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The Implementation of the Distribution of Holiday Allowances during the Outbreak of COVID-19

Ramadhan is coming and for the last three months, Indonesia has been struggling to fight against the COVID-19 outbreak. Many local governments in Indonesia has implemented the large-scale social restriction (Pembatasan Sosial Berskala Besar - PSBB) to keep people far enough away from each other to prevent the spread of infectious agents such as novel coronavirus (COVID-19). These circumstances give rise to new challenges face by many business sectors and as a result many businesses has implemented the work-from-home policy in order to help the Government as well as to preserve the sustainability and continuity of its business.

One of the challenges that should be tackled by the companies is to provide holiday allowances to its employees. In which it is a part of the obligation as governed under the Indonesian Labor Law. Companies may have difficulties to pay a proper amount of holiday allowances to be fully paid to its employees due to the reduce of profits or loss of income due to the implementation of PSBB.

Ministry of Manpower (MOM) has issued the Circular Letter No. M/6/HI.00.01/V/2020 regarding the Implementation of the Distribution of Holiday Allowances during the Outbreak of COVID-19 (“Circular Letter”). Under the said Circular Letter, the MOM has instructed to all business practitioners (employers) to ensure at all times that the holiday allowances shall be fully given to its employees. However, in the event that the employer is unable to pay the holiday allowances in full, both the employer and employee shall communicate (dialogue) to achieve its best solution on how to settle on the holiday allowances with respect to the transparency of internal financial statement and good faith. Under the said circular letter, the settlement on holiday allowances which may be agreed by both employers and employees are as follows:

  • In the event that the employer is unable to pay the holiday allowances in full at the specified time in accordance with the Indonesian Labor Law, the said allowances can be paid in stages;
  • In the event that the company is unable to pay the holiday allowances in full at the specified time in accordance with the Indonesian Labor Law, then the payment of the holiday allowances can be delayed until a certain agreed period of time or at a later date;
  • Imposition of fines due to the late payment of the holiday allowances.

Once the employer and employees have made a mutual settlement on the holiday allowances, the said settlement shall be reported by the employer to the relevant/nearby Municipal Representative of the Manpower Ministry.

However, the Circular Letter does not clearly explain whether penalties shall be imposed on every agreed term on the payment of holiday allowances and how much the percentage of fines is consider proper to be given by the employers to the employees and what is the sanction if the employer is unable to pay the said fines? Will that be regarded as an additional burden for the employer amidst the COVID-19 outbreak?

Furthermore, the Circular Letter does not explicitly state that the financial statement shall be audited or non-audited, if it is audited, it is not possible for one company to issue an audited financial statement for the year of 2020 this early. Thus, it is safe to assume that the non-audited financial statement is sufficient to be the basis to mutually settle the payment of holiday allowances.

Another issue which may come up on a non-audited financial statement as a condition to be met might lead to an internal dispute between employer and employees, since the said financial statement might be unreliable and contain a fraudulent financial reporting provided by the employer. Moreover, in practice, private limited liability company will only disclose its non-audited financial statements for the interest and benefits of financial team, Board of Directors, Board of Commissioner and Shareholders, unless there is a court order and/or instructed by the Law, i.e., termination due to redundancy as governed under the Indonesian Labor Law and investigation conducted by tax officer as governed under the Indonesian Tax Law. Hence, confidentiality of a financial statement is very important part for a private limited liability company. The Ministry of Manpower shall convince private sectors that they are responsible with the confidentiality of the company’s financial information.

In order to mitigate this issue, the Government may accommodate a more relax provision on the Circular Letter, a simple mutual agreement between both employer and employees without having to impose fines and reporting requirements to the relevant municipality are sufficient to help the business sustain amidst the COVID-19 outbreak. In addition, in respect of the financial statements, the Government should ensure proper submission procedure of financial statement on how to safeguard its confidentiality.