopting force majeure doctrine-a convenient “label” used to refer to clauses which relieve a party from performance of its contractual obligations where events outside their control impact that performance. Thus, in the event of force majeur such as the Covid-19 global Pandemic the convenient principle in question can be used as a relief argument to delay, withhold or reduce statutory rights and allows employers and workers to negotiate and agreed on new terms. This adoption of the force majeur principle into the National Labour Regulations should also be accompanied by reform of the national welfare system as a safety net replacement in uncertain times, which negatively affecting both businesses and workers.

SE Menaker No. M_3_HK.04_III_2020

Unpopular National Healthcare Insurance (BPJS Kesehatan) Contribution for Independent Participants

National Healthcare Insurance monthly contributions will increase start from 1 July 2020 after President Joko Widodo signed Presidential Regulation Number 64 of 2020 concerning the Second Amendment to Presidential Regulation Number 82 of 2018 concerning Health Insurance on Tuesday, 5 May 2020. The respective Presidential Regulation replaces Presidential Regulation No. 75 of 2019 which is annulled by the Supreme Court.

The increase in contribution will impact independent participants in the Non-Wage Workers (PBPU) such as self-employed or professional and Non-Workers (BP) segments.

Article 34 of the Presidential Regulation stipulates the following:

  • Fees for independent participants with service benefits in class I treatment room increases from IDR 80,000 to IDR 150,000 or an increase of 87.5% per person per month.
  • Fees for independent participants with service benefits in class II treatment room increases from IDR 51,000 to IDR 100,000 or up 96% per person per month.
  • Fees for independent participants with service benefits in class III treatment room increases from IDR 25,500 to IDR 35,000 or an increase of 37.25% per person. The increase for this category comes into force in 2021.

The Presidential Regulation was opposed by various parties even more so because the Regulation was issued during the pandemic when most of the citizens experience grave difficulty meeting their basic needs such as food. Contributions increase will not only burden then household daily financing but also increase resentment towards the Government and its perceived unpopular policy. It can be assumed that similar as the Presidential Regulation No. 75 of 2019, either labour groups or civil society will submit judicial review to the Supreme Court demanding the respective Regulation to be annulled.

Peppres No. 64 Tahun 2020

The Contentious Minister of Manpower Circular Letter on Religious Holiday Allowance (THR) at the Time of Covid 19

The Minister of Manpower just released a new circular letter outlining implementation of the provision of religious holiday allowances in 2020 in the company during the covid pandemic 19. The Circular Letter, a non-legal product of a Government agency or officials on specific internal procedures/instruction resembling an internal memo in the private sector sphere, states that in case a company unable to pay the THR at the time specified in accordance with statutory regulations, the solution to the problem is through dialogue between the company and workers.

Further, the Circular Letter states that in the dialogue in question both parties can agree on the following:
1. Payment of THR in installment;
2. Payment of THR is delayed until a certain period according to (mutual) agreement (between the parties);
3. Time of payment and how to impose late THR payment penalty.

The Circular Letter has received strong push back from the trade unions. Speaking to the media, the Confederation of Indonesian Trade Unions (KSPI) chairperson stated that the Circular Letter has no legal umbrella – Government Regulation No. 78 of 2015 and the Minister of Manpower Regulation No. 6 of 2016 states that companies must pay THR to workers. Moreover, the KSPI chairperson stated that the Circular Letter is implying that all companies unable to pay the THR. Thus, they can pay in installments or to delay payment of the THR.

It is understandable that during the Covid-19 pandemic the country economic outlook is rapidly declining. The Government and other International Agencies claimed that the pandemic is slowing Indonesia economic growth with many companies across all industries struggling to cope with the pandemic. Nevertheless, it is undeniable fact that Indonesia Labour Regulations stipulate the Religious Holiday Allowance as one of worker’s statutory rights.

Also, although labour relationship is derived from contract law principles, the Indonesia labour regulations do not adopt the force majeure doctrine-a convenient “label” used to refer to clauses which relieve a party from performance of its contractual obligations where that performance is impacted by events outside its control, such as natural disasters or war. Thus, the pandemic could not be used as a relieve argument to delay pay or withholding statutory rights that allow employers and employees negotiate and agreed to delay or withhold payment of THR.

It is also worth to note that Circular Letter in Indonesia is conceptualized as merely clarifying or giving instructions on how to carry out certain things that are considered important and urgent that do not yet exist or the rules as primary source of positive law in Indonesia remains unclear. Despite of this, in substance Circular Letter should not oppose superior laws or regulations. If there is a conflict between the Circular Letters and Law & Regulations, the superior Laws and Regulations take precedence.

Circular Letters are only policy rules from Administrative officials, such as Minister or Governors, instead of legal products. It is only played a role of internal instruction and recommendations. Thus, there is no legal consequence for not complying with Circular Letters.

Surat Edaran Menaker tentang Pelaksanaan Pemberian THR Keagamaan tahun 2020