Executive Summary

Key insights and market outlook

The Indonesian government is revising the minimum wage calculation method for 2026 through a new Government Regulation (PP), following a Constitutional Court ruling. The new regulation will give more authority to regional wage councils and consider Decent Living Needs (KHL). The announcement of the 2026 Provincial Minimum Wage (UMP) will be delayed beyond the original November 21 deadline ¹

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Full Analysis

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Deep Dive Analysis

Indonesia Revamps Minimum Wage Calculation for 2026

New Government Regulation to Change Wage Calculation Method

The Indonesian government is currently drafting a new Government Regulation (PP) that will significantly alter the calculation method for the minimum wage in 2026. This move follows a ruling by the Constitutional Court (MK) that mandated changes to the existing wage system ²

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Key Changes in the New Regulation

Decentralized Decision Making: Regional Wage Councils will be given more authority in determining minimum wage rates, allowing for more localized decision-making ¹
Source 1
https://finance.detik.com/berita-ekonomi-bisnis/d-8220638/penentuan-ump-2026-kemnaker-patuhi-putusan-mk
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Consideration of Decent Living Needs (KHL): The new regulation will incorporate the concept of KHL in calculating minimum wages, ensuring that the rates better reflect the actual living costs ²
Source 2
https://finance.detik.com/berita-ekonomi-bisnis/d-8220291/buruh-harap-sabar-kenaikan-ump-tahun-2026-batal-diumumkan-besok
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Variable Wage Increases: Unlike the previous system where a uniform percentage increase was applied, the new system will allow for more flexibility. Provinces or regencies with higher economic growth will be able to set higher minimum wages compared to those with slower growth ¹
Source 1
https://finance.detik.com/berita-ekonomi-bisnis/d-8220638/penentuan-ump-2026-kemnaker-patuhi-putusan-mk
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Delay in 2026 Minimum Wage Announcement

The announcement of the 2026 Provincial Minimum Wage (UMP) will be postponed beyond the original deadline of November 21, 2025. This delay is due to the ongoing process of formulating the new PP, which will serve as the legal basis for the new minimum wage determination ³

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Implications of the Changes

The new regulation is expected to have significant implications for both employers and employees across Indonesia. By giving more autonomy to regional authorities, the government aims to reduce wage disparities between regions with different economic conditions.

References