The New Era for Outsourcing in Indonesia: Understanding the Minister of Manpower Regulation 7 of 2026
Authors
On 30 April 2026, the Minister of Manpower of the Republic of Indonesia issued Ministerial Regulation No. 7 of 2026 on Outsourced Work ("MoM Reg 7/2026"), which entered into force on the same date. Issued on the eve of International Labour Day, MoM Reg 7/2026 represents a significant shift in Indonesia's regulatory framework governing outsourcing arrangements (pekerjaan alih daya), introducing explicit limitations on the types of work that may be outsourced and reinforcing protections for outsourced workers. This regulation is the government's direct response to Constitutional Court Decision No. 168/PUU-XXI/2023 ("MK Decision 168/2023"), which mandated the restriction of outsourcing practices under Indonesian law.
In this edition of our ARMA Update, we examine the key provisions of MoM Reg 7/2026 and their practical implications for businesses operating in Indonesia.
A. General Overview
Prior to MoM Reg 7/2026, the legal framework governing outsourcing arrangements in Indonesia was primarily set out under Law No. 13 of 2003 on Manpower as amended by Law No. 6 of 2023 on the Job Creation Law ("Manpower Law") and Government Regulation No. 35 of 2021 on Fixed-Term Employment Contracts, Outsourcing, Working Hours and Rest Periods, and Termination of Employment ("GR 35/2021"). Under the Manpower Law, there were no clear restrictions on the types of work that could be outsourced, which gave employers broad flexibility in deploying outsourced workers including for core business activities.
In this regard, MoM Reg 7/2026 marks a return to a stricter approach, as previously seen under the original Law No. 13 of 2003 (pre-Job Creation Law) and the Minister of Manpower and Transmigration Regulation No. 19 of 2012 ("MoM Reg 19/2012") concerning Requirements for Outsourcing Part of The Work to Another Company. This older framework recognized a clear distinction between two types of outsourcing:
Business Subcontracting (Pemborongan Pekerjaan): The delegation of a specific part of a project or production process to another company; and
Manpower Supply Services (Penyediaan Jasa Pekerja/Buruh): The provision of personnel to perform services for a user company.
Under the 2012 regime, both forms were strictly limited to non-core, "supporting" activities (pekerjaan penunjang) that were separated from the main production flow. By re-establishing a "closed-list" of permissible work categories, the government has moved away from the recent policy of unrestricted outsourcing. Moving forward, the law once again mandates that all outsourcing arrangements be strictly limited to specific, defined categories of supporting work.
B. Permitted Categories of Outsourced Work
The most significant change introduced by MoM Reg 7/2026 is the explicit restriction of outsourced work to six categories of supporting activities. Pursuant to Article 3 of MoM Reg 7/2026, a company that assigns part of its work implementation to an outsourcing company or a "user company" may only delegate work to an outsourcing company in the following fields:
- Cleaning services (Layanan kebersihan);
- Food and beverage provision (Penyediaan makanan dan minuman);
- Security services (Pengamanan);
- Driver and employee transportation services (Penyediaan pengemudi dan angkutan pekerja/buruh);
- Operational support services (Layanan penunjang operasional); and
- Supporting work in the mining, oil and gas, and electricity sectors (Pekerjaan penunjang di bidang pertambangan, perminyakan, gas, dan ketenagalistrikan).
This new list changes how outsourcing is categorized compared to the 2012 rules. Historically, under MoM Reg 19/2012, the "supporting" (penunjang) restriction applied only to manpower supply services. Meanwhile, business subcontracting (pemborongan) was allowed for any activities that were considered "non-core." At that time, the Ministry of Manpower determined what qualified as "core" versus "non-core" activities through specific guidelines for different business sectors.
It is worth noting that the definition of "operational support services" (layanan penunjang operasional) in point 5 is not further elaborated upon in MoM Reg 7/2026. Given the historical precedent where the Ministry previously issued sector-specific guidelines to define core business activities, there is a possibility that the Ministry may issue similar implementing guidance to clarify the scope of this "operational support" category in the near future.
C. Outsourcing Agreement Requirements
Under Article 4 of MoM Reg 7/2026, every outsourcing arrangement must be governed by a written outsourcing agreement (Perjanjian Alih Daya) between a user company and outsourcing company, which must at a minimum contain the following:
Scope of outsourced work: A clear description of the work being delegated to the outsourcing company.
Duration: The term of the outsourcing agreement.
Location: The place where the work is to be carried out.
Number of workers: The number of outsourced workers to be deployed.
Worker protections and entitlements: The agreement must expressly set out the outsourced workers' rights, including at minimum: wages, overtime pay, working hours and rest periods, annual leave, occupational health and safety, social security (jaminan sosial), religious holiday allowance (tunjangan hari raya), and entitlements upon termination of employment.
Rights and obligations of both parties: The respective rights and obligations of the outsourcing company and the user company.
Critically, Article 4 paragraph (3) of MoM Reg 7/2026 places an affirmative obligation on the user company to ensure that the outsourcing company fulfils all worker protection obligations in accordance with applicable laws and regulations. This dual responsibility mechanism means that user companies cannot simply rely on the outsourcing company to comply — they must actively monitor and ensure compliance.
D. Registration and Compliance Obligations
1. Registration for Outsourcing Agreements
Under Article 5 of MoM Reg 7/2026, outsourcing companies are required to register each outsourcing agreement with the relevant local Manpower Office (Dinas Ketenagakerjaan) at the location where the work is performed within 3 (three) working days from the date of signing. The local Manpower Office will review the agreement for compliance with the permitted work categories and minimum content requirements. A registration certificate will only be issued where the agreement satisfies all applicable requirements.
2. Obligations of Outsourcing Companies
In addition to the above registration obligation, Article 6 of MoM Reg 7/2026 also regulates that outsourcing companies must:
- Implement applicable standards on occupational health and safety and environment;
- Register all outsourcing agreements with the relevant Manpower Office; and
- Commence business operations within 1 (one) year of the issuance of their business license.
E. Sanctions
To ensure compliance, MoM Reg 7/2026 introduces several administrative sanctions for both user companies and outsourcing providers as follows:
1. User Companies (Article 8)
User companies that engage outsourced workers for work outside the six permitted categories will be subject to progressive administrative sanctions, comprising of:
- Written warnings; and
- Business restrictions, which may include: (i) restrictions on production capacity for a specified period; and/or (ii) suspension of business licenses at one or more project locations for companies operating in multiple locations.
2. Outsourcing Companies (Article 9)
Outsourcing companies that fail to comply with their obligations under Article 6 of MoM Reg 7/2026 will be subject to administrative sanctions in accordance with applicable risk-based business licensing regulations. Sanctions are imposed by the competent licensing authority based on the recommendation of Labour Inspectors (Pengawas Ketenagakerjaan).
F. Transition Period
Article 10 of MoM Reg 7/2026 provides that the provisions concerning the types and fields of outsourced work permitted must be fully implemented within 2 (two) years from the date of enactment. This transition period is intended to give companies sufficient time to review and restructure existing outsourcing arrangements that may not comply with the newly imposed restrictions. Companies are strongly advised to use this transition window to audit their current outsourcing arrangements and take proactive steps to ensure compliance before the deadline.
In conclusion, MoM Reg 7/2026 marks a fundamental shift in Indonesia's outsourcing landscape by imposing clear limitations on permissible outsourced work and strengthening worker protection obligations. While the regulation introduces stricter compliance requirements for both user and outsourcing companies, the two-year transition period provides a critical window for businesses to reassess and realign their existing arrangements. Companies should take proactive steps to ensure compliance, mitigate regulatory risks, and adapt their operational strategies in light of this more restrictive framework.
Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.
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