In recent years, micro and small businesses (UMK) have played a vital role in driving Indonesia’s economic growth. Recognizing their importance, the Indonesian government introduced special provisions under the Job Creation Law (UU Cipta Kerja) to support the development of these businesses. These changes aim to reduce barriers, provide greater flexibility, and create a more conducive environment for UMK to thrive in a competitive market.

Classification of Micro and Small Businesses (UMK):

• Micro Business:
  • Capital: Up to IDR 1 billion (excluding land and buildings).
  • Annual Revenue: Up to IDR 2 billion.
• Small Business:
  • Capital: Above IDR 1 billion to a maximum of IDR 5 billion (excluding land and buildings).
  • Annual Revenue: Above IDR 2 billion to a maximum of IDR 15 billion.

Advantages Offered to UMK:

1. Simplified Establishment of Limited Liability Companies (PT):
   • A PT can now be established with just one person, benefiting from reduced costs and simplified electronic registration.
2. Exemption from Minimum Wage Regulations:
   • Wages can be determined through an agreement between the employer and employee, with a minimum of 50% of the regional average consumption and 25% above the regional poverty line.
3. Fair Termination Pay for Employees:
   • Severance pay and related compensation for terminated employees are based on mutual agreements between the business and its employees.

These reforms reflect the government’s commitment to empowering UMK by providing them with the necessary tools to adapt and thrive in an increasingly competitive business environment. By simplifying the establishment process, offering flexibility in wage negotiations, and ensuring fair compensation for employees, the government aims to reduce the operational challenges that small businesses often face. These measures are designed to lower barriers to entry, foster innovation, and allow UMK to scale more easily without the heavy burden of complex regulations.

Additionally, empowering UMK is seen as a key strategy for driving economic resilience in Indonesia. Micro and small businesses contribute significantly to job creation, income distribution, and local economic development. By supporting these businesses, the government is fostering a more inclusive economy, where the benefits of growth are widely distributed across various sectors of society. This approach not only strengthens the domestic economy but also enhances the nation’s capacity to withstand external economic shocks by diversifying its economic base. Through these reforms, the government is reinforcing its vision of a robust, sustainable, and equitable economic landscape where UMK can continue to play a pivotal role in shaping Indonesia’s future growth.

Legal Foundations:

• Law No. 13/2003 on Manpower.
• Law No. 11/2020 on Job Creation.
• Government Regulations: PP 7/2021, PP 35/2021, and PP 36/2021.