Employer Of Record Arrangements: The Advisory Baseline For Multinationals

Co-authored with Marinka Simbolon (Trainee Associate)

On 30 April 2026, the Minister of Manpower (“MoM”) issued MoM Regulation No. 7 of 2026 on Outsourced Work (Pekerjaan Alih Daya) ("MoM Reg. 7/2026"). The regulation implements Article 64(2) of Law No. 13 of 2003 on Manpower (“Manpower Law”), as amended by Law No. 6 of 2023, and follows up on Constitutional Court Decision No. 168/PUU-XXI/2023. It replaces the prior subregulatory framework on outsourcing and is directly relevant to multinationals using Employer of Record ("EOR") or similar staffing and outsourcing arrangements in Indonesia. This FAQ addresses the questions multinationals most commonly raise about how MoM Reg.  7/2026 affects their EOR and outsourcing structures.

1. What is MoM Reg. 7/2026 and why was it issued?

MoM Reg. 7/2026 sets out the permissible scope of outsourcing, prescribes mandatory contents for outsourcing agreements, introduces registration requirements, and establishes administrative sanctions for non-compliance.

2. Does MoM Reg. 7/2026 use the term "Employer of Record" or "EOR"?

No. The regulation does not use the term "Employer of Record" or create a separate EOR licensing category. Instead, it regulates "Outsourced Work" (Pekerjaan Alih Daya) as a relationship between a "Work-Providing Company" (Perusahaan Pemberi Pekerjaan, the principal or client) and an "Outsourcing Company" (Perusahaan Alih Daya, the vendor), governed by an "Outsourcing Agreement" (Perjanjian Alih Daya). In practice, a multinational that engages an EOR provider to build an Indonesian workforce is, under Indonesian law, retaining that provider as an Outsourcing Company—and the arrangement falls squarely within this regulatory framework.

3. What types of work may lawfully be outsourced under MoM Reg. 7/2026?

Outsourcing is limited to the provision of manpower services for supporting (non-core) activities of the Work-Providing Company. Article 3(2) sets out an exhaustive list of permitted categories: (a) cleaning services; (b) provision of food and beverages; (c) security services; (d) provision of drivers and worker transportation; (e) operational support services; and (f) supporting work in the mining, oil, gas, and electricity sectors. This matters for multinationals: an EOR arrangement used to place staff in core business functions—such as sales, engineering, or management roles central to the client's operations—falls outside the scope of work permitted to be outsourced under the regulation.

4. What must an Outsourcing Agreement contain?

Under Article 2 of MoM Reg. 7/2026, an Outsourcing Agreement must be in writing. Article 4(1) then prescribes the minimum contents, which must include: (a) the work being outsourced; (b) the term of the agreement; (c) the location where the work is performed; (d) the number of outsourced workers; (e) the protections and rights of outsourced workers, covering at least wages, overtime pay, working hours and rest periods, annual leave, occupational health and safety, social security, religious holiday allowance, and rights upon termination or expiry of the employment relationship; and (f) the rights and obligations of the Outsourcing Company and the Work-Providing Company.

5. Who is legally responsible for the outsourced workers' employment rights?

The Outsourcing Company (i.e. the EOR provider) bears primary responsibility for ensuring that outsourced workers' protections and rights meet at least the statutory minimum. However, the Work-Providing Company (typically the multinational's Indonesian entity) has its own, separate obligation to verify that the Outsourcing Company actually delivers on those protections. For multinationals, the practical consequence is that engaging an EOR does not fully insulate the client entity from labour compliance risk—MoM Reg. 7/2026 places a direct supervisory duty on the Work-Providing Company.

6. Must the Outsourcing Agreement be registered, and with whom?

Yes. Under Article 5 of MoM Reg. 7/2026, the Outsourcing Company must hold proof of registration (bukti pencatatan) of the Outsourcing Agreement. The Outsourcing Company must apply for registration with the local manpower office (“Local Manpower Office”) with jurisdiction over the location where the work is performed, no later than three working days after the Outsourcing Agreement is signed, and must enclose a copy of the agreement. The Local Manpower Office may defer issuing the registration proof if the agreement does not meet the requirements regarding permitted work categories or the mandatory contents described above. Once those requirements are met, the Local Manpower Office issues proof of registration. The head of the Local Manpower Office must report registered Outsourcing Agreements to the MoM, with a copy to the relevant provincial manpower office, quarterly.

7. What other obligations apply specifically to the Outsourcing Company (EOR provider)?

As the holder of a risk-based business licence in the outsourcing sector, an Outsourcing

Company must: (a) implement occupational health, safety, and environmental standards; (b) register its Outsourcing Agreements with the Local Manpower Office as described above; and (c) commence business operations no later than one year after its business licence is issued (Article 6 of MoM Reg. 7/2026).

8. Who supervises compliance with MoM Reg. 7/2026?

Compliance is supervised by Manpower Inspectors (Pengawas Ketenagakerjaan)—civil servants authorised to carry out guidance, inspection, testing, investigation, and development of the labour supervision system under applicable law (Article 7 of MoM Reg. 7/2026).

9. What are the sanctions for non-compliance?

MoM Reg. 7/2026 distinguishes between sanctions for the Work-Providing Company and those for the Outsourcing Company:

1. For the Work-Providing Company (the multinational's client entity): a breach of the permitted scope-of-work restrictions triggers administrative sanctions imposed in stages—first a written warning, and then a restriction of business activities. The restriction may take the form of a cap on production capacity for goods and/or services for a specified period, and/or a delay in the issuance of business licences at one or more locations for companies with projects in multiple locations. These sanctions are imposed by the authority responsible for issuing the relevant business licence, on the recommendation of a Manpower Inspector.
2. For the Outsourcing Company: a breach of its obligations (occupational health and safety standards, registration, or timely commencement of operations) is sanctioned in accordance with the prevailing legislation on risk-based business licensing, which may include a written warning, restriction of business activities, temporary suspension, licence revocation, and administrative fine.

(Articles 8 and 9 of MoM Reg. 7/2026)

10. Do existing EOR/outsourcing agreements need to be amended immediately?

Not immediately—but a transition period applies. Under Article 10 of MoM Reg. 7/2026, Outsourcing Agreements that are already in place when the regulation takes effect remain valid until the end of their contractual term. That said, the types and fields of outsourced work at both the Outsourcing Company and the Work-Providing Company must be aligned with the regulation no later than two years from the date of its promulgation. Multinationals should use this window to assess whether their current EOR-placed roles fall within the permitted supporting-activity categories, and to plan for restructuring, insourcing, or renegotiation of scope where any roles fall outside those categories.

11. What does this mean in practice for a multinational using an EOR in Indonesia?

The key message is that an EOR relationship is a regulated outsourcing arrangement under MoM Reg. 7/2026, not an unregulated administrative convenience. In practical terms, multinationals should consider the following:

1. reviewing whether the roles placed through the EOR are limited to the permitted supporting-activity categories (cleaning, food and beverage, security, drivers/transportation, operational support, or mining/oil/gas/electricity support work), since core business roles are not eligible for outsourcing under this regulation;
2. ensuring the underlying agreement with the EOR provider contains all of the mandatory elements prescribed by MoM Reg. 7/2026, including the specific worker protections listed above;
3. confirming that the EOR provider has registered (or will register) the agreement with the relevant Local Manpower Office within the three-working-day window;
4. recognising that the client entity retains a direct supervisory obligation—and faces its own compliance exposure—if the EOR provider fails to meet statutory worker protections, even though the EOR bears primary responsibility; and
5. planning for the two-year transition deadline to bring existing arrangements into conformity, including relocating any out-of-scope roles to direct employment or another compliant structure.

12. Are there any activities or worker categories excluded from this framework?

MoM Reg. 7/2026 applies only to outsourced work in the form of manpower services for the listed supporting activities. It does not regulate other engagement models, such as genuine independent contracting, secondment arrangements outside the scope of Article 64 of the Manpower Law, or fixed-term employment agreements governed by other implementing regulations. Multinationals using those alternative models should assess their compliance separately under the applicable frameworks, including Government Regulation No. 35 of 2021 on Fixed-Term Employment Agreements, Outsourcing, Working Hours and Rest Periods, and Termination of Employment, which is referenced in the preamble to MoM Reg. 7/2026.

Concluding Remarks

MoM Reg. 7/2026 draws a clearer regulatory boundary around outsourcing in Indonesia, with direct consequences for multinationals that rely on EOR structures. The core points are as follows: outsourcing (and, by extension, EOR placement) is now restricted to defined supporting activities; outsourcing agreements must be registered and include prescribed worker protections; and the client entity retains its own compliance obligations, even though the EOR provider bears primary responsibility. A two-year transition period is available to bring existing arrangements into line with the new rules. Multinationals would be well advised to conduct a scope-of-work audit of their current EOR placements against the permitted categories, verify their EOR provider's compliance with registration requirements, and put the necessary contractual and governance safeguards in place well before the transition deadline.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.