Indonesia and Vietnam are both major ASEAN manufacturing FDI destinations, and both use regional minimum wages. But how the two countries “set the number” for 2025 reveals different philosophies: Indonesia raised wages by a uniform 6.5% nationwide under a single formula, while Vietnam left 2025 untouched and then caught up in 2026. For investors running plants in both countries, understanding the mechanism — and especially the scope of application — avoids costly, avoidable violations.
Indonesia: one common formula, each governor issues the decree
The framework is the Job Creation Law and the Manpower Ministry’s implementing rules. For 2025, the Manpower Minister issued Regulation No. 16/2024, fixing a uniform 6.5% increase for every minimum wage type — provincial (UMP), regency/city (UMK) and sectoral (UMS) — based on economic growth, inflation and decent-living needs. Provinces had to announce by 11 December, regencies/cities by 18 December; new rates took effect on 1 January 2025.
Jakarta — the country’s highest floor — set its 2025 UMP at Rp5,396,761 per month (up from Rp5,067,381 in 2024) under Gubernatorial Decree No. 829/2024. Other provinces span a wide range: from about Rp2.17 million (Central Java) to Rp5.4 million (Jakarta). The system has three layers: UMP (provincial), UMK (regency/city, no lower than UMP) and sectoral UMS (above the local UMP/UMK).
Two legal points investors must remember. First, the UMP applies to workers with under one year of service — longer-serving employees are expected to be paid under the company’s wage scale. Second, paying below the minimum wage in Indonesia is not merely administrative: it can trigger criminal liability — 1 to 4 years’ imprisonment and fines of Rp100–400 million. Indonesia also has THR — the mandatory religious-holiday allowance, effectively a 13th month of salary, payable no later than 7 days before the employee’s religious holiday.
Vietnam: an absolute floor, no seniority distinction
Unlike Indonesia, Vietnamese law does not limit the scope by seniority. Decree 293/2025/ND-CP (effective 1 January 2026, replacing Decree 74/2024/ND-CP) covers every employee working under a labour contract — from new hires to 20-year veterans, agreed wages must not fall below the regional floor: Region I VND 5,310,000/month, Region II VND 4,730,000, Region III VND 4,140,000, Region IV VND 3,700,000 (with hourly rates of VND 25,500–17,800).
The employer side is equally broad: enterprises, agencies, organisations, cooperatives, households and individuals hiring labour — regardless of size. The biggest contrast with Indonesia: Vietnam has no deferment mechanism for struggling firms. The duty is absolute from the decree’s effective date; agreements paying less are void to the extent of the shortfall (Article 90, Labour Code 2019).
On adjustment, the National Wage Council (Article 92, Labour Code 2019) recommends and the Government issues the decree. The recent rhythm: a 2024 hike, a frozen 2025, a catch-up 2026 averaging +7.2% — unlike Indonesia’s uniform national percentage each year.
Side by side: what investors must distinguish
How the number is set: Indonesia uses a uniform national formula each year (2025: +6.5%; 2026 Jakarta +6.17% under the new alpha 0.5–0.9 range allowing faster growth). Vietnam has no fixed formula — the increase is proposed by the National Wage Council based on actual conditions each year. Forecasting Indonesia is therefore formula-driven; Vietnam requires close tracking of year-end bargaining.
Scope: Indonesia — the UMP is the floor for under-one-year workers; longer-serving staff follow the company scale. Vietnam — the floor is universal, regardless of seniority. When comparing “minimum labour cost”, do not mechanically equate UMP with Vietnam’s regional floor: the UMP is only the starting point of Indonesia’s wage scale.
Sanctions: both are strict, but Indonesia goes further with criminal liability (1–4 years’ imprisonment). Vietnam imposes administrative labour penalties and orders back-payment of shortfalls. The shared message: never get “flexible” with the wage floor in either country.
Hidden costs: Indonesia’s mandatory THR (a 13th month on the religious calendar) is missed by many first-time foreign investors when budgeting year one. Vietnam has no statutory 13th month (Tet bonuses are contractual), but has wage-linked mandatory insurance. Total employment cost must include both groups before any comparison.
Practical recommendations
First, when budgeting Indonesia, add THR (one month’s salary) to the annual cost immediately — it is a legal duty, not a discretionary bonus. Second, clearly separate under- and over-one-year workers when applying the UMP. Third, for Vietnam, pin down the correct region and remember there is no deferment — cash-flow planning must cover the full amount from 1 January of the decree’s effective year. Indonesian-law details should be reviewed by local counsel, especially sectoral UMS and any deferment procedure in special cases.
Frequently asked questions
How do Indonesia’s UMP, UMK and UMS differ?
UMP is the provincial minimum wage issued by the governor; UMK is the regency/city level, no lower than the UMP; UMS is the sectoral level (provincial or regency), above the local UMP/UMK, for industries with distinct characteristics, higher risk or special skill demands.
What is Jakarta’s current minimum wage?
For 2025: Rp5,396,761 per month (up 6.5% from Rp5,067,381 in 2024). For 2026, Jakarta was announced at Rp5,729,876 per month (+6.17%) under the new formula with the 0.5–0.9 alpha range.
What happens for paying below the minimum wage in Indonesia?
Severely: it can trigger criminal liability — 1 to 4 years’ imprisonment and fines of Rp100–400 million. This is a major contrast with countries that impose only administrative fines.
What is THR, and do Vietnamese firms have a similar duty?
THR (Tunjangan Hari Raya) is Indonesia’s mandatory religious-holiday allowance — effectively a 13th month, payable no later than 7 days before the employee’s religious holiday, with a 5% fine for late payment. Vietnam has no statutory 13th month; Tet bonuses are a matter of agreement.
Can struggling Vietnamese firms defer the new minimum wage?
No. Vietnamese law has no deferment or exemption mechanism — the floor under Decree 293/2025/ND-CP applies absolutely from 1 January 2026 to every employer, regardless of size or business conditions.
For detailed advice on labour costs and compliance in Indonesia or Vietnam, companies may contact FLAT Law Firm.
This article has been quality-reviewed by the FLAW AI Legal Council