Sanctions and Employee Motivation in Indonesia: Legal Frameworks and Practical Solutions for Employers
The system of labor relations in Indonesia combines state regulation with significant employer autonomy. Issues of disciplinary sanctions and employee motivation are formally enshrined in legislation, but their practical implementation largely depends on the quality of the company's internal regulations.
The key task for the employer is to build a system that both complies with the law and maintains manageability, productivity, and fairness within the team.
1. Sanctions: What the Legislation Says
1.1. Regulatory Basis
Labor rights and obligations are regulated by:
The Labor Relations Act (Undang-Undang No. 13/2003 tentang Ketenagakerjaan);
The Labor Reforms Act (Omnibus Law, Cipta Kerja).
The legislation does not contain a detailed list of disciplinary measures and their application procedures. For instance, it does not describe the specific mechanisms for imposing fines or issuing warnings.
Accordingly, the company is entitled to establish these measures independently, provided they are enshrined in the employment contract or internal regulatory documents.
These documents become key in assessing the legality of the sanctions.
1.2. Grounds for Applying Sanctions
The employer is entitled to respond to breaches of labor discipline, including:
regular tardiness;
failure to perform job duties or achieve set goals;
violation of internal rules and behavior standards.
It is important that the grounds are predefined and clear to employees.
1.3. Acceptable Measures
In practice, three main groups of sanctions are applied.
1. Warning or Reprimand
Used for minor violations, such as a single instance of being late or not following the schedule.
2. Fines
Applicable for recurring violations or failure to meet quality standards.
3. Dismissal
A last resort. Used for serious or systematic violations such as theft, violence, or significant breaches of the employment contract.
1.4. Limitations on Imposing Fines
Even if fines are provided for in internal documents, their application is limited.
A fine must be:
justified;
reasonable in size;
outlined in the employment contract or corporate policy;
proportional to the employee's salary.
Excessive or undocumented fines may be deemed illegal and challenged in court. Moreover, deductions cannot exceed statutory limits.
1.5. Mandatory Documentation
The disciplinary procedure must be properly documented.
The employer is required to:
issue a written warning before applying sanctions (e.g., reprimands or fines);
document all violations;
follow the procedure for dismissal, including written notices.
Failure to follow proper documentation often serves as a standalone basis for declaring the sanction invalid.
2. Practical Examples
Tardiness
An employee with a salary of 5,000,000 IDR was late three times in a month.
The internal regulations provide for a fine of 1% of daily wages for each violation.
Calculation (assuming 30 working days):
Daily rate:
5,000,000 ÷ 30 = 166,666.67 IDR
Fine for a single tardiness:
166,666.67 × 1% = 1,666.67 IDR
In total, for 3 tardiness instances, the employee incurs a 5,000 IDR fine.
Failure to Meet Quality Standards
The employee's salary is 6,000,000 IDR.
Regulations stipulate a fine of 10% of the salary for not meeting the set standard.
6,000,000 × 10% = 600,000 IDR
The fine amount is 600,000 IDR.
Systematic Violations
The employee repeatedly violated discipline: regular tardiness and failure to fulfill duties.
The employer is required to:
document all incidents;
issue written warnings;
follow the termination procedure according to the law.
Failure to follow procedures may result in the reinstatement of the worker through the court.
3. Motivation System: Legal Opportunities and Management Decisions
Indonesian legislation provides employers with flexibility in designing reward systems. Motivation mechanisms are enshrined:
in employment contracts;
in internal regulations;
in corporate reward policies.
3.1. Permissible Forms of Motivation
In practice, the following are used:
bonuses and premiums for achieving planned targets;
a percentage of the salary;
additional days off;
corporate events;
non-material rewards (such as gifts, trips, and training).
For example:
a 5–10% salary bonus for achieving quarterly or yearly goals;
two additional days of leave for timely task completion;
corporate trips for high-performing employees.
3.2. Balancing Individual and Team Performance
The mechanics of motivation directly influence employee behavior.
If bonuses depend on plan fulfillment, productivity increases. However, focusing solely on individual indicators may have the opposite effect: employees may feel that their contributions to teamwork are undervalued.
Therefore, the system should be transparent and consider the business specifics.
4. Practical Cases
Case 1: Absence of a Sanctions System
In one company, there was no clearly defined system of disciplinary responsibility: rules for applying sanctions for tardiness and internal rule violations were not formalized in internal documents. As a result, employees who regularly violated discipline faced no consequences. Meanwhile, an employee who consistently completed tasks on time and adhered to requirements received the same salary as employees with lower discipline and work quality. This situation led to a sense of injustice within the team, a decline in motivation among diligent employees, and consequently, an increase in staff turnover.
Case 2. Individual Bonuses Instead of Team Bonuses
A company introduced a system of monthly bonuses for achieving planned indicators, which initially positively impacted productivity. Employees became more actively focused on achieving target values to earn additional rewards. However, the model was later changed: bonuses were calculated solely based on individual indicators. This led to discontent among part of the team as contributions to joint projects and teamwork were no longer adequately considered. This resulted in internal tensions and a decrease in some employees' engagement levels.
Case 3. Equal Pay for Unequal Performance
In another company, employee salaries were fixed and not dependent on individual performance. An employee who consistently completed tasks on time and demonstrated high work quality received the same income as an employee who regularly was late and did not meet quality standards. The lack of differentiation in pay eventually led to demotivation of the most efficient workers, increased staff turnover, and an overall decline in department productivity.
Conclusions for the Employer
The practice of regulating labor relations in Indonesia shows that disciplinary sanctions are permissible, but their application is possible only under key conditions.
Firstly, appropriate measures must be pre-established in the employment contract, internal rules, or collective agreement.
Secondly, sanctions must be reasonable and proportional to the violation.
Thirdly, each measure must be properly documented following established procedures. Ignoring even one of these elements significantly increases the risk of labor disputes and litigation.
At the same time, it is important for employers to build not only a system of accountability but also a transparent reward model. Bonuses, premiums, additional days off, and other forms of motivation with well-defined evaluation criteria help maintain productivity and strengthen staff loyalty.
Practice shows that the greatest legal and managerial risks arise not from the mere application of sanctions but from the absence of formalized discipline rules and a clear reward system. The balance between predictable sanctions and transparent motivation forms a stable and manageable personnel model.
