Indonesia's 2026 Minimum Wage Increase: Challenges and Implications

Significant Wage Adjustments Across Provinces

The Indonesian government has officially determined the 2026 Provincial Minimum Wage (UMP), with most provinces implementing increases between 5-7% ¹

Labor Unions' Concerns About Living Costs

Labor unions, represented by Aspirasi, have expressed concerns that the wage increase still falls short of addressing the real needs of workers. President of Aspirasi, Mirah Sumirat, stated that without strict price controls, the wage hike would be ineffective in covering daily expenses as the cost of basic necessities continues to rise ¹

Business Community's Response

The business community, through Apindo, has requested dispensations for the UMP increase, arguing that the hike places an undue burden on businesses still recovering from economic pressures. According to an ILO survey, only 37% of Indonesian companies are capable of paying the minimum wage, highlighting the potential strain on businesses ³

Tax Implications for Minimum Wage Earners

The increase in UMP has also raised concerns about tax implications. With many workers now earning above the Non-Taxable Income Threshold (PTKP), more employees will be subject to personal income tax (PPh). This development could potentially reduce the net benefits of the wage increase for minimum wage earners ⁶

Financial Planning for Minimum Wage Earners

Financial experts suggest that workers need to adopt careful budgeting to make the most of their wages. For instance, a financial planner recommended adjusting the typical 50-30-20 budgeting rule to 70-20-10 for minimum wage earners in Jakarta, allocating a larger portion to essential expenses ⁴