We understand that under the Law Number 13 of 2003 concerning Manpower (“Manpower Law”) give rights to a company in Indonesia to outsource a part of its operations to another company by using 2 (two) methods:
- contract for services; and/or
- a written labor supply agreement.
An activity of a company that is being outsourced to another company or other party is known as outsourced activities, and in practice it is well known as Outsourcing.
Principally, a practice of outsourcing is to hand over an implementation of some of working activities to a third party / external party. A third party can means a person or an outsourcing company supplying labor services. A consequence of an outsourcing is that the employment relationship of the engaged labor shall only be established between the labor and outsourcing company. Therefore, any rights of the outsourcing labor under the Manpower Law, must be fulfilled by the company which supplies the outsourcing, and not the company where such outsourcing labor is working.
The purpose of outsourcing is to enhance the company’s performance, without assuming responsibilities of an employer over manpower rights and obligations for any employees that are not involved in the core business of the company. Therefore, not all jobs can be outsourced.
WHAT KIND OF JOBS YOU CAN OUTSOURCE?
Before we explain on the type of jobs that may be outsourced, first we need to observe the scope of outsourcing is covering 2 (two) employment relationship as follow:
- an employment relationship based on contract for services; and/or
- an employment relationship based on a written labor supply agreement.
Hence, the types of works that can be outsourced are also divided based on each employment relationship.
- OUTSOURCE BASED ON CONTRACT WORK (PEMBORONGAN)
Outsource based on contract work is to be stipulated in the contract for services. Under Article 65 paragraph 2 of Manpower Law, any work that can be outsourced to another party with Contract for Services basis is works that fulfills the following requirements :
- That is performed separately from the core activity, the outsourced work must be performed separately from the core activity of the company which can be seen in its business license or its operational license.
- That is performed by a direct or indirect order of the outsourcer. The order is aims to briefs on the way to perform the work in order to be consistent with the standard set by the outsourcer, whether it is directly conveyed to the labor, or through the outsourcing company supplying labor services.
- It is a supporting activity of the company/outsourcer as a whole. The activity is one that supports and smooths the performance of the core activity. The type of activity must be within the workflow as issued by the associations of the business sector that is formed under the laws and regulations.
- Does not cause any hindrance to the production process directly. Principally, the activity that can be outsourced is an additional one which if not carried out by the outsourcer, the work process of the outsourcer still remains appropriately.
Outsource based on the labor supply agreement is regulated under the Regulation of the Minister of Manpower and Transmigration Number 19 of 2012 (“Permenaker 19/2012”), and it must be stipulated in a written Labor Supply Agreement.
Under Article 17 of Permenaker 19/2012, the type of work that may be outsourced to a labor supply company, must be a supporting services or activities not directly associated with the production process:
- cleaning service;
- labor catering services;
- security guarding services;
- mining and oil supporting services; and
- labor transportation services.
Since the enforcement of Permenaker 19/2012, it is clear that the activity that may be outsourced is divided into 2 (two), which established under a outsource working agreement, consisting of :
CONTRACT FOR SERVICES
LABOR SUPPLY AGREEMENT
A contract for services shall be at least consisting of:
A labor supply agreement shall be at least consisting of :
LEGAL CONSEQUENCES ON OUTSOURCING JOBS THAT IS NOT FULFILLING THE OUTSOURCING REQUIREMENTS
A company that have outsourced any of its activities with any other method not in compliance with the above explanations, is exposed to the risk that the employment relationship which previously established between the labor and the company which supplies the outsourcing, to be transferred to the outsourcer where the labor is working. This will cause the outsourcer company where the labor is working must satisfy the rights of the labor/employee under the Manpower Law, as if both parties are under a direct employment relationship.
How can SMART help you?
SMART Legal Consulting is a corporate legal service provider with experience in assisting and providing legal advice to its client in reaching their business goals in Indonesia. SMART is experienced in providing legal advice on the practice of outsourcing, and SMART can assist the Client in handling the required and necessary documents before doing outsourcing, in accordance with the prevailing laws and regulations in Indonesia.
Please contact SMART for further information on our services, or you may arrange a meeting with us by contacting the following: