GR No. 49 of 2025 Issued, the Return of Sectoral Minimum Wages and the Surge in the Wage Index

Introduction

On 17 December 2025, the Government issued Government Regulation Number 49 of 2025 on the Second Amendment to Government Regulation Number 36 of 2021 on Wages ("GR 49/2025"), which took effect on that date. This Regulation reshapes the national wage policy landscape by revising provisions in Government Regulation Number 36 of 2021 on Wages (“GR 36/2021”), which had previously been amended by GR 51/2023. GR 49/2025 aims to realize workers’/laborers’ right to a decent living by establishing wage policies that involve regional governments and wage councils.

GR 49/2025 was formulated to preserve workers’/laborers’ purchasing power, business continuity, and national economic stability, and as a direct follow-up to Constitutional Court Decision Number 168/PUU-XXI/2023. The Government affirms that these amendments are necessary because the prior rules need to be readjusted to satisfy a sense of fairness and the standards of Decent Living Needs (KHL) highlighted in that Constitutional Court decision.

 

Comparison

The following is a comparison between GR 49/2025 and GR 36/2021 jo. GR 51/2023:

 

Key Provisions

New Formula and Increase in the Index (Alpha)

The Government has reworked the variables used to calculate the minimum wage by increasing the weight of the labor contribution. Article 26 (5) provides that the wage adjustment value is calculated using the formula: Adjustment Value = {Inflation + (PE x α)} x UM(t). Article 26 (6) establishes that the symbol α (alpha) now ranges from 0.50 to 0.90. This range is substantially higher than the previous maximum of 0.30. The Wage Council is authorized to determine the specific value of alpha by considering a balance of interests between workers and employers, as well as the comparison between the minimum wage and Decent Living Needs (KHL).

Establishment of Sectoral Minimum Wages (UMS)

GR 49/2025 revives the Sectoral Minimum Wage regime that had previously been removed. Under Article 35A (1), the Governor is obliged to set the Provincial Sectoral Minimum Wage (UMSP). At the regency/city level, the Governor has the authority to establish Regency/City Sectoral Minimum Wages (UMSK) [Article 35F (1)]. Sectors entitled to receive a Sectoral Minimum Wage are determined based on the five-digit Indonesian Standard Industrial Classification (KBLI), exhibit distinct characteristics/occupational risks, and include medium- and large-scale enterprises, in accordance with Article 35B (2). The value of a Sectoral Minimum Wage must be higher than the Provincial or Regency/City Minimum Wage, as provided in Article 35C (1).

Transparency Obligation for Wage Structure and Scale

Article 21 (1) requires employers to prepare and implement a wage structure and scale that take into account the company’s capacity, productivity, as well as grade and position. That wage structure and scale must be notified to each Worker/Laborer individually. The notification must at a minimum include the wage structure for the grade/position corresponding to the worker’s job.

Protection of Wages in Bankruptcy

GR 49/2025 strengthens workers’ position as priority creditors. Article 49 (2) provides that in the event of corporate bankruptcy, the payment of workers’ wages shall be prioritized before payments to all other creditors. For other entitlements (such as severance pay), Article 49 (3) stipulates that their payment shall be prioritized above all creditors (including preferential creditors), except secured creditors holding property security rights (separatists).

Removal of the Upper Limit on Minimum Wage

The Government has removed the mechanism that capped wage increases based on average household consumption. As set out in Point 8, which repeals Article 26A, this regulation eliminates the special provision that previously restricted adjustments to the minimum wage value when it exceeded the per capita average consumption.

 

Transitional Provisions

Pursuant to Article II, the Governor is required to determine and announce the Provincial Minimum Wage, the Provincial Sectoral Minimum Wage, the Regency/City Minimum Wage, and the Regency/City Sectoral Minimum Wage for 2026 no later than 24 December 2025. All minimum wages established on that date shall take effect as of 1 January 2026.

 

Closing

GR 49/2025 carries implications for businesses and workers in Indonesia, particularly given the increase in the lower bound of the alpha index to 0.50 and the new obligation to pay sectoral wages that are higher than the general minimum wage. Employers and HR departments may promptly anticipate these changes by recalculating their 2026 labor cost budgets, preparing valid productivity data for negotiations before wage councils, and ensuring administrative compliance in preparing and notifying each employee of the wage structure and scale in order to avoid potential sanctions and industrial relations disputes.