One day before International Workers’ Day (“May Day”), which is commemorated annually on May 1, the Indonesian Minister of Manpower issued Minister of Manpower Regulation No. 7 of 2026 concerning Outsourcing Work (“Permenaker 7/2026”). This regulation was enacted to implement Article 64 paragraph (2) in conjunction with Article 81 point 18 of the Job Creation Law, as well as to follow up on Constitutional Court Decision No. 168/PUU-XXI/2023 regarding the judicial review of the Job Creation Law against the 1945 Constitution of the Republic of Indonesia, which emphasized the need for limitations on outsourcing practices.

Permenaker 7/2026 introduces several important provisions governing outsourcing arrangements in Indonesia. The regulation defines a “user company” as a company that delegates part of its work implementation to an outsourcing company. Meanwhile, an “outsourcing company” is defined as a legal entity authorized to carry out certain work based on an agreement with the user company.

Under the regulation, the delegation of work from the user company to the outsourcing company must be conducted through a written outsourcing agreement. The outsourced work is categorized as labor supply services. Permenaker 7/2026 specifically limits outsourcing activities to the following six categories of supporting services:

1. Cleaning services;
2. Food and beverage services;
3. Security services;
4. Provision of drivers and transportation services for workers/laborers;
5. Operational support services; and
6. Supporting work in the mining, oil and gas, and electricity sectors.

The outsourcing agreement between the user company and the outsourcing company must contain at least the following provisions:

1. The type of work outsourced to the outsourcing company;
2. The duration of the outsourcing agreement;
3. The location where the work will be performed;
4. The number of outsourced workers/laborers involved;
5. Protection and rights of outsourced workers/laborers, including at minimum wages, overtime pay, working hours and rest periods, annual leave, occupational health and safety rights, social security, religious holiday allowance (THR), and rights related to termination of employment; and
6. The rights and obligations of both the outsourcing company and the user company.

Importantly, the protection and rights of outsourced workers/laborers stipulated in the agreement must comply with prevailing Indonesian labor laws and regulations and remain the responsibility of the outsourcing company. However, Article 4 paragraph (3) of Permenaker 7/2026 expressly states that the user company is responsible for ensuring that the outsourcing company fulfills the protection and rights of outsourced workers/laborers in accordance with applicable laws and regulations.

This provision significantly increases the compliance burden for user companies. User companies are no longer only required to ensure that outsourcing agreements formally comply with legal requirements, but must also actively ensure that outsourced workers receive their statutory employment rights and protections under Indonesian employment law. This creates additional legal exposure and potential liability for companies engaging outsourced labor.

In addition, outsourcing companies are required to register their outsourcing agreements with the relevant local manpower office where the work is performed. The relevant authority will review the agreement before issuing proof of registration.

Permenaker 7/2026 also introduces administrative sanctions for non-compliance. User companies that violate Article 3 of the regulation may be subject to sanctions ranging from written warnings to restrictions on business activities. Such restrictions may include limitations on production capacity for goods and/or services for a certain period and suspension of business licensing at one or more company locations. These sanctions may be imposed by the authority responsible for issuing business licenses based on recommendations from labor inspectors.

The regulation also contains important transitional provisions. First, existing outsourcing agreements remain valid until their expiration date. Second, outsourcing companies and user companies currently implementing outsourced work arrangements must adjust their outsourcing practices and categories of outsourced work to comply with Permenaker 7/2026 within a maximum period of two years from the enactment date of the regulation.

Accordingly, Permenaker 7/2026 serves not only as a regulatory framework governing the relationship between user companies and outsourcing companies, but also as a mechanism to strengthen legal protection for outsourced workers in Indonesia. Companies should therefore immediately review and revise their existing outsourcing agreements, outsourcing structures, and labor compliance mechanisms to ensure alignment with the new regulatory requirements.

Compliance with Permenaker 7/2026 is essential to minimize the risk of administrative sanctions, employment disputes, operational disruptions, and potential violations of workers’ rights under Indonesian labor law.

For companies seeking legal advice regarding outsourcing arrangements, employment compliance, labor disputes, or corporate regulatory matters in Indonesia, Schinder Law Firm has extensive experience assisting domestic and foreign companies in navigating Indonesian employment and corporate law matters. Please contact us at info@schinderlawfirm.com for further consultation.

Author:
Dewi Susanti