The New Outsourcing Framework under Indonesian Minister of Manpower Regulation No. 7 of 2026

Outsourcing has long been widely utilized by companies in Indonesia as a means of improving operational efficiency, particularly for functions that are not directly related to their core business activities. The issuance of Minister of Manpower Regulation No. 7 of 2026 reflects the government’s intention to adopt a more structured approach to outsourcing while placing greater emphasis on legal compliance and the responsibilities of companies utilizing outsourcing services.
Scope of Outsourcable Work
Previously, outsourcing practices in Indonesia could be applied relatively broadly. Under the new regulation, however, outsourcing is now limited to supporting activities. This distinction has become a critical factor in assessing whether a particular contractual arrangement complies with the applicable legal framework.
Although the government has not issued a definitive list of activities that may or may not be outsourced, there remains a significant risk that activities categorized as core business functions may be deemed ineligible for outsourcing arrangements.
For example, where a company outsources core operational functions such as factory operators, key engineering roles, or production control activities, such arrangements may no longer be recognized as lawful outsourcing practices and could potentially expose the company to future regulatory sanctions. It will therefore be important to monitor future cases and regulatory practices to better understand how the government interprets and enforces these restrictions in practice.
Contract Structure and Risk Management
Article 2 of Minister of Manpower Regulation No. 7 of 2026 clearly stipulates that all outsourcing arrangements must be formalized through a written agreement between the principal company and the outsourcing service provider.
While this requirement may appear straightforward, in practice it effectively eliminates the informal or loosely structured outsourcing arrangements that had previously been common in certain sectors.
The outsourcing agreement itself serves as a key instrument for ensuring regulatory compliance. Beyond functioning merely as a commercial agreement, the contract must also incorporate specific regulatory requirements mandated under Indonesian labor law.
Pursuant to Article 4 of Minister of Manpower Regulation No. 7 of 2026, the agreement must contain not only fundamental business terms such as the scope of work, contract period, and workplace location, but also a comprehensive framework for worker protection. This includes provisions relating to wages, working hours, leave entitlements, occupational health and safety, social security participation, and employee rights in connection with termination of employment.
Strengthening of User Responsibility
Previously, issues involving outsourced employees were generally regarded as the sole responsibility of the outsourcing service provider. Following the regulatory amendment, however, the responsibilities of the user company have also been significantly strengthened.
Although labor-related obligations fundamentally remain with the outsourcing service provider, the principal company is now likewise required to ensure and verify that worker protection measures are properly implemented in practice. As a result, in the event of future labor disputes, there is an increased possibility that both the outsourcing company and the user company may be jointly implicated or named as parties to the dispute.
Strengthened Government Supervision
This shared responsibility framework is further reinforced through the mandatory registration of outsourcing agreements.
Under Article 5 of Minister of Manpower Regulation No. 7 of 2026, outsourcing service providers are required to submit and register outsourcing agreements with the relevant labor authority within three working days from the execution date of the agreement.
The labor authority may review whether the agreement complies with the permitted scope of outsourcing activities and the mandatory contractual requirements prescribed under the regulation. Where deficiencies are identified, the registration process may be suspended. Accordingly, contract registration no longer functions merely as an administrative formality, but also as a substantive regulatory compliance review mechanism.
In addition, the regulation emphasizes that outsourcing service providers must operate within the general licensing framework applicable to their business activities. Providers are required to fulfill fundamental obligations, including compliance with occupational health and safety standards and the commencement of business operations within the prescribed timeframe. At the same time, outsourcing practices will remain subject to supervision by labor inspectors, indicating a more active enforcement and regulatory monitoring environment going forward.
Failure to comply with these requirements may result in consequences extending beyond administrative sanctions. Principal companies that outsource activities falling outside the permitted scope may be subject to sanctions, including restrictions on their business activities. Such restrictions may create significant operational risks, particularly where they affect production capacity or licensing processes.
On the other hand, outsourcing service providers may also face separate sanctions under the prevailing risk-based business licensing framework if they fail to fulfill their obligations as licensed outsourcing business entities.
Outsourcing in Indonesia is therefore no longer merely a matter of operational efficiency. It is increasingly becoming a highly regulated area that requires a structured and compliant approach from the outset, particularly with respect to the scope of work, contractual arrangements, and regulatory obligations.