Indonesian Labor Outsourcing Reform: Challenges and Opportunities for Chinese Enterprises in Response to New Policies
During the May Day Labor Festival in 2025, Indonesian President Prabowo announced the gradual abolition of the labor outsourcing system to promote the normalization of the labor market.
The core changes include:
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Restructuring of employment models: Prohibiting outsourcing of core positions and requiring outsourced employees to be converted into regular employees, with the fulfillment of social security and welfare responsibilities;
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Enhanced supervision: Cracking down on “pseudo-outsourcing” and establishing a mechanism for tracing employer liability;
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Legislative process: Revising the Employment Law, clarifying the list of outsourced positions and transitional period rules, with detailed regulations expected to be released by the end of 2025.
This reform responds to the demands of labor rights and aims to balance “attracting foreign investment” and “people’s livelihood protection.”
II. Three Major Direct Impacts on Chinese Enterprises
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Increased Labor Costs
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Soaring compliance costs: Increased expenses for social security, housing funds, etc., with labor costs expected to rise by 20%-30%. For example, a Chinese enterprise in Jakarta saw its annual costs increase by approximately 360 million Indonesian rupiah after converting to formal employment.
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Reduced employment flexibility: Industries reliant on temporary workers need to plan recruitment 6-12 months in advance, affecting project efficiency.
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Increased Complexity of Compliance Management
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Direct management of labor relations: Enterprises need to handle labor contracts, union negotiations, dismissal procedures, etc., increasing the risk of violations.
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Localization challenges: Functions previously undertaken by outsourcing companies need to be taken over by the enterprises themselves. Companies lacking local HR teams face greater risks.
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Investment Decisions and Industrial Adjustment
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Pressure on labor-intensive industries: Enterprises may delay expansion and shift to countries with more relaxed employment environments.
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Urgency for industrial upgrading: Accelerating the introduction of automation or transitioning to high-value-added segments.
III. Response Strategies: Short-term Adjustments and Long-term Planning
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Short-term: Rapid Compliance and Cost Mitigation
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Optimizing employment structure: Prioritize converting core positions to formal employment, while exploring compliant outsourcing for non-core positions.
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Cost-sharing: Mitigate cost pressures through negotiating price adjustments with suppliers, increasing production capacity, and applying for tax exemptions.
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Medium to Long-term: Building Local Capabilities
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Professionalizing HR teams: Recruiting experts with knowledge of Indonesian labor laws and establishing a compliance management framework.
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Managing union and community relations: Strengthening communication with unions, participating in local community projects, and enhancing corporate image.
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Policy Engagement and Innovative Employment Models
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Industry association collaboration: Lobbying for transitional policies through chambers of commerce and advocating for exemptions for small and medium-sized enterprises.
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New employment models: Partnering with vocational colleges to train technical workers and exploring project-based contracts to address seasonal positions.
IV. Trend Outlook: New Rules for Investment in Indonesia
Indonesia’s reform marks a transition from a “low-cost orientation” to a “compliance + sustainable development” model.
Enterprises need to adapt to the following changes:
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Normalization of labor protection: Policies may continue to tighten, with increased restrictions on the proportion of foreign employees;
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Higher ESG requirements: Compliance demands from European and American markets will push enterprises to establish international-standard employment systems.
Although Indonesia’s labor outsourcing reform presents challenges, it also offers opportunities for Chinese enterprises to break free from the “low-end subcontracting” model and build long-term competitiveness. Enterprises should quickly initiate policy impact assessments and develop a strategy of “short-term compliance adjustments – medium-term capability building – long-term ecosystem integration” to take root in the Indonesian market.
Wanxin Industrial Park in Batang National Economic Zone, Indonesia
Located within the Batang Industrial Special Zone (KEK Industropolis Batang) in Central Java, Indonesia, Wanxin Industrial Park offers flexible factory and land lease-sale services, and helps enterprises quickly establish a presence in Indonesia through “one-stop” services.
In the context of the current restructuring of the global trade landscape, waiting is the most expensive strategy!
As the largest economy in ASEAN, Indonesia is offering a “zero-time difference” production solution for manufacturing through a combination of national economic zones and ready-to-use standardized factories:
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Tariff Breakthrough
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Bypass the 125% surcharge list imposed by the United States on China. Leveraging the ASEAN Free Trade Area (AFTA) and the Regional Comprehensive Economic Partnership (RCEP), enterprises can enjoy zero-tariff export treatment for 90% of goods within the region.
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Cost Lock-in
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Tax Policy: Enterprises in the special zone enjoy a 15-year corporate income tax exemption (tax-free for the first 5 years, halved for the next 10 years) and complete exemption from import tariffs on equipment.
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Labor Costs: The workforce under 25 years old accounts for 38%, with an average monthly salary in manufacturing being only one-third of that in China.
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Energy Security: Electricity prices are approximately 0.5 RMB per kilowatt-hour, with peak hours at 0.75 RMB.
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Employee Social Security: Health insurance is paid at 1% of wages by both the enterprise and the employee, pension insurance is paid at 8.4% of wages by the enterprise, and work injury insurance is paid at 0.24% of wages by the enterprise (totaling less than 10%).
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Spot Availability
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In the Batang Economic Zone of Central Java, 1 million square meters of high-standard ready-to-use factories are available for immediate lease:
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Complete Facilities
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Proximity to Highways
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Bonded Zone
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Green and Energy-efficient Factories
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One-stop Services
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