Businessasia.co.id – On May 1, 2025, many countries including Indonesia celebrated Labour Day. In Jakarta, a large gathering took place at Monas, attended by labour unions, members of parliament, and the President of Indonesia. Konfederasi Serikat Pekerja Indonesia or The Confederation of Indonesian Workers Unions (KSPI) led a peaceful rally and delivered six demands to the President:
- Abolition of the outsourcing system;
- Formation of a special task force to address mass layoffs;
- Revision of the current Manpower Law;
- Guarantee fair wages;
- Urgent passage of the Domestic Workers Protection Bill (RUU PPRT); and
- Urging the swift passage of the Asset Confiscation Bill (RUU Perampasan Aset)
The Outsourcing Debate
Outsourcing has been a controversial topic in Indonesia since the Manpower Law was passed in 2003. Labour unions see it as a form of modern slavery, while businesses consider it a way to cut costs and focus on their main operations.
Previously, the Manpower Law allowed businesses to hire outsourcing firms to provide workers for supporting jobs in companies. The outsourcing was divided into two classifications, namely: (i) business activities outsourcing and (ii) manpower outsourcing. However, the laws did not clearly distinguish between the two. Despite the polemic, the outsourcing system was highly regulated.
Business activities outsourcing has essentially been regulated under the Indonesian Civil Code, and any additional contractual terms may be freely agreed upon by the relevant parties, provided they do not conflict with existing laws. Some practitioners and scholars believe that business activities outsourcing does not need to be regulated under the Manpower Law, as it could create confusion with the concept originally established by the Indonesian Civil Code.
The regulations limit the types of work that may be outsourced to the following categories: janitorial/cleaning services, employee catering services, security services, oil and mining support activities, and employee transportation services.
Changes Under the Job Creation Law
In 2023, the Job Creation Law was enacted, simplifying the outsourcing system with the aim of making it easier for companies to do business in Indonesia. This move came in response to the economic downturn following the pandemic, which had led to massive layoffs. The Job Creation Law mandates that the Indonesian Government, particularly the Ministry of Manpower, issue implementing regulations to further define the types of work that can be outsourced. However, no such guidelines have been formulated to date.
The Job Creation Law requires an outsourcing agreement to be made between a user company and an outsourcing company, and it must clearly specify the work or job to be outsourced. The outsourcing company and its employees must enter into employment contracts under either permanent or fixed-term employment status. The outsourcing company is responsible for providing employees with entitlements at the statutory minimum, including carrying out disciplinary actions and handling potential manpower disputes. Additionally, the Job Creation Law sets out the requirements for an outsourcing company to operate its business.
The concept and practice of outsourcing is not new in the business world. In Indonesia, outsourcing still primarily involves basic tasks such as cleaning services and security services, although it has gradually evolved to include IT-related work. The Philippines, India, and China are emerging as major players in the outsourcing industry, particularly in the form of Business Process Outsourcing (BPO). Digital transformation, artificial intelligence, and automation are reshaping the BPO sector, and Indonesia is currently experiencing this trend.
Business Needs vs. Workers’ Rights
Outsourcing is popular among businesses because it reduces the burden of hiring, paying, and managing employees. It also lowers operational costs and allows companies to concentrate on their core activities. Business groups like the Indonesian Chamber of Commerce and Industry (KADIN) and the Indonesian Employer’s Association (APINDO) have voiced concerns about calls to abolish outsourcing entirely. Instead, they recommend the government review and improve how outsourcing is regulated and enforced.
The main concern with outsourcing in Indonesia is legal certainty and adequate protection for outsourced employees. In practice, exploitation often occurs, and their entitlements are typically below those of directly employed workers. A clearer legal framework is needed to prevent abuse, limit the types of work that can be outsourced, and define the rights and obligations of outsourcing companies, outsourced employees, and user companies.
The maximum duration for outsourcing arrangements also requires attention, though this remains challenging as companies may replace employees or providers before contracts expire. If a new outsourcing company retains existing employees in the same user company, their rights and contracts must be preserved — a provision already covered by the Job Creation Law, which should be maintained in future legislation.
Moving Towards Responsible Outsourcing
Proper supervision and enforcement are crucial to ensure compliance, manage business risks, and uphold ethical standards. The government should strengthen the role of labour inspectors (Pegawai Pengawas Ketenagakerjaan), while large and medium-sized businesses can support better governance by auditing their outsourcing providers’ compliance with employee entitlements. Additionally, careful planning is essential when transferring liabilities to outsourcing companies to avoid legal risks. While outsourcing remains vital for businesses, ethical practices and regulatory compliance must be prioritized to enhance Indonesia’s global competitiveness.
Lia Alizia, S.H.
Advocate / Employment Legal Expert
