Each country has its own customs when it comes to paying bonuses which are not performance-based to employees on certain occasions. In many parts of the world, employees receive a bonus payment for Christmas, in other parts this is prior to the summer holiday period or for the New Year. In Indonesia, employers are under an obligation pay a so-called “Religious Holiday Allowance” (Tunjangan Hari Raya). ^[1]

Tunjangan Hari Raya is a non-wage income to be paid once a year and at least seven days prior to the religious holiday in question. ^[2] It can be in the form of money or other forms. The payment obligation forms part of the employer’s obligations to take care of the employee and is intended to make sure that the employee and its family can celebrate the religious holidays.

With Idul Fitri coming up later this month, companies would ordinarily be under an obligation to effectuate the Tunjangan Hari Raya to employees. This can be a substantial additional burden for cash-strapped companies, which are already suffering from the economic downturn as a result of the Coronavirus pandemic.

With grave concerns about the companies’ ability to pay the Tunjangan Hari Raya on time, the Ministry of Manpower issued a circular earlier this month (the “Circular”). ^[3] The Circular is addressed to all Governors in Indonesia, requesting them to ensure the companies located in their province pay Tunjangan Hari Raya to all employees in accordance with the laws and to allow for a “pay in instalments or pay later” policy as per the following;

Pay in instalments or pay the entire amount later

If you are unable to pay Tunjangan Hari Raya in due time, you must carry out deliberations with your employees (amicable discussions). Based on transparent company financial statements and good faith discussions, you should agree on the following payment options:

(a) gradual payment (payment in instalments) – if your company is unable to pay the complete amount right away;

(b) postponement of the payment (payment at a later date to be agreed upon) – if your company is completely unable to pay any Tunjangan Hari Raya.

Importantly, the Circular makes it clear that for both options, Tunjangan Hari Raya must be paid within 2020. It is thus not possible to agree that the payment shall be effectuated in 12 monthly instalments or that the full amount shall be paid on 1 January 2021 as in both examples, the period for payment is past 2020.

Additionally the Circular also stipulates that companies and employees should agree on the period and method of imposing fines for delayed Tunjangan Hari Raya payment.

There is an obligation to report your agreement to the agency of manpower ( dinas ketenagakerjaan) in the province in which your company is located.

As regards the Jakarta Province, the Manpower and Transmigration Agency Office of the Jakarta Province made it clear that

(i) the above agreements are possible in the Jakarta Province; and

(ii) reports on an agreement above (either option (a) or option (b)) are to be made to the Manpower and Transmigration Agency Office of Jakarta Province. ^[4]

Make sure you draft an enforceable agreement – how Schinder Law Firm can help

Failure to pay Tunjangan Hari Raya or to pay it on time results in fines ^[5] , which can be substantial. Your employees will certainly be disappointed if they don’t receive their Tunjangan Hari Raya payment. However, they will ordinarily understand that in these difficult times, there simply is no other option. It is thus much better to at least attempt to agree with your employees, ideally using a third party mediator, than not paying the Tunjangan Hari Raya or only a portion of it.

The agreement you draft should follow the guidelines set forth in the Circular. Not complying with the guidelines may make you subject to the fines mentioned above. Generally, the Circular should not be regarded on a standalone basis as other legal rules still apply. We have reviewed several draft agreements by our clients before they were proposed to the employees and there were often deficiencies which we rectified.

Two of our lawyers have in the past very successfully mediated in conflicts between the employer and the employee and this has avoided law suits by employees and administrative sanctions by the authorities. We are also currently advising the local subsidiary of a foreign investor in its negotiations with the employees and a successful agreement is very close.