Expansion of Corporate Liability in Outsourcing Agreements Under Minister of Manpower Regulation No. 7/2026

The Regulation of the Minister of Manpower of the Republic of Indonesia Number 7 of 2026 concerning Outsourcing (Permenaker No. 7/2026) was implemented on April 30, 2026. The “Considerations” section of the regulation states, among other things, that the regulation of outsourcing work is being implemented as a follow-up to the Constitutional Court Decision Number 168/PUU-XXI/2023 dated October 31, 2023.

The content of Permenaker No. 7/2026 includes general provisions, outsourcing agreements, obligations of outsourcing companies, supervision, administrative sanctions, transitional provisions, and closing provisions. It also covers the types and fields of outsourcing work. Therefore, the client notice emphasizes, among other things, the timeframe for compliance adjustments under the framework of Permenaker No. 7/2026, expanded legal obligations for companies, registration mechanisms and procedures for government oversight, sanction systems and types, and restrictions on the subcontracting of specific outsourcing work components and the required forms of outsourcing agreements.

 

What has Changed

 

Previously, outsourcing arrangements under Government Regulation of the Republic of Indonesia Number 35 of 2021 concerning Fixed-Term Employment, Outsourcing, Working Hours and Rest Periods, and Termination of Employment (PP No. 35/2021) included, among other things:

• The legal employment relationship in outsourcing takes the form of either a fixed-term employment agreement (PKWT) or an indefinite-term employment agreement (PKWTT);
• Worker protections—ranging from wage matters to the transfer of protections upon a change of outsourcing company—are the sole responsibility of the outsourcing company, provided the scope of work remains unchanged; and
• Outsourcing companies must be established as legal entities and are required to obtain business licensing from the Central Government.

Furthermore, the framework established by Permenaker No. 7/2026, among other matters:

• Restrictions on the subcontracting of specific outsourcing tasks and the required forms of outsourcing agreements;
• Expanded responsibilities for the parties to outsourcing agreements and mandatory minimum clauses for such agreements;
• State supervision mechanisms and procedures for registering outsourcing agreements;
• Sanction systems and types; and
• Deadlines for bringing existing outsourcing agreements into compliance.

 

Understanding the Framework of the Minister of Manpower Regulation Number 7 of 2026

• Restrictions on Types and Areas of Outsourced Work
  
  PP No. 35/2021 does not explicitly restrict the types or fields of work that may be outsourced. The regulation grants hiring companies the freedom to determine which tasks to assign to outsourcing companies. Consequently, in practice, many companies outsource their core business activities, creating legal uncertainty and the potential for abuse.
  In contrast, the provisions of Article 3, paragraph (2) of the Permenaker No. 7/2026 expressly and specifically limit outsourcing to supporting work, comprising:

• Cleaning services;
• Food and beverage provision (catering services);
• Security services;
• Provision of drivers and worker/laborer transportation (transportation services);
• Operational support services;
• Supporting work in the mining, oil, gas, and electricity sectors.
  A crucial point requiring re-examination is the term “Operational Support Services” (letter e); while it remains open to broad interpretation, in principle, it must be understood as work that supports company operations but does not constitute the core business activity.
  
  
• Expansion of the Responsibilities of Parties to Outsourcing Agreements and Regulation of Minimum Clauses in Outsourcing Agreements
  
  Article 18 of PP No. 35/2021 stipulates that the legal relationship between an outsourcing company and a worker must include, at a minimum, the following clauses:
  
  
• The employment relationship between the outsourcing company and the worker is based on a fixed-term employment agreement (PKWT) or an indefinite-term employment agreement (PKWTT);
• The agreement must be made in writing;
• Worker protection measures must be implemented in accordance with statutory regulations, fall under the responsibility of the outsourcing company, and be stipulated in the employment agreement, company regulations, or collective labor agreement.
  
  Meanwhile, Article 4 paragraph (1) of the Permenaker No. 7/2026 explicitly states that the legal relationship between the parties to an outsourcing agreement—namely the Contracting Company (the company outsourcing the work) and the Outsourcing Company—must include, at a minimum, the following clauses:
  
  
• The work is being outsourced;
• The duration of the outsourcing agreement;
• The location where the work is performed;
• The number of outsourced workers;
• Wage protection and payment methods, working hours and rest periods, annual leave, occupational health and safety, social security, religious holiday allowances, and termination of employment;
• The rights and obligations of the outsourcing company and the company delegating part of the work execution.
  Furthermore, Article 4 paragraph (3) of Permenaker No. 7/2026 expands the scope of parties involved in the outsourcing agreement to ensure the protection of workers’ rights. Thus, this point differs from the outsourcing regulations set forth in PP No. 35/2021.
  
  

• State Oversight Mechanism and Registration Procedures for Outsourcing Agreements
  
  Article 14 of PP No. 35/2021 does not prescribe a specific registration procedure for outsourcing agreements. This regulation only mandates the registration of Fixed-Term Employment Agreements (PKWT)—either online with the Ministry of Manpower or in writing with the Manpower Agency—within a maximum of three working days following the signing of the PKWT. However, Article 5 of the Permenaker No. 7/2026 explicitly stipulates the registration procedure for outsourcing agreements as follows:

• Companies are required to possess proof of registration for the outsourcing agreement;
• The registration application must be submitted by the outsourcing company to the manpower agency in the jurisdiction where the work is performed, within a maximum of three working days after the outsourcing agreement is signed by the parties.
• The application must be accompanied by the outsourcing agreement document.
• The Manpower Agency reviews the submitted outsourcing agreement and may defer the issuance of the proof of registration if the agreement fails to comply with Article 3, paragraph (2), regarding the types of work, and Article 4, regarding the required content of the agreement.
• If the agreement meets the prescribed requirements, the Manpower Agency will issue the proof of registration.
• Periodic reporting requires the Head of the City/Regency Manpower Agency to submit reports on outsourcing agreement registrations to the Minister of Manpower, with a copy to the Head of the Provincial Manpower Agency, on a quarterly basis (every three months).
  Upon examination, Article 5, letter f, in conjunction with Article 6 of Permenaker No. 7/2026 imposes an administrative obligation on outsourcing companies to actively submit periodic reports to the Ministry of Manpower. In this context, legal compliance is a fundamental requirement for outsourcing companies.
  
  
• Systems and Types of Sanctions
  
  The sanctions system under the framework of Permenaker No. 7/2026 is progressive in nature. Essentially, there are only two types of sanctions: a written warning and a restriction on business activities—taking the form of limiting the production of goods and services for a specific period or suspending the issuance of business licenses for a specific company location where the company operates projects across multiple sites.
  
  

• Deadline for Adjusting Outsourcing Agreements
  
  Pursuant to Article 10 of Permanaker No. 7/2026, companies participating in outsourcing agreements are required to restrict the types and fields of work eligible for outsourcing within a period of two years from the date the regulation was promulgated.

 

Implications and Mitigation

Considering the framework of the Permenaker No. 7/2026, the implications for parties to outsourcing agreements and the mitigation measures they can undertake are as follows:

• The framework of  Permenaker No. 7/2026 affects the types and fields of work that may be outsourced. Consequently, a rational step is to negotiate the renewal of agreements between the parties involved in the outsourcing arrangement. Furthermore, for outsourcing companies, the employment contracts of the workers they employ should also be subject to rationalization during the agreement renewal process.
• For parties to outsourcing agreements, the implications include the need to negotiate the scope or limits of liability regarding the protection of workers’ rights and to establish minimum provisions for outsourcing agreement clauses in accordance with the framework of  Permenaker No. 7/2026.
• Outsourcing companies bear administrative responsibilities toward labor authorities. Moreover, from the perspective of evidentiary proceedings in the Industrial Relations Court, evidence of administrative compliance may be admitted as legal evidence.
• For user companies found liable for failing to supervise outsourcing companies in protecting workers’ rights, the implications involve a tiered system of administrative sanctions, ranging from written warnings to the restrictions outlined above.
• Parties to outsourcing agreements that fail to align with the framework of  Permenaker No. 7/2026 risk being deemed administratively non-compliant in the eyes of labor authorities.

 

Next Steps for Outsourcing Companies

Based on the foregoing, the rational steps for companies participating in outsourcing agreements are as follows:

• Conducting a legal audit of the outsourcing agreement clauses between the contracting company and the outsourcing company, followed by an assessment based on the Regulation of the Permenaker No. 7/2026.
• Negotiating the allocation of responsibility for the protection of workers’ rights between the contracting company and the outsourcing company within the outsourcing agreement.
• Outsourcing participants may conduct an assessment by distinguishing between compliance with external laws and the interests of the parties requiring protection.