Background and Transformation of Outsourcing Policy
The regulatory dynamics of outsourcing in Indonesia have undergone a long journey marked by fierce debate between the demands for labour market flexibility and the protection of workers’ rights. Under Law Number 13 of 2003, outsourcing was strictly limited to only five types of support work. However, the enactment of the Job Creation Law (Law No. 6 of 2023 on the Enactment of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation) and Government Regulation No. 35 of 2021 temporarily removed this specific list of limitations and left the terms to commercial agreements, which in practice triggered legal uncertainty and a wave of protests from trade union groups regarding job security.
These circumstances led to a judicial review before the Constitutional Court, culminating in the issuance of Constitutional Court Decision Number 168/PUU-XXI/2023. In its ruling, the Constitutional Court reaffirmed the importance of the state establishing clear limits on jobs that may be outsourced to prevent the commodification of labour and to guarantee the fundamental rights of workers. As a concrete follow-up to this constitutional ruling and to fulfil the mandate of Article 64, paragraph (2) of the Job Creation Law, the Ministry of Manpower officially promulgated Minister of Manpower Regulation Number 7 of 2026 on Outsourcing on 30 April 2026, issued close to International Workers’ Day (May Day) 2026.
The position of Minister of Manpower Regulation No. 7/2026 does not replace Government Regulation No. 35/2021; rather, it acts as technical implementing rules that clarify and supplement Indonesia’s outsourcing framework. Through this regime, the government seeks to provide a compromise bridge to restore outsourcing to its original function as a legitimate business support instrument, while strengthening regulatory oversight, ensuring legal certainty, and tightening protections for workers.
Strict Restrictions on Types of Work and the “Operational Support” Challenge
The most fundamental change in this regulation lies in the restriction of job types and sectors. Whereas limits on outsourcing previously sparked debate due to varying interpretations, Minister of Manpower Regulation No. 7/2026 explicitly confines the outsourcing of worker provision services to only six categories of support activities. These categories are set out in Article 3, paragraph (2), comprising: cleaning services, food and beverage provision, security services, driver and employee transport provision, operational support services, and support work in the mining, oil, natural gas, and electricity sectors. Outside these six domains, companies are no longer permitted to use outsourcing schemes.
However, the category of “operational support services” retains significant room for dynamic interpretation. In the absence of a detailed derivative definition within the regulation, client companies are required to conduct an independent functional analysis to ensure that the outsourced function is genuinely qualitative as an auxiliary activity and does not directly overlap with core business processes.
New Standards for B2B Agreements and Registration Obligations
Alongside narrowing the scope of work, the government has also raised accountability standards for legal documentation between client companies and outsourcing service providers (business-to-business). This is set out in Article 4, which mandates that the Outsourcing Agreement between the Client Company (User) and the Provider Company (Vendor) must be made in writing and contain at least six main components:
- Details of the outsourced work;
- Duration of the agreement;
- Location of work execution;
- Number of workers/labourers;
- Worker/labourer rights and protections (at minimum covering: wages, overtime pay, working hours & rest periods, annual leave, occupational safety and health (OSH), social security/BPJS, religious holiday allowance (THR), and rights upon termination or end of employment);
- Rights and obligations of each party (User & Vendor).
Outsourcing agreements are now required to be in written form and contain at least six substantive elements, ranging from detailed job descriptions, duration, work location, and workforce size to details of worker rights and protections, through to the determination of each party’s rights and obligations. The worker protection component must detail aspects of wages, overtime, working hours, annual leave, OSH, social security, Religious Holiday Allowance (THR), and certainty of rights in the event of employment termination. In these provisions, the principle of continuity of employment affirmed in Constitutional Court Decision No. 168/2023 is also applied. This principle provides protection for workers so that they can continue their employment if the client company replaces the service vendor, provided that the work subject to outsourcing remains available and required.
In line with this, the regulation reinstates the obligation to register B2B agreements with the local manpower office within a maximum of three working days of signing. This provision demands adjustments to internal corporate SOPs to ensure the process from signing to registration does not exceed the specified deadline.
Strengthening Worker Protection and Client Company Responsibility
Under the Minister of Manpower Regulation No. 7/2026 regime, the responsibility for worker protection no longer rests entirely on outsourcing companies as direct employers. Client companies are now burdened with a legal obligation to ensure that service vendor providers genuinely fulfil all normative rights of workers in accordance with statutory regulations. This shifts the paradigm of outsourcing relationships from an arm’s-length commercial transaction into a form of cooperation that demands active supervision, including compliance audits (vendor due diligence) and the implementation of indemnity mechanisms in contracts.
On the other hand, Labour Inspectors are authorised to impose phased administrative sanctions on client companies that violate statutory provisions, ranging from written warnings to restrictions on business activities. Such restrictions may take the form of cutting production capacity for goods or services through to delaying the issuance of business licences across various project locations, potentially paralysing business operations directly.
Two-Year Transition Period and Strategic Steps for Businesses
To provide legal certainty and space for adjustment for businesses, this regulation establishes a two-year transitional provision. Outsourcing contracts already running before 30 April 2026 are declared to remain valid until the expiry of their agreement term. Nevertheless, all adjustments regarding job types, contract clauses, and registration validity must be fully completed by 30 April 2028 at the latest.
Given its broad operational implications, companies are advised to immediately perform an audit and job mapping of all existing outsourced personnel. Jobs identified as falling outside the six permitted categories must promptly have restructuring options prepared, whether through transitioning into internal employees (insourcing), direct use of fixed-term employment contract (PKWT) schemes, or restructuring business models before the transition deadline expires.
Conclusion
Minister of Manpower Regulation No. 7 of 2026 clarifies outsourcing governance in Indonesia by limiting work schemes exclusively to six groups of supporting activities, requiring written B2B agreements that set out workers’ statutory rights and are registered with the local labour office within a maximum of three working days, and applying the principle of continuity of employment. This regulation also places legal responsibility on user companies to undertake active oversight and compliance audits (vendor due diligence), with tiered administrative sanctions up to the restriction of business activities for non-compliance. As an adjustment measure, businesses are given a two-year transition period until 30 April 2028 to conduct job mapping, internal audits, and the restructuring of work schemes—such as insourcing or fixed-term employment contracts (PKWT)—for positions that no longer meet outsourcing criteria.
Need advice on navigating the new outsourcing regulations? Contact MNL Law Firm for tailored legal advice and solutions to help your business stay compliant and effectively manage employment risks. Email: secretary@mnllaw.co.id; Phone: +62812-9539-7825
Reference:
Government Regulation No. 35 of 2021 on Fixed-Term Employment Contracts, Outsourcing, Working Hours and Rest Periods, and Termination of Employment Relations
Law No. 6 of 2023 on the Enactment of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into Law
Constitutional Court Decision No. 168/PUU-XXI/2023
Minister of Manpower Regulation No. 7 of 2026 on Outsourcing Work
Author: Faiq Maulana, S.H.
Editor: Yohana Maranatha, S.H.,M.Kn.