Needle in the Haystack: Outsourcing Under Perppu No. 2/2022

In late December of 2022, the Indonesian Government had issued the Government Regulation in Lieu of Law (Peraturan Pemerintah Pengganti Undang-Undang) No. 2 of 2022 concerning Job Creation (“Perppu 2/2022”). This newsflash thus discusses a general overview of Perppu 2/2022, and its relation to outsourcing provisions under Indonesian Law.

Maintaining the Status Quo

Perppu 2/2022 is issued following Constitutional Court Decision No. 91/PUU-XVIII/2020 (“MK Decision No. 91”). In this Decision, the Constitutional Court ruled that the government shall amend certain aspects of Law No. 11 of 2020 concerning Job Creation (“Job Creation Law”) within a two-year period, otherwise, the law shall be deemed unconstitutional and loses all its validity.

Currently, the deadline for correction to Job Creation Law will soon be over, but the required amendment has not been issued. On the other hand, Job Creation Law is still deemed as necessary to ensure ease of investment amidst the unsettling forecast of the economy in 2023. Provisions of Job Creation Law are then formulated under Perppu 2/2022, to maintain the status quo.

As of 30 December 2022, Perppu 2/2022 shall expressly repeal and replaces Job Creation Law. Its content mostly mirrors the Job Creation Law, however there are several provisions that will indicate future changes to the legal field (hence, “needle in the haystack”). In particular, we note the changes to outsourcing regulations, which we discuss below.

Outsourcing through the years

Outsourcing was mainly provided in Article 64 and 65 of Law No. 13 of 2003 concerning Manpower (“Manpower Law”), which originally stipulates the following restrictions regarding the scope of outsourced work:

• it shall be separate from the main business activity,
• it shall be carried out by direct or indirect orders from the employer,
• it is a supporting activity of the company, and
• it shall not impede the business activity.

Therefore, outsourcing may only be done against supporting service activities that are not directly related to the production process of a company (e.g., security, cleaning services, catering). All provisions regarding outsourcing in the original Manpower Law was completely removed by Job Creation Law. Consequently, there are no more restrictions in the scope of activities that can be outsourced. Under the Job Creation Law regime, regulations regarding outsourcing can instead be found under Government Regulation No. 35 of 2021 dated 2 February 2021 concerning Fixed Term Employment Agreements, Outsourcing, Working Hours and Rest Time, and Employment Termination (“GR 35/2021”). Like the Job Creation Law, GR 35/2021 does not limit any scope of outsourcing.

This will soon change under Perppu 2/2022, which revokes the deletion in Job Creation Law. Under the new Article 64, it is stated that the Government will “regulate parts of the implementation of work by outsourcing” through Government Regulations. Additionally, several provisions of GR 35/2021 were also included in Perpu 2/2022 (i.e., outsourcing services may only be conducted by a duly licensed outsourcing company).

Until now, there is no definitive explanation as to how the “regulation” under Perppu 2/2022 will be implemented. However, it is highly indicated that the government will again limit the scope of activities that can be carried out by outsourcing. This can be seen by the current statements by the Ministry of Manpower, which said the same, and that they are currently in the process of revising the outsourcing regulations in GR 35/2021.

Action items

In summary, amidst the “haystack” of Perppu 2/2022 (which restates Job Creation Law), there are strong indications of change to outsourcing provisions in the near future. For businesses that rely on, or are in the outsourcing business, we would recommend the following in facing such possibilities:

• Keeping a keen eye on updates regarding this matter; and
• Preparing compliance to any restrictions to scope of outsourced work (e.g., keeping outsourced work only to supporting activities, negotiating to vendors on possibility of legal restrictions).

To better serve your needs, RIFDAAN NOVARAZKA & PRABOWO will continue to closely monitor the development of legislation in this matter and will soon provide you updates on such.