Indonesia has officially issued a new minimum wage calculation framework for 2026, strengthening worker protections while rebalancing employer obligations.
The changes are introduced through Government Regulation No. 49 of 2025, which amends Government Regulation No. 36 of 2021 on Wages (as amended by GR 51/2023).
The regulation came into force on 17 December 2025 and will apply to all minimum wage determinations starting 1 January 2026.
These changes are not cosmetic. They significantly affect labor cost planning, payroll structures, sectoral wage exposure, and compliance risk for employers — particularly PMA companies, hospitality operators, construction firms, and labor-intensive sectors.
Why the Regulation Was Issued
The amendment follows Constitutional Court Decision No. 168/PUU-XXI/2023, which reaffirmed that minimum wages must ensure a decent standard of living for workers and their families, not merely subsistence.
The regulation explicitly links wages to:
- Food and basic needs
- Housing
- Education
- Healthcare
- Recreation
- Old-age security
It also introduces mandatory transparency obligations, requiring employers to inform workers of applicable wage structures and scales.
New Minimum Wage Calculation Formula (Effective 2026)
The wage adjustment formula itself remains structurally the same:
UM(t+1) = UM(t) + {Inflation + (Economic Growth × α)} × UM(t)
Key Change: Labor Contribution Index (α) Increased
| Regulation | α (Alpha) Range |
| Previous (GR 36/2021) | 0.10 – 0.30 |
| New (GR 49/2025) | 0.50 – 0.90 |
What this means in practice:
- Labor’s contribution to economic growth now carries significantly more weight
- Wage increases will be structurally higher, even in moderate growth years
- The formula explicitly prioritizes living standards, not just labor absorption metrics
Inflation Is Now Always Included
Previously, inflation could be excluded in regions where minimum wages already exceeded household consumption levels.
This exception has now been removed.
Inflation must be included in all wage calculations, including high-wage regions such as Jakarta and Bali.
Sectoral Minimum Wages Are Back
The regulation reintroduces sectoral minimum wages, which now apply at both:
- Provincial level
- Regency / City level
These sectoral wages:
- Must be higher than the standard regional minimum wage
- Must be calculated using the same wage formula
- Must be issued by Governor Decree within 5 days after regional wage determination
Which Sectors Qualify?
A sector may be subject to a sectoral minimum wage if it meets all three criteria:
- Covered by a five-digit KBLI code
- Includes more than one medium- or large-scale company
- Has distinct characteristics or elevated work-related risks
This is particularly relevant for:
- Hospitality & tourism
- Construction & development
- Manufacturing
- Energy & infrastructure
- Plantation and resource-based industries
Key Deadlines
| Item | Deadline |
| Governor Decrees issued | By 24 December 2025 |
| Wages effective | 1 January 2026 |
Key Takeaways for Employers & Investors
✔ Minimum wage increases will be structurally higher from 2026 onward
✔ Inflation can no longer be excluded
✔ Sector-specific wage exposure is back — compliance risk increases
✔ Employers must implement clear wage structures and transparency
✔ Payroll, pricing models, and financial forecasts should be updated immediately
How Seven Stones Indonesia Can Help
For foreign investors and PMA-owned businesses, wage compliance is now both a legal and financial planning issue.
Seven Stones Indonesia supports clients with:
- Workforce structuring & wage compliance reviews
- Sectoral KBLI exposure analysis
- Payroll planning aligned with 2026 regulations
- Risk-based compliance strategies for PMA operations
- Legal advisory for hospitality, construction & development projects
Reach out to ensure your business is ready for the 2026 wage framework.