Indonesian New Ministry of Manpower Regulation No. 7 of 2026 on Outsourcing: Significant Implications and a Step Towards Regulatory Certainty

Issue 21, May 2026

Following the enactment of Ministry of Manpower Regulation No. 7 of 2026 on Outsourcing (“MOM Reg. 7/2026”), the Indonesian government has reverted to a more restrictive outsourcing framework after a period of broader flexibility and introduced new requirements for outsourcing arrangements. This advisory explores the legal implications and key requirements arising from MOM Reg. 7/2026.

Work that can be outsourced

Following the issuance of Law No. 6 of 2023 on the Enactment of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into Law (“Job Creation Law”), which amended and revoked several provisions under Law No. 13 of 2003 on Manpower, including provisions relating to outsourcing, there was no longer any explicit limitation restricting outsourcing only to certain types of work (ie non-core business), nor was there any clear differentiation between manpower supply arrangements and contracting-out of work. As a result, outsourcing practices in Indonesia became significantly more flexible in terms of the types of work that could be outsourced.

However, following the issuance of Constitutional Court Decision No. 168/PUU-XXI/2023 (“Constitutional Court Decision”), the Constitutional Court mandated that the Minister of Manpower determine, through an implementing regulation, which types of work may legally be outsourced.

MOM Reg. 7/2026 now reintroduces clearer restrictions by limiting outsourcing only to the following auxiliary (non-core) services:

1. cleaning services;
2. food and beverage services;
3. security services;
4. provision of drivers and transportation for workers;
5. operational support services; and
6. supporting services in the mining, oil, gas, and electric power sectors.

Unfortunately, MOM Reg. 7/2026 does not further elaborate on what constitutes “operational support services” or “supporting services in the mining, oil, gas, and electric power sectors”, leaving room for varying interpretations and potentially inconsistent implementation in practice.

Another issue arising from MOM Reg. 7/2026 is that several examples of permissible outsourced activities may conceptually resemble procurement of services (pemborongan pekerjaan/jasa) rather than mere supply of manpower.

Historically, Indonesian outsourcing regulations distinguished between:

1. contracting out of work or services (pemborongan pekerjaan/jasa); and
2. supply of manpower (penyediaan jasa pekerja/buruh).

This distinction is important because labour unions have historically objected primarily to arrangements involving the supply of manpower, where workers are formally employed by the outsourcing company but work under the direction and control of the user company. Such structures may prevent workers from becoming employees of the user company itself.

If workers were employed directly by the user company, they could potentially acquire permanent employee status because Indonesian manpower laws impose restrictions on the nature and duration of fixed-term employment arrangements. By contrast, where workers remain employed by the outsourcing company, the outsourcing structure may in practice result in workers continuously performing work for the same user company without obtaining permanent employment status with that user company.

This differs conceptually from genuine service procurement arrangements, such as catering or cleaning services, where the service provider generally delivers an integrated service package that includes not only manpower, but also operational supervision, equipment, consumables, and responsibility for the overall performance of the services.

Accordingly, clarification may still be necessary regarding the distinction between procurement of services and supply of manpower. In practice, procurement of services may cover a broad range of business activities and operational support functions that may not appropriately be treated in the same manner as manpower supply arrangements. Applying the same regulatory approach to both types of arrangements may create practical and compliance challenges, particularly where the service provider is engaged to deliver an independent result-oriented service rather than merely supplying workers to the user company.

Outsourcing Agreement Provisions

MOM Reg. 7/2026 also reintroduces mandatory minimum provisions that must be included in outsourcing agreements, namely:

1. the work outsourced to the outsourcing company;
2. the term of the outsourcing agreement;
3. the location where the work will be performed;
4. the number of outsourced workers;
5. the protection and rights of outsourced workers, at a minimum including wages, overtime pay, working hours and rest periods, annual leave, occupational health and safety rights, social security, religious holiday allowance, and rights upon the expiry or termination of employment; and
6. the rights and obligations of the outsourcing company and the company assigning part of its work.

Outsourcing Agreement Registration

In addition, MOM Reg. 7/2026 reintroduces the requirement for outsourcing companies to register outsourcing agreements with the local manpower office having jurisdiction over the location where the outsourced work will be performed, within three business days after execution of the outsourcing agreement. Such registration is evidenced by the issuance of an outsourcing agreement registration receipt.

Before issuing the registration receipt, the local manpower office will review whether the outsourcing agreement complies with prevailing laws and regulations, including whether the outsourced scope of work falls within the categories permitted under the outsourcing regime. If the authority determines that the agreement is non-compliant, it may refuse to issue the registration receipt.

This registration mechanism therefore appears to function not merely as an administrative filing requirement, but also as a substantive compliance review process.

Failure to register an outsourcing agreement, or outsourcing work that is not legally permitted, may expose companies to administrative sanctions ranging from written warnings to revocation of business licenses.

MOM Reg. 7/2026 does not expressly address the legal status of a non-compliant outsourcing agreement. Nevertheless, because such arrangement would be inconsistent with applicable law, there remains a risk that the agreement could be challenged and potentially deemed null and void by a court or industrial relations tribunal.

Expanded Responsibilities

Under MOM Reg. 7/2026, the protection and fulfilment of outsourced workers’ rights remain the responsibility of the outsourcing company and must be implemented in accordance with applicable laws and regulations.

However, the user company is also required to ensure that the outsourcing company properly fulfils those obligations. This provision may increase the practical compliance burden and potential exposure of user companies, particularly where manpower authorities or courts take the view that user companies failed to adequately supervise the outsourcing provider.

Transition Period

Outsourcing companies that have already carried out outsourcing activities for types or scopes of work that are not compliant with MOM Reg. 7/2026 are granted a two-year transition period from the enactment of MOM Reg. 7/2026, ie until 30 April 2028, to achieve compliance. During this transition period, existing outsourcing agreements remain valid until their expiry.

Conclusion

MOM Reg. 7/2026 effectively shifts Indonesia’s outsourcing regime back toward a more restrictive framework that limits outsourcing primarily to auxiliary or non-core activities, similar to the position that existed prior to the Job Creation Law.

Companies should therefore reassess their existing outsourcing arrangements to determine whether:

1. the outsourced work falls within the categories permitted under MOM Reg. 7/2026;
2. outsourcing agreements contain the mandatory provisions required by the regulation; and
3. the relevant outsourcing arrangements can satisfy the new registration and compliance review requirements.

MOM Reg. 7/2026 also reflects the government’s apparent intention to strengthen legal protection for outsourced workers by reintroducing a registration regime that is subject to substantive review by manpower authorities, while simultaneously expanding the responsibilities of both outsourcing companies and user companies.

Nevertheless, the regulation continues to leave important areas unresolved, particularly regarding the scope of “operational support services” and “supporting services in the mining, oil, gas, and electric power sectors”, as well as the distinction between procurement of services and supply of manpower. Because these concepts are not clearly defined, their interpretation may ultimately depend on evolving enforcement practices and the approach taken by local manpower offices in reviewing outsourcing arrangements.

In addition, certain aspects of outsourcing arrangements remain unregulated under MOM Reg. 7/2026, including matters such as the maximum duration of outsourcing agreements. In the absence of express regulatory guidance, such matters should remain subject to contractual arrangements between the parties, supported by appropriate legal review and risk assessment.

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If you have any questions, please contact

1. Hendrik Alfian Pasaribu, Senior Associate - hendrik.pasaribu@makarim.com
2. Adriano Firizky Camstra, Associate - adriano.firizky@makarim.com
3. Rahayu Ningsih Hoed, Senior Partner - rahayu.hoed@makarim.com

_{M&T Advisory is a digital publication prepared by the Indonesian law firm, Makarim & Taira S. It informs generally on the topics covered and should not be treated as legal advice or relied upon when making investment or business decisions. Should you have any questions on any matter contained in M&T Advisory, or other comments in general, please contact us at the emails provided at the end of this article.}