In early December 2025, the Indonesian Government issued Government Regulation No. 49 of 2025 (“GR 49/2025”), which serves as the second amendment to Government Regulation No. 36 of 2021 on Wages (“GR 36/2021”). GR 36/2021 functions as Indonesia’s national wage framework, governing key aspects of wage policy, including minimum wage components, classifications, and determination mechanisms.

The issuance of this Second Amendment was largely driven by Constitutional Court Decision No. 168/PUU-XXI/2023, as well as the Government’s broader objective of safeguarding workers’ purchasing power while maintaining business sustainability and macroeconomic stability. The Constitutional Court reaffirmed the constitutional mandate to ensure a decent standard of living for workers and their families. As a result, GR 49/2025 marks a significant recalibration of Indonesia’s wage-setting regime and carries direct implications for employers starting from the 2026 wage year.

Overall, the Second Amendment substantially strengthens worker protection by reinforcing the decent living standard principle, revising the minimum wage adjustment mechanism, and reintroducing sectoral minimum wages. From 2026 onward, minimum wage increases will more closely reflect workers’ living needs through higher adjustment factors and the mandatory inclusion of inflation across all regions.

At the same time, employers face heightened expectations in relation to wage transparency and sectoral compliance. For companies operating in Indonesia—particularly those in manufacturing and other high-productivity sectors—an early assessment of sector classification and wage structures will be critical to ensure regulatory compliance while maintaining operational stability.

Revision of the Minimum Wage Adjustment Formula

Both GR 36/2021 and the Second Amendment apply the same basic formula for calculating annual minimum wage adjustments:

UM(t+1) = UM(t) + [Inflation + (Economic Growth × α)] × UM(t)

However, a key change lies in the revision of the α (alpha) index, which represents labor’s contribution to economic growth.

Under GR 36/2021, the alpha index ranged from 0.10 to 0.30, determined based on labor absorption levels and average or median wage indicators. The Second Amendment significantly increases this range to 0.50–0.90, placing stronger emphasis on proportionality in order to better fulfill decent living standards, while still balancing the interests of workers and employers.

Another notable development is the removal of the previous exception applicable to regions where the prevailing minimum wage exceeded average household consumption. Under the prior regime, inflation could be excluded from the calculation in such regions. The Second Amendment abolishes this exception, ensuring that inflation is always factored into minimum wage adjustments, including in higher-wage regions.

Reintroduction of Sectoral Minimum Wages

While maintaining the minimum wage classifications originally introduced under GR 36/2021, the Second Amendment formally reintroduces sectoral minimum wages at both the provincial and regency/city levels.

As a result, the scope of minimum wage regulation is expanded to cover:

• regions that previously applied sectoral minimum wages; and
• regions that had not yet implemented sectoral minimum wages.

Under the new regime, Governors are required to issue Governor Decrees establishing sectoral minimum wages within five days of determining the relevant provincial or regency/city minimum wage. Sectoral minimum wages must:

• be set above the applicable provincial or regency/city minimum wage; and
• be calculated using the same minimum wage adjustment formula.

Sectoral minimum wages are intended to accommodate sectors with higher productivity levels, specific operational risks, or distinct business characteristics. A sector may only be designated as subject to a sectoral minimum wage if it meets the following criteria:

• it falls under a five-digit Indonesian Standard Industrial Classification (KBLI);
• it comprises more than one medium-scale and/or large-scale enterprise; and
• it has specific characteristics and work-related risks distinguishing it from other sectors.

The Second Amendment to GR 36/2021 represents a material shift in Indonesia’s wage policy landscape. Employers are expected not only to comply with revised minimum wage calculations, but also to reassess sectoral exposure and internal wage structures in light of increased regulatory scrutiny.

If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.

Author:
Dewi Susanti