THE LEGAL DEVELOPMENT OF OUTSOURCING IN INDONESIA

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The Legal Development of Outsourcing in Indonesia

The Legal Development of Outsourcing in Indonesia

Outsourcing issues in Indonesia has been increasingly emerged following issuance of Law No. 13/2003. Based on researches and surveys conducted by management experts over the past 12 years to more than 1.200 companies since 1991, Outsourcing Institute highlights several reasons implicating the companies’ decision on invoking outsourcing to operate their business and potential benefits expected from it.[1] Despite all controversies arising out of outsourcing implementation, below are several notable potential benefits of outsourcing which has significantly contributed to business development in Indonesia:[2]

1.     Enhance the focus of the company;

2.     Utilize the world-class capability;

3.     Expedite the benefits which has been obtained from re-engineering;

4.     Enhancement of productivity and flexibility;

5.     Share the risks;

6.     The company’s sources can be used for other needs;

7.     Enable the availability the capital funds;

8.     Creating ‘fresh money’; and

9.     Decrease the costs of operations.

Outsourcing in Indonesia labor law is defined as the chartering and supplying of worker services. In general, outsourcing-related matters in Indonesia are regulated by Law No. 13 of 2003 concerning Manpower (“Law No. 13/2003”), in particular Article 64, Article 65 and Article 66, as well as Minister of Manpower and Transmigration Regulation No. 19 of 2012 concerning Terms of Partial Assignment of Work to Third Party Companies (“MOMT Regulation No. 19/2012”).

Article 64 stipulates that an enterprise may subcontract part of its work to another enterprise under a written agreement of contract of work or a written agreement for the provision of work/labor. There are two types of outsourcing in Indonesia, contract of work and provision of labor, as follows:

  1. Contract of Work

The employment relationship shall be regulated under a written employment agreement between the employer and the employee. This requirement also applies in terms of subcontracting the work to another party. Work that may be subcontracted must fulfill the following requirements:

a.     the work can be done separately from the main activity;

b.     the work is to be undertaken under either a direct or an indirect order from the party commissioning the work;

c.     the work is an entirely auxiliary activity of the enterprise; and

d.     the work does not directly impede the production process.

In addition, Article 12 of MOMT Regulation No. 19/2012 stipulates that labor providers must fulfill the following requirements:

a.     in form of legal entity;

b.     have a company registration certificate;

c.     have a business license; and

d.     have evidence of having filed its mandatory manpower reports.

If the above requirements are not met, the enterprise that contracts the work to the contractor shall be held responsible by law to be the employer of the worker/ laborer employed by the contractor.

According to Article 5, Article 6, Article 7, and Article 8 of MOMT Regulation No. 19/2012, any supporting work that is subcontracted must be reported by the employer to the government agency responsible for manpower in the district/city where the work is being conducted. Then, the government agency must issue the proof of report within one week as of the submission.

An employer is not allowed to subcontract any part of work unless it has the proof of report from the government agency. The absence of the report will legally cause the employee’s relationship is no longer with the subcontractor but with the employer.

In addition to the above requirement, according to Article 10 and Article 11 of MOMT Regulation No. 19/2012, the contractor must also register the contract of work with the government agency within 30 working days as of the commencement of the work. Subsequently, the government agency must issue the proof of registration within five days as of the receipt of complete registration.

  1. The Provision of Labor

Article 66 of Law No. 13/2003 stipulates that employees from labor providers, e.g. outsourcing companies, must not be utilized by employers to carry out main activities or activities that directly related to the production process. The work is only limited to auxiliary service activities or activities that indirectly related to the production process. Labor providers which provide labor for auxiliary service activities must fulfill the following requirements:

a.     there is an employment relationship between the employee and the labor provider;

b.     the employment agreement in the employment relationship is for specified time and/or a work agreement for an unspecified time, which is in writing and signed by the parties;

c.     the labor provider is responsible for wages, welfare protection, the provision of good working conditions, and dispute resolution; and

d.     the agreement between the employer and the labor provider must be made in writing.

A labor provider must in form of legal entity and subject to license from a government agency responsible for manpower affairs. If the conditions in Article 66 regarding employees from the labor provider are not fulfilled, then the employer that utilizes the service of the labor provider will be held legally responsible to be the employer of the employees supplied to it by the labor provider.

Article 17 Paragraph (3) of MOMT Regulation No. 19/2012 stipulates that the auxiliary service activities that can be outsourced comprises of:

a.     cleaning services;

b.     catering for employees;

c.     security personnel;

d.     support services in the mining and oil sectors; and

e.     employee transportation services.

Article 24 of MOMT Regulation No. 19/2012 obliges labor providers to fulfill the following requirements:

a.     established in the form of limited liability company;

b.     hold a company registration certificate;

c.     hold a proper business license;

d.     have a proper receipts for mandatory employment reports;

e.     hold an operating license;

f.      have a permanent office and address; and

g.     have a taxpayer registration number.

Further, Article 20 of MOMT Regulation No. 19/2012 requires the labor services agreement being entered into between the employer and labor provider to be registered with the government agency responsible for manpower matters in district or city in which the work being conducted no later than 30 (thirty) days as of execution of the same.

The Opportunity of Being Appointed as a Permanent Employee by the Employer

The MOMT Regulation No. 19 of 2012 guarantee the rights of the worker as stipulated in Article 28 MOMT Regulation No. 19/2012 in which stated that every outsourcing employment contract, must include provisions that guarantee the rights of employee/workers in employment in accordance with the prevailing laws.

The following is the comparison between Permanent Employee and Outsourcing Employee based on the new Minister of Manpower and Transmigration Regulation No. 19 of 2012 concerning Terms of Partial Assignment of Work to Third Party Companies:

Aspects

Status of Employee

Rights of Employee

Permanent

Outsourcing

Basic Wage

·       Minimum Wage of Employee

·       Allowance for Duration of Work

·       Minimum Wage of Employee

·       Allowance for duration of work

Premium Presence

Obtaining

Not Obtaining

Insurance for Working Accident, and Health, Death

Obtaining

Obtaining

Payment for eat and Transportation

Obtaining

Not Obtaining

Right for Rest and Leave

Obtaining

Obtaining

Allowance for Feast Day

Obtaining

Obtaining

Severance

Obtaining

Obtaining

Social security for employees (jamsostek)

Obtaining

Obtaining

 

Nowadays, Labor unions demands for the appointment of outsourcing employees to be permanent employees. This is illustrated by one of the recent protests expressed by hundredsof outsourcing employees of PT PLN (Persero) who sounded their intention to be appointed as permanent employees due to substantial deduction to their wages by labor providers from which they are originated.[3]

Furthermore, any employment relationship in outsourcing should be determined and specified in a written employment agreement to be entered between the labor provider and employee as mandated by Article 65 Paragraph (7) and Article 66 Paragraph (2) of Law No. 13/2003. Given the foregoing, an employment relationship arises between the labor provider and the employees not with the employer.

Factually Indonesian prevailing laws and regulations does not impose any restriction on transitioning status of the outsourcing employee to permanent employee as such is solely refers to the agreement being entered into between the contractor and labor provider which made on the basis of freedom of contract principle as referred to in Article 1338 of the Indonesian Civil Code.

Therefore, it can be concluded that an employee of the labor provider is allowed to concurrently work as permanent employee in the employer’s company provided that there is no restriction imposed to such circumstance under the above agreement between such contractor and labor provider.

PebriantoEkoWicaksono, “AngkatBuruh Outsourcing JadiPegawaiIbaratDahlanJadiBos PLN”, http://bisnis.liputan6.com/read/570596/angkat-buruh-outsourcing-jadi-pegawai-ibarat-dahlan-jadi-bos-pln
 

Posted in News and Media on Nov 12, 2013