One of Indonesia’s most important and celebrated holidays is just around the corner. Eid al-Fitr, commonly known as “Lebaran” in Indonesia, is a day of hope and momentous celebration.
It is also a significant day for employees as the Ministry of Manpower had issued a regulation 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.
Under normal circumstances, some companies even provide more than one-month renumeration. In Indonesia, this annual payment is known as the holiday allowance or the THR. However, to be qualified to receive the full THR, the employees must have been serving the company for more than 12 months.
Under current regulations, THR payments must be made no later than seven days before the respective religious holiday. Hence, for employees, THR certainly seems like an oasis amid the ongoing COVID-19 crisis. This is especially so for employees who have recently experienced a salary cut or even termination as a result of the COVID-19 crisis.
Unfortunately, things are not so simple this year. Companies and businesses across Indonesia are struggling financially in the face of COVID-19 and lockdown orders. The distribution of THR poses a huge 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.
As such, it comes as no surprise that some of these Indonesian companies that have been especially affected by the COVID-19 crisis wish to delay this THR payment; or to pay it in stages in order to somewhat relieve some financial burdens. 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.
While the Indonesian government has encouraged all companies to fulfil their obligations to distribute the THR payments, some companies will need to take a serious look to consider various other business aspects, such as their revenue, employees’ salary, and any outstanding payments to third parties. Certainly, avoiding paying the THR, in practice, would be considered as an effective effort taken by the companies.
With regards to penalties, a company that does not make a THR payments to an employee, or makes a late payment, may be subject to administrative action. This could take the form of written warnings or restrictions on business activities among other things. They could also 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 acknowledgement of the difficulty that some companies might face in paying the THR during the COVID-19 crisis, the Ministry of Manpower have decided to given companies some leeway. According to an issued Circular Letter, in the case that 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 of these alternatives require the consent of employees. As such, companies are responsible for discussing the issue with its employees and enter 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. Any such agreements will also need to be reported to the relevant manpower office.