Discover insight through our challenging cases.

Outsourcing Contract

An outsourcing activity must commence appropriately by the Manpower Law and Ministerial Regulation No. 11 of 2019. Any violation of any kind shall result in an employment relationship between the Contracting Company and the workers provided by the Outsourcing Company.

Within the Law No. 13 of 2003 concerning Manpower (“Manpower Law”), a company may subcontract part of its work to another enterprise by entering into a written agreement for the provision of worker(s). By law, the enterprise which undertakes the provision of workers must be in the form of a legal business entity, which is a limited liability company (hereinafter in this article shall be referred to as the “Outsourcing Company”). For the convenience of this article, the company subcontracting part of its work to the Outsourcing Company shall be referred to as the “Contracting Company”.

Despite such permission, a Contracting Company is only allowed to subcontract an Outsourcing Company to carry out auxiliary service activities or activities that are indirectly related to the production process. Such activities include:

  1. provision of cleaning service;
  2. provision of catering service;
  3. provision of a supply of security guards;
  4. auxiliary business activities in the mining and oil sectors; and
  5. provision of transport for workers.

Concluding from the limitations given by the Manpower Law, if the job is related to the Contracting Company’s core business activities or activities directly connected with the production process, the Contracting Company is only allowed to employ workers directly by entering into an employment agreement – either for an unspecified amount of time (Perjanjian Kerja Waktu Tidak Tertentu) or a specified amount of time (Perjanjian Kerja Waktu Tertentu).

Requirements for the Outsourcing Company

Going by the Manpower Law, the Ministry of Manpower issued a set of regulation to govern matters related to outsourcing activities, namely Regulation No. 11 of 2019 (“Regulation 11/2019”).

According to Regulation 11/2019, the Outsourcing Company must first obtain a business license for outsourcing activities before operating its business. Further, it is prohibited from subcontracting the work undertaken under the outsourcing agreement to another Outsourcing Company.

Concerning the worker(s) provided by the Outsourcing Company, an Outsourcing Company is under the obligation to make a written employment agreement in addition to that, which must fully guarantee the rights of the worker(s) in question. Such employment agreement must then be registered to the Manpower Agency in the regency/city wherein the work takes place. This is in line with the obligations set out by the Manpower Law, which states that there must be an employment relationship between the Outsourcing Company and the worker(s) provided under the outsourcing agreement.

Provisions Concerning the Outsourcing Agreement

While the Manpower Law only briefly regulates the types of work to be outsourced, Regulation 11/2019 provides minimum requirements to be stipulated in an outsourcing agreement, namely:

  1. the type of work to be performed by the worker(s) of the Outsourcing Company;
  2. affirmation that the Outsourcing Company is willing to accept worker(s) from the former Outsourcing Companies in the event of a continuous type of work which gives rise to a change of Outsourcing Companies; and
  3. the working relationship between the Outsourcing Company and the employed worker(s) is based on a written employment agreement.

Subsequently, the outsourcing agreement must be registered to the Manpower Authority in the regency/city wherein the work takes place. The Outsourcing Company must not carry out its business operations before obtaining proof of registration of the outsourcing agreement to the Manpower Authority.

Compliance and Legal Consequences

Given that the Manpower Law and Regulation 11/2019 have provided certain requirements for the eligibility of outsourcing activity, any violation thereof shall entail a legal consequence to be borne by the Contracting Company.

Implied from the provisions of the Manpower Law, violations of such requirements would include:

  1. the Outsourcing Company is not in the form of a limited liability company;
  2. the Outsourcing Company has not entered into an eligible employment agreement with the worker(s) provided;
  3. the Outsourcing Company is not responsible for the workers’ wages and welfare protection, working conditions, and disputes that may arise out of the outsourcing activity;
  4. the type of work undertaken by the Outsourcing Company constitutes main activities of the Contracting Company or activities directly related to the production process of the Contracting Company; and
  5. the outsourcing agreement between the Contracting Company and the Outsourcing Company is not made in writing or in violation of any of the provisions required by law.

In the event of any violation, the Manpower Law stipulates that the worker(s) provided by the Outsourcing Company shall automatically be deemed employee(s) of the Contracting Company by law.

Author: Yohana Veronica Tanjung

Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas include Employment Law.

For further queries and information, please contact us:

+62- 21 50806536  | +62 – 811 877 216 |  info@gaffarcolaw.com | www.gaffarcolaw.com

Share on linkedin
LinkedIn