What is Outsourcing? How Is It Different From Non-Outsourced Workers? How are the Regulations Now? 

“Currently, Employment Agreements between Outsourcing Companies and Employers, as well as Employment Agreements between Outsourced Employees and Outsourcing Companies can be in the form of PKWT (Temporary Employment Agreements) or PKWTT (Permanent Employment Agreements)”

Companies that are developing their business require more additional employees to accommodate and facilitate their business needs. However, business does not always go according to the original plan- sometimes the companies gain profit, sometimes they also suffer losses. Therefore, in acquiring additional employees from time to time to support the business, the companies must consider the future employees’ role: those who play a direct role in the company’s business operations, or those who support them.

Companies choose Outsourcing to add Employees in order to do better management with consideration to their financial ability. This is done to anticipate the financial capacity of the company for its human resources.

It should be understood in advance that there is a difference in concept between Outsourced and Non-Outsourced Employees. In Outsourcing, the employment relationship exists between the employee and the outsourcing company, not between the employee and the company where the employee works. While the employment relationship in Non-Outsourcing employment is between the employees and the company where the employee works, as its employer.

Regulations regarding outsourcing in employment in Indonesia are regulated in Law No. 13/2003 on Manpower (“Manpower Law”) as amended in Law No. 11/2020 on Job Creation (“Job Creation Law”). Further provisions regarding amendments to the Manpower Law are further regulated in Government Regulation No. 35/2021 on Temporary Employment Agreement, Outsourcing, Working Hours and Breaks and Termination of Employment Relationships (“GR 35/2021”). Since the enactment of the Job Creation Law, the use of the word outsourcing has changed to “Alih Daya”. This article will continue to use the word Outsourcing to facilitate the delivery of information.

There was a shift in provisions in the outsourcing sector after the enactment of the Job Creation Law. One of the regulations that was most impacted is the revoked Minister of Manpower Regulation No. 19/2012 on Conditions for Submission of Partial Work Implementation to Other Companies, with all the amended regulations. This revocation is due to the issuance of the Minister of Manpower Regulation No. 23/2021 concerning Revocation of Regulation of the Minister of Manpower as a result of the enactment of Law No. 11/2020 concerning Job Creation and Implementing Regulations. With legislation like this, until this article was written, the regulation regarding outsourcing was only regulated in the Job Creation Law and GR 35/2021.

Since the enactment of the Job Creation Law, several changes have been enacted to the outsourcing regulations. 

First, the working relationship between the Outsourcing Company and the Outsourcing Service Provider Company can be based on a Specific Time Employment Agreement (PKWT) and an Indefinite Employment Agreement (PKWTT). This provision is different from Manpower Law which states that only allows the Specific Time Employment Agreement (PKWT) to be used for outsourcing work relationships.

Second, outsourcing is no longer distinguished from job supply or labor supply. Outsourcing arrangements are no longer limited to supporting work (non-core business) so that there are no longer restrictions on the types of work that can be outsourced. The type of work that can be outsourced depends on the needs of the sector.

Third, the protection of outsourced employees gets more protection in the new arrangement. Protection for outsourced employees is confirmed to be project based. Therefore, the change of ownership or the occurrence of a transfer to the outsourcing company will not result in termination of employment for the outsourcing employee concerned.

Fourth, the authority to enact issuance of operational or business permits of outsourcing companies changed from the local Ministry of Manpower to the central government.

Fifth, the employment agreements, wage and welfare protection, working conditions, and disputes with outsourced employees are the responsibility of the outsourcing company. This provision was amended based on the previous Manpower Law, when the outsourced employee did not get the rights as it should, then by law the status of the employment relationship between the worker/laborer and the company providing the worker/labor service was changed to a working relationship between the worker/laborer and the provider company.

Apart from the regulatory changes caused by the Job Creation Law, there are also differences between outsourced and non-outsourced workers.

First, the responsibility for violations committed by outsourced workers is placed on the outsourcing company. Meanwhile, the responsibility for violations committed by non-outsourced workers is placed on the employer’s company.

Second, employment agreements, wage and welfare protection, working conditions, and disputes with outsourced employees, including the payment of rights/compensation for layoffs, are the responsibility of the outsourcing company. For non-outsourced employees, employment agreements, wage and welfare protection, working conditions, and disputes are the full responsibility of the employer company.

If you wish to consult and require legal assistance for your company, especially in regards to the human resources and manpower legal assistance, please contact us via ask@bplawyers.co.id or 082112341235.