Outsourced Workers’ Prospects Change Under New Rules on Contracts and Severance Pay

Rules governing outsourced workers have changed after Indonesia’s House of Representatives (DPR RI) passed the Employment Protection Law. The new provisions cover several areas, including contract limits and workers’ entitlements in the event of termination of employment (PHK).

Indonesian Employers Association (Apindo) chairwoman Shinta Kamdani commented on the provisions, saying employers were concerned about several matters, including outsourcing, future jobs and workforce training.

One issue Shinta highlighted was the contract limit for outsourced workers. Apindo had previously called for outsourcing arrangements to be permitted for up to five years, but the new law sets a maximum of four years.

“We had put forward our position on outsourcing, for example: we asked for it to remain at five years, but that was subsequently reduced,” she said.

Under the new rules, an outsourced worker’s initial contract may last no more than two years. It may then be renewed twice, for a maximum of one year each time.

Under this arrangement, the total contract period for an outsourced worker can reach four years. This is one of the changes that companies and workers will need to note as the Employment Protection Law comes into force.

The types of work that may be outsourced are also addressed in the new rules. Outsourcing is limited to four fields: catering, security, cleaning and driving.

Shinta said Apindo had previously expressed its view on which types of work should be eligible for outsourcing. In her view, the need for outsourced labour is not always limited to support roles.

“But we have also considered why certain types of work may need to go beyond support functions; we have already conveyed that,” she said.

The Employment Protection Law also grants outsourced workers an important new right: they are entitled to severance pay if they are laid off, in accordance with the applicable provisions.

The new rules therefore address not only companies’ use of outsourced labour but also worker protections. The right to severance pay is one aspect that must be taken into account in outsourcing employment relationships.