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Indonesia – Law to restrict use of contract workers

19 November 2012

Indonesia’s Manpower and Transmigration Ministry has issued a controversial decree which will restrict the use of contract workers through an outsourcing scheme. This comes despite criticism from employers in the country.

Muhaimin Iskandar, Manpower and Transmigration Minister, said over the weekend: “Businesses are required to comply with the Labour Law and respect workers’ normative rights on remuneration, allowances, annual leave and bonuses. They are allowed only to subcontract their temporary jobs, such as building repairs, painting and card printing, which can be finished within several months.”

Local media reports that Mr Iskandar signed a revised decree on labour outsourcing last Thursday. This will have to be passed by the Law and Human Rights Ministry before being enforced with immediate effect.   

The decree gives companies six months to alter the status of their contract workers to permanent staff. It plans the prohibition of outsourcing companies’ core businesses with outsourcing limited to five job types, including cleaning services, security, driving, support services on mining sites and catering. The decree will also make it unlawful for companies to hire workers outsourced from third-party firms to carry out core jobs.

Textile and footwear companies in particular are known to outsource such core work to avoid hiring employees on a permanent basis. Employers argue that existing labour law makes it difficult to dismiss under-performing permanent workers, making it a costly affair for them.

Unions have welcomed the decree and hailed it as a major step to improve working conditions. But the decree is expected to be challenged before the higher court, and employers have argued that unemployment is set to rise should the law be passed.

It is estimated that 20 million people are employed under the outsourcing scheme. 


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