Salary vs Wage: What You Need to Know and How They Are Determined

As an employee, you’re probably familiar with the terms salary and wage. But are you aware that these two concepts have significant differences?

Understanding the differences between salary and wage is essential for enhancing your knowledge and ensuring that your hard work is rewarded fairly.

Don’t hesitate to dig deeper to better understand your rights as a worker. Every small step can make a big impact on your financial journey!

Definition of Salary and Wages

Employees have the right to receive compensation after fulfilling their responsibilities to the company as outlined in their employment agreement.

This compensation is typically provided as a salary or a wage, terms that are often used interchangeably but actually have distinct meanings.

According to the Indonesian Dictionary (KBBI), a salary is a fixed payment given to employees at regular intervals, usually monthly, with a pre-determined amount.

In contrast, a wage is compensation paid for services or labor performed in a specific role, often based on measurable work outcomes.

In essence, the distinction between salary and wage lies in factors like payment frequency and the nature of the work involved.

Read More: The Purpose of Payroll, Its Components, and Calculations

Salary vs. Wage: What’s the Difference?

It is important for an employee to understand the difference between a salary and a wage, based on the situation and context. Here are some key points of distinction:

Determining Criteria

1. Salary Determining Criteria

The process for determining salaries in a company differs from determining wages. Typically, salary figures are influenced by both internal and external policies. Factors often considered include:

• Government Regulation (PP) 36/2021: This regulation governs wage policies, including the annual adjustment of UMR, which must align with inflation and productivity rates.
• Regional Minimum Wage (UMR): A minimum standard that companies must meet when offering fair wages. Different regions in Indonesia set their own UMR, influenced by government policy and local economic conditions.
• Labor Market Conditions: The movement and demand for labor can impact salary levels.
• Employee Skills: The higher the skill level and experience of an employee, the higher the salary potential.
• Company Financial Condition: Company’s profitability often influences salary adjustments, ensuring alignment with its financial capabilities.

B. Wage Determining Criteria

The legal basis for wage determining criteria in Indonesia includes:

1. Law No. 13 of 2003 on Manpower: Article 89 mandates that the provincial minimum wage (UMP) is set by the Governor based on recommendations from the Wage Council to meet a decent living standard.
2. Government Regulation No. 78 of 2015 on Wages: Regulates the methodology for minimum wage determination, including the decent living needs (KHL) and annual adjustments based on economic conditions.
3. Minister of Manpower Regulation No. 18 of 2022: Annual guidelines for minimum wage adjustments based on economic growth and inflation.
4. Law No. 11 of 2020 (Job Creation Law) and Perppu No. 2 of 2022: Adds flexibility in wage determination based on productivity and regional conditions.

Payment Period

• Salaries are typically paid every month, with no regard for specific working hours.
• Wages, however, are usually paid based on the actual hours worked or specific tasks completed, either daily or per project.

Employment Status

• Salaries are typically given to permanent or contract employees.
• Wages are paid to casual workers, part-time workers, seasonal workers, or piece- work employees

Components of Compensation

• Salaries often come with additional benefits such as health insurance, transportation allowances, and other perks.
• Wages are generally simpler, without extra allowances, and based solely on the amount of work performed.

Read More: Why Employees Request Salary Advances and Free Template

Issues in Wage and Salary Payments

In the provision of compensation, several issues are commonly faced by both employees and the company. Here are some of the typical challenges:

1. Lack of Transparency
Not all companies provide clear explanations of salary or wage components, often leading to confusion and dissatisfaction among employees, especially when certain deductions or components are not fully explained.

2. Limited Access to Pay
In urgent situations or unexpected financial needs, employees may struggle with limited access to their pay, especially if it’s only available at the end of the month. This can drive workers to resort to less ideal financial solutions, such as illegal online loans, which carry high risks.

3. Payment Delays
Delays in salary or wage payments can significantly impact an employee’s financial well-being. Timely payments are crucial for employees to meet daily expenses and avoid financial issues.

Solution: Early Wage Access with Setlary

When financial needs arise outside of the regular payroll schedule, Setlary provides a solution with Early Wage Access (EWA), allowing employees to access their earnings before the end of the month.

Equipped with a range of features, this platform enables employees to withdraw their wages based on their individual financial needs.

The Collected Salary feature allows employees to access daily earnings from completed workdays within the current month. If a larger amount is needed, employees can access a portion of their monthly salary early through the Advance Salary feature.

Additionally, employees have the option to withdraw from their next month’s salary using the Next Month’s Salary feature, which can be helpful in urgent situations, with customizable withdrawal amounts.

With Setlary’s Early Wage Access, employees can access a portion of their salary at any time during the pay cycle. This flexible solution not only supports employees’ financial well-being but also preserves the company’s existing payroll flow.