Indonesia Restricts Outsourcing Practices: Key Implications of MoM Regulation No. 7 of 2026

On April 30^th 2026, the Indonesian Minister of Manpower issued Minister of Manpower Regulation No. 7 of 2026 on Outsourced Work (“Mom Regulation 7/2026”). The regulation was enacted as a follow-up to the Constitutional Court’s Decision No. 168/PUU-XXI/2023, which called for greater legal certainty in outsourcing arrangements and enhanced protection for outsourced workers.

Mom Regulation 7/2026 introduces a more restrictive framework for outsourcing practices in Indonesia. While outsourcing remains permissible, the regulation narrows the scope of work that may be outsourced and imposes additional compliance obligations on both service users and outsourcing service providers. As a result, companies operating in Indonesia should reassess their existing workforce structures and outsourcing arrangements to ensure compliance with the new regulatory requirements.

Restriction on Outsourceable Work

One of the most significant changes introduced by Mom Regulation 7/2026 is the limitation of outsourcing activities to specific supporting functions.

Under Article 3 of Mom Regulation 7/2026, outsourced work is generally limited to the following categories:

• cleaning services;
• catering services;
• security services;
• driver and employee transportation services;
• operational support services; and
• supporting services within the mining, oil and gas, geothermal, and electricity sectors.

This approach reflects the Government’s intention to distinguish more clearly between a company’s core business activities and supporting functions. Employers should therefore carefully evaluate whether any currently outsourced positions form part of their core business operations, as such arrangements could attract regulatory scrutiny.

Mandatory Outsourcing Agreement

MoM Regulation 7/2026 requires the user company and the outsourcing service provider to govern every outsourcing arrangement through a written outsourcing agreement.

The agreement must contain, at a minimum:

• the scope of outsourced work;
• the duration of the arrangement;
• the location where the outsourced workers will perform the work;
• the number of outsourced workers involved;
• provisions concerning the protection of workers’ rights; and
• the rights and obligations of each party.

This requirement emphasizes the importance of maintaining clear contractual documentation and allocating responsibilities appropriately between the parties. Companies should therefore review their existing outsourcing agreements to ensure compliance with the mandatory provisions prescribed by the regulation.

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Registration Requirement

Another notable compliance requirement under Mom Regulation 7/2026 is the obligation to register outsourcing agreements with the relevant manpower authority.

The outsourcing company must submit the outsourcing agreement for registration no later than three working days after its execution.

This requirement enhances governmental oversight of outsourcing practices and creates an additional administrative obligation that employers should incorporate into their internal compliance procedures. Failure to comply with registration requirements may expose businesses to regulatory findings during manpower inspections.

Strengthened Protection of Outsourced Workers

Mom Regulation 7/2026 reinforces the principle that outsourced workers must continue to receive the employment protections guaranteed under Indonesian labour laws.

Such protections include, among others:

• wages;
• overtime pay;
• working hours and rest periods;
• annual leave;
• occupational health and safety protections;
• social security benefits;
• religious holiday allowances (Tunjangan Hari Raya or THR); and
• statutory entitlements arising from the termination of employment.

Importantly, the regulation also requires user companies to ensure that outsourcing providers fulfil their obligations towards outsourced workers. This development indicates that companies may no longer rely solely on contractual arrangements with service providers to mitigate labour-related compliance risks.

Transitional Period

Recognizing that many businesses currently rely on outsourcing arrangements, Mom Regulation 7/2026 provides a transitional period for compliance.

Existing outsourcing agreements may remain effective until their expiration. Employers must adjust outsourcing arrangements that do not conform to the new requirements within the transition period stipulated by the regulation.

This transitional framework provides companies with an opportunity to conduct legal and operational reviews while minimizing disruption to ongoing business activities.

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Practical Commentary from Kusuma & Partners Law Firm

Given the significant changes introduced by Mom Regulation 7/2026, employers should consider undertaking a comprehensive review of their outsourcing practices.

Key action points may include:

• conducting a legal audit of existing outsourcing arrangements;
• identifying whether outsourced functions qualify as supporting activities under the new framework;
• reviewing and updating outsourcing agreements where necessary;
• assessing the compliance status of outsourcing service providers;
• strengthening monitoring mechanisms relating to workers’ rights and statutory benefits; and
• ensuring timely registration of outsourcing agreements with the relevant manpower authorities.

Employers that proactively address these issues can better manage legal risks and regulatory compliance obligations under the new outsourcing regime.

Conclusion

Mom Regulation 7/2026 marks a significant shift in Indonesia’s approach to outsourcing regulation. The Government limits the categories of work that companies may outsource and strengthens protections for outsourced workers to balance business flexibility with worker welfare and legal certainty.

Although the regulation does not eliminate outsourcing as a workforce management tool, it introduces a more structured and closely supervised framework. Companies that currently utilize outsourced labour should therefore take this opportunity to reassess their employment structures, contractual arrangements, and compliance procedures to ensure alignment with the evolving regulatory landscape.

As the implementation of Mom Regulation 7/2026 develops, further guidance and enforcement practices may provide additional clarity regarding the practical application of the new rules. In the meantime, businesses should remain vigilant and take proactive measures to mitigate potential legal and operational risks.

How We Can Help

Kusuma & Partners Law Firm assists companies in reviewing outsourcing structures, assessing permitted outsourced functions, revising outsourcing agreements, checking provider compliance, and preparing practical compliance strategies under MoM Regulation 7/2026. We also advise on employment risk, manpower inspections, worker rights issues, and restructuring options where existing outsourcing arrangements no longer comply with Indonesian law.