Business Law in Indonesia: Religious Holiday Allowance, an Oasis amid COVID-19 Crisis
It is less than one week before the celebration of an important Islamic religious holiday: Eid al-Fitr, commonly known as “Lebaran” in Indonesia. It is a day to glorify renewed hope. And, just like other religious days, it is a very essential day, and the most momentous celebration of the year in Indonesia.
This, thus, reflects in a regulation that was issued by the Indonesian Minister of Manpower (MoM) – namely MoM Regulation No.6 of 2016 on Religious Holiday Allowance to the Employee in the Company – that obligates all companies operating in Indonesia to, annually, give certain additional payments to their eligible employees to celebrate the religious holidays in an amount of one month’s remuneration (i.e. basic salary plus fixed allowances) although in normal conditions some companies provide more than one-month remuneration. In Indonesia this annual payment is known as a holiday allowance (in Indonesian: Tunjangan Hari Raya, or THR). However, to be qualified to receive the full THR, the employees must have been serving the company for more than 12 months (and pro rate THR if the employee worked for more than one month but less than 12 months).
Under current regulations, THR payments must be made no later than seven days before the respective religious day is celebrated by the employee. Hence, for employees, THR certainly seems like an oasis amid the ongoing COVID-19 crisis. Particularly those employees who have recently been affected by salary cuts, or even termination, hope to receive this THR.
However, considering many companies across Indonesia are currently struggling and facing financial difficulties due to the COVID-19 crisis, distributing THR payments surely seems a big challenge for them as it creates a bigger financial burden. Moreover, terminating employees does not allow companies to avoid their obligation to distribute this payment since THR remains mandatory for employees who have been terminated 30 days before the religious day.
Some companies in Indonesia, however (especially those affected by the COVID-19 crisis), wish to delay this THR payment, or, to pay it in stages in order to be somewhat relieved from the additional financial burden. Meanwhile, there are also companies that intend not to provide any THR payment altogether. This would certainly mean that this year’s religious days feel different for the involved employees.
We understand that recently the Indonesian government has encouraged all companies to fulfill the obligation to distribute the THR payments. However, these companies must first consider various other business aspects, such as their revenue, employees’ salary, and any outstanding (debt) payment to third parties. Certainly, avoiding paying the THR, in practice, would be considered as an effective effort taken by the companies.
Penalties
A company that does not make the THR payment to an employee, or, makes a late payment may be subject to administrative penalties (i.e. written warnings and restrictions on business activities) and could face fines up to 5 percent of the total THR amount. However, a sanction would still not relieve the company from complying with the THR obligation. Hence, in addition to the sanction, the THR payment must still be made by the company to the employee.
In practice, a fine can be imposed on the company based on a report that is made by the company's employees to Indonesia's Manpower Office.
Alternative Measures for THR Payment
Given the above, the MoM issued a Circular Letter No.M/6/HI.00.01/V/2020 on the Payment of Religious Holiday Allowance in 2020 by Companies during the COVID-19 Pandemic, dated 6 May 2020, requesting Indonesian governors to ensure that the companies in their province pay THR to employees in accordance with statutory provision. Additionally, the Circular Letter stipulates that in case the companies are unable to provide the THR within the appropriate time, the companies may:
- provide the THR payment in several stages; or
- delay the THR payment until a certain agreed period.
However, both options still require the consent of employees. Hence, the company must first discuss the issue with its employees and enter into a written agreement containing the matter. Such agreement must also include the mechanism and exact date of the forthcoming THR payment as well as the specific penalties in case a breach is made by the company. Furthermore, this agreement must be reported to the relevant Manpower office. Again, the agreement and fines do not waive companies’ obligation to pay the THR. And, the THR must be paid in 2020. To facilitate any consultation or complaints from employees regarding their THR distribution, the MoM set up an online service, named “Pos Komando Pengaduan”.
However, we hope that Indonesian companies can perform their THR obligation, either through one of the two alternatives mentioned above, in this challenging COVID-19 crisis.
The writers, Dimas Koencoro Noegroho and Aveninta Maria Rosalin, are associates at Soemadipradja & Taher, the Indonesian corporate law firm. The views presented in this article are their own, do not constitute legal advice, and are not to be acted on as such.
Dimas Koencoro Noegroho
Email: dimas_koencoro@soemath.com
Dimas is a senior associate in Soemadipradja & Taher, who started practicing in 2006. He obtained his Bachelor of Laws degree from Universitas Trisakti, Jakarta, majoring in business law. Dimas is well known for his assistance for multinational and local corporations in employment, general corporate and insurance.
Aveninta Maria Rosalin
Email: Aveninta_Maria@soemath.com
Aveninta is an associate in Soemadipradja & Taher. She obtained her Bachelor of Laws degree with cum laude from Universitas Indonesia in 2018, majoring in international law. She has previously published her legal articles on several legal platforms. Aveninta has acted for both Indonesian and foreign clients in a variety of projects and commercial transactions, including those related to employment law.
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