Discover the contents and objectives of Indonesia’s Outsourcing Labor Law to protect workers' rights and ensure legal compliance for companies. Read more here!
The Outsourcing Labor Law is a crucial reference for companies seeking to implement outsourcing systems to improve operational efficiency. This regulation must not be overlooked, as it directly relates to legal compliance and the protection of workers' rights. Companies must ensure their outsourcing practices adhere to prevailing laws to maintain professional and fair labor relations. This article provides a comprehensive overview of the outsourcing labor law and its application.
Let’s explore in detail below.
Understanding Indonesia’s Outsourcing Labor Law
Outsourcing was first officially regulated under Law No. 13 of 2003 on Manpower, specifically in Articles 64 to 66. This law allowed companies to delegate certain job functions to other companies that provide labor services.
However, this regulation was significantly revised with the enactment of Law No. 11 of 2020 on Job Creation (Omnibus Law), which repealed and amended various provisions in the original Manpower Law.
As a derivative of the Job Creation Law, the government issued Government Regulation (PP) No. 35 of 2021, which more specifically governs Fixed-Term Employment Agreements (PKWT), outsourcing, working hours, rest periods, and employment termination. This regulation defines outsourcing as the transfer of specific work duties through agreements between outsourcing companies and client companies.
A key change in this policy is the elimination of the distinction between job supply (contracting) and labor supply outsourcing. Previously, outsourcing was limited to supporting or non-core business functions. Now, companies have greater flexibility to outsource a wider range of job functions depending on their business needs.
This transformation brings both challenges and opportunities. For HR professionals, it is essential to fully understand the updated provisions in the Outsourcing Labor Law to ensure compliance and prevent future legal disputes.
Read Also: Occupational Health and Safety Law You Should Know
4 Key Objectives of the Outsourcing Labor Law
The government had several core objectives when establishing the Outsourcing Labor Law, including:
1. Providing Legal Certainty
The written regulations offer legal clarity for all parties involved—employers, outsourcing providers, and outsourced workers—regarding their rights, responsibilities, and the legally recognized structure of employment relationships.
2. Protecting Worker's Rights
The law enables companies to manage their human resources more flexibly by focusing on core business areas while outsourcing operational or technical roles to specialized third-party providers. This enhances workplace efficiency and productivity.
3. Encouraging Business Flexibility
The law enables companies to manage their human resources more flexibly by focusing on core business areas while outsourcing operational or technical roles to specialized third-party providers. This enhances workplace efficiency and productivity.
Read Also:3 Outsourcing Work Systems and How to Manage Them
4. Promoting Professional Outsourcing Services
By requiring outsourcing providers to be legally incorporated entities with business licenses, the law fosters a more professional and competitive outsourcing industry. It also encourages companies to be selective in choosing their vendors and motivates outsourcing firms to maintain high standards in the workforce they supply.
Key Provisions in Employment Agreements Between Workers and Outsourcing Providers
A written employment agreement is a vital component of the outsourcing system. According to Article 66 paragraph (1) of Law 13/2003 jo Law 11/2020 and Articles 18 and 19 of PP 35/2021, the relationship between outsourcing companies and outsourced workers must be formalized in either a Fixed-Term Employment Agreement (PKWT) or an Indefinite-Term Employment Agreement (PKWTT).
At a minimum, the outsourcing employment contract should include:
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Company and worker details (name, address, business type, gender, age)
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Job title or description.
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Work location.
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Salary amount and payment method.
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Rights and responsibilities of both parties.
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Start date and duration of the agreement.
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Signatures of both parties.
If the agreement is a PKWT, it must also outline the terms for transferring worker protections in case of a change in outsourcing vendors, provided the job function remains unchanged. This is to ensure continuity of employment for outsourced workers.
It is also important to note that all responsibilities regarding wages, welfare, and dispute resolution lie with the outsourcing company, not the company utilizing the labor.
Read Also: Understanding Wage Protection for Outsourced Workers
Understanding the Outsourcing Labor Law is crucial for every HR professional in Indonesia. From its legal foundation and purpose to the specifics of employment contracts, every aspect is designed to ensure a fair, professional, and balanced working relationship between companies and workers.
A deep understanding of this regulation helps companies avoid legal risks and maintain a reputation for compliance with labor laws. Moreover, properly implemented outsourcing systems significantly contribute to operational efficiency and effectiveness.
However, implementing outsourcing in accordance with the law naturally requires a trusted and experienced labor service provider. This is where SOS comes in as the ideal solution for companies.
Ensure Legal Compliance with Quality Workforce from SOS!
SOS is your trusted partner in providing legally compliant and professionally trained outsourced labor. Whether you need administrative, logistics, or security personnel, SOS delivers high-quality human resources that meet industry standards. This allows your company to boost productivity while maintaining cost-efficiency and workforce quality.
With years of experience and adherence to the latest outsourcing regulations, SOS ensures every employment relationship is established fairly and legally—for the benefit of both the workforce and the client companies.
So, what are you waiting for? Contact SOS via WhatsApp today and get the skilled workforce your business needs!
