Key Changes Under the New Outsourcing Regulation
On 30 April 2026, the Minister of Manpower enacted Regulation No. 7 of 2026 on Outsourcing (the “Regulation”). The Regulation introduces stricter limitations on the types of work that may be outsourced and imposes additional compliance requirements for outsourcing arrangements. The new framework is expected to significantly affect companies engaging outsourced workers in Indonesia.
We set out below key highlights of the Regulation.
♦ Background
Prior to the Job Creation Law regime, outsourcing arrangements were regulated under Law No. 13 of 2003 on Manpower (the “Manpower Law”). Article 65 of the Manpower Law limited outsourcing to supporting activities that were separate from the company’s main business activities, carried out under the user company’s instruction, constituted supporting activities only, and did not directly interfere with the production process.
Under the Job Creation Law, Article 65 was removed and Article 66 was amended. As a result, the previous statutory restrictions limiting outsourcing to supporting activities and prohibiting outsourcing of core production-related work were no longer expressly regulated under the Manpower Law. These changes were subsequently challenged before the Constitutional Court by labor unions and labor groups, which argued that the revised framework could expand outsourcing practices and weaken worker protection.
In Constitutional Court Decision No. 168/PUU-XXI/2023, the Court did not reinstate the previous restrictions under Article 65. However, the Court held that Article 64 of the Manpower Law, as amended by the Job Creation Law, was conditionally unconstitutional unless interpreted to require the Minister of Manpower to determine the categories of work that may be outsourced. This Decision formed the basis for the issuance of the Regulation.
♦ Permitted Outsourced Activities
The Regulation stipulates that the permitted outsourced activities are limited to the following:
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- cleaning services;
- food and beverage services (i.e., catering);
- security services;
- driver and transportation services for workers;
- operational support services; and
- supporting services in the mining, oil and gas, and electricity sectors.
However, the term “operational support services” is not clearly defined under the Regulation. This lack of clarity may create uncertainty regarding the scope of activities that may still be outsourced under this category and could potentially lead to differing interpretations in practice.
♦ Reporting and Registration Requirement
The Regulation also introduces a mandatory registration requirement for outsourcing agreements. Such agreements must be recorded with the relevant Manpower Office by the outsourcing company. The Manpower Office will review the agreement before issuing proof of registration. If the agreement does not comply with the Regulation, including the permitted scope of outsourced work, the registration process may be delayed or rejected.
♦ Sanctions and Transition Period
The Regulation introduces administrative sanctions for non-compliance. User companies that outsource work outside the permitted categories may be subject to written warnings and restrictions on business activities, including limitations on production capacity and the postponement of business licensing processes.
Outsourcing companies that fail to comply with their obligations under the Regulation may also be subject to administrative sanctions under Indonesia’s risk-based business licensing regime, which may include suspension of business activities, fines, and licenses revocation.
The Regulation provides a two-year transition period, allowing companies until 30 April 2028 to align their existing outsourcing arrangements with the new requirements. Companies should therefore review the scope of outsourced work and assess whether their current outsourcing structures and agreements remain compliant under the Regulation.
AKSET
Please contact Thomas P. Wijaya (twijaya@aksetlaw.com) or Muhammad Dzaki Ramadhan Al Rizal (mrizal@aksetlaw.com) for further information or if you wish discuss the above.
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