On 21 March 2017 the Minister of Employment issued Regulation No. 1 of 2017 on Wage Structure and Wage Scale (Regulation 1). Regulation 1 is the implementing regulation of Government Regulation 78 of 2015 on Wages and replaces Minister of Manpower and Transmigration Decree No. KEP.49/MEN/IV/2014.
Under Regulation 1 employers have until 23 October 2017 to:
- prepare a wage structure and wage scale; and
- inform employees about the wage structure and wage scale.
See explanation below.
Regulation 1 defines:
- wage structure as a structure of wages from the lowest amount to the highest amount or from the highest amount to the lowest amount
- wage scale as the range of wages from the lowest amount to the highest amount that is applicable for a particular level of employees.
Preparation of Wage Structure and Wage Scale
Under Regulation 1 employers are required to prepare the wage structure and wage scale that are applicable in their organization. In preparing the wage structure and wage scale, an employer should observe the classification, position/title, years of service, education and competency of the employees.
Under Regulation 1, wages that are set out in the wage structure and wage scale are basic wages only (there is no reference to fixed allowances).
The attachment of Regulation 1 sets out examples for determining the wage structure and wage scale. In preparing the wage structure and wage scale, employers can use those examples. However, employers are not required to do so. That is, employers have the freedom to determine the wage structure and wage scale using their own method.
Article 5 of Regulation 1 provides that the wage structure and wage scale are established by the management of the employer by way of a "decree". Regulation 1 does not provide further details on what is meant by "management of the employer" or "decree". If the employer is a company, the "management" should be the board of directors ("BOD") of the company. Ideally, a "decree" of the BOD should be in the form of a BOD resolution. However, we understand that a letter issued by the BOD containing the wage structure and wage scale should be sufficient.
Obligation to Inform Employees
Employers must inform all employees individually about the wage structure and wage scale, including details on which wage structure and wage scale is applicable to them.
Regulation 1 does not include any requirements for how employees need to be informed about the wage structure and wage scale applicable to them. We understand that the method of communicating the wage structure and wage scale to employees is at the discretion of the employer.
Although it is not specifically required under Regulation 1, we suggest that employers consider informing employees about their wage structure and wage scale in writing. If an employee later claims that he/she has not been informed about the wage structure and wage scale applicable to him/her, the employer will be able to prove that it has fulfilled its obligation to inform the employee.
Obligation to Present the Wage Structure and Wage Scale
Under Regulation 1 an employer is not required to report its wage structure and wage scale to the Ministry of Employment (MOE) or its local office. However, under Regulation 1 the wage structure and wage scale needs to be presented to the MOE or its relevant local office when an employer applies to:
- ratify or renew its company regulations
- register, extend or renew its collective labor agreement
The wage structure and wage scale presented will not be retained by the MOE or its local office. Instead, the employer will need to provide a statement letter confirming that it already has a wage structure and wage scale in place. This statement letter will be kept by the MOE or its local office.
Employers could face administrative sanctions if they fail to
- prepare a wage structure and wage scale; or
- inform employees about the wage structure and wage scale
Administrative sanctions can be in the form of:
- written warning
- limitation of business activities
- freezing of business activities
- cancellation of approvals
- cancellation of registrations
- temporary shutdown of a part or all of the production equipment
- revocation of license
It should also be noted that officials of the MOE can conduct inspections of employers at any time. We expect that after 23 October 2017 wage structure and wage scale will be a matter that MOE officials will focus on during inspections. It is possible that MOE officials will ask employers about the wage structure and wage scale in inspections prior to 23 October. However, if they do, the employer could simply inform the MOE officials that they are in the process of setting the wage structure and scale and will ensure it is done before 23 October. Even if the wage structure and scale is not done before 23 October and there was an inspection by MOE officials, at the worst the MOE officials would likely only issue a warning letter to the employer requesting them to comply with Regulation 1.