Faisal Maliki Baskoro, Ismira Lutfia, Ivan Dasa Saputra & Ezra Sihite – A revision of Indonesia's Labor Law that paves the way for outsourced workers to have equal benefits with permanent employees is expected to improve the welfare of million of workers.

The amendment should also reduce conflicts between laborers and employers in Southeast Asia's largest economy.

On Tuesday, the Constitutional Court declared outsourcing unlawful under the country's Constitution, because it would create uncertainty over the faith and livelihood of workers. The court ruled that Indonesian workers had "the right to a decent job and a decent life," which should be the basis of the Labor Law.

Timbul Siregar, chairman of the Indonesian Workers Association (OPSI), said on Friday that the revision of the Labor Law was a victory for 16 million outsourced workers, or roughly 40 percent of the country's formal labor force of 41 million.

The country's total labor force – including farmers and entrepreneurs that are known as an informal work force – was 119 million as of February last year, according to data from the Central Statistic Agency (BPS).

"We've been fighting [in court] since 2003. But this is not over yet," Timbul said. "We must make sure that the Labor Law is implemented according to the revision."

Outsourcing refers to the hiring of workers on a contractual basis, often through a provider company. The workers are usually hired on short-term contracts and paid a daily wage, without fringe benefits. Companies generally do not outsource core jobs, only peripheral work like cleaning service, driving and security.

Timbul said that under the revision of Labor Law No. 13/2003, outsourced workers would have the same benefits and salary as permanent workers. "The contract system will remain only if it is improved, with benefits such as overtime bonuses and severance pay included in the contract," he said.

Timbul said the changes to the law could reduce the likelihood of labor-employee friction, as he was now dealing with companies such as energy giant Chevron.

"Most friction comes from worker dissatisfaction. The revision will reduce the amount of friction," he said. "We are currently working on a dispute settlement between Chevron and its outsourced drivers. The new labor law should be able to force Chevron to pay the drivers their overtime pay."

The Indonesia Employers Association (Apindo), however, warned that the Constitutional Court ruling could force local manufacturers to lay off some of their employees or relocate to other countries to offset a possible rise in labor costs here.

"Local manufacturers are already in competition with cheaper imported products. Now, employee costs will rise," said Haryadi Sukamdani, a deputy director at Apindo. "I don't think the judges in the Constitutional Court understand the effect of their ruling."

But Aloysius Uwiyono, a labor analyst at the University of Indonesia, praised the court's ruling. He said the practice of outsourcing work was unconstitutional, and likened it to a "modern type of slavery." He said employers failed to acknowledge the existence of outsourced workers and ignored their welfare rights.

The Manpower and Transmigration Ministry said the court ruling would change the way companies managed their human resources. It said it would produce a manual for companies to avoid worker-employer conflict caused by misinterpretation of the law. The ministry also said it would revise the Labor Law.

"We will issue a letter next week. We need to inform the companies so there are no misinterpretations [of the Court ruling]," said a ministry spokesman, Suhartono.

Abolishing the practice of outsourcing had been on the ministry's agenda for several years. Manpower Minister Muhaimin Iskandar said in 2010 that he would "eventually" abolish labor outsourcing, starting with restrictions on the scope of the practice.

There were eight million Indonesians who did not have jobs, as of February last year, according to BPS data. The Indonesia Chamber of Commerce and Industry (Kadin) said business owners were only able to provide about 200,000 new jobs a year.

Disputes between laborers and employers in Indonesia have been common in recent years as workers demand wage increases to adjust for rising prices.

Inflation in Indonesia accelerated by 3.8 percent in December last year, the lowest level in 21 months. Bank Indonesia, the nation's central bank, forecast inflation in the range of 3.5 percent to 5.5 percent this year. Higher consumer prices would erode the salaries of many Indonesians.