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The Legal Considerations of using Labour Hire Services in Australia

When looking at a labour hire arrangement, you should consider various legal factors.

Businesses must be aware of their rights and obligations under the contract. This includes termination rights, insurance requirements, employee entitlements, plus the day-to-day management and oversight of the worker. Businesses may also need a licence to provide labour services.

By maintaining clear agreements, you can effectively manage your labour hire arrangements while ensuring compliance and worker protection.

In this article, we discuss legal considerations and offer tips for effective labour hire arrangements.

Key Takeaways

  • Make sure both the labour company and host follow the rules for employee rights and fair pay to prevent legal issues.

 

  • Businesses may need to obtain a license in certain states (Queensland, Victoria, ACT, South Australia) to legally operate.

 

  • Labour hire companies must have workers’ compensation insurance, while host employers need public liability insurance for hosted workers.

 

  • Both the host employer and the labour company must assess risks and keep the workplace safe.

 

  • Clearly define termination and scope in these agreements, including administrative tasks, to avoid legal disputes and ensure transparency.

What is Labour Hire?

Labour hire companies provide workers to a host employer on a fee or contract basis. The host employer is the client of the labour hire company. These agreements can also go by the names of temping, contracting, on-hire, or labour supply.

The labour hire company pays the worker. They also ensure they receive benefits, while the client directs the worker in the workplace (e.g. what tasks to do). Simply put, the workers work at the host’s workplace and follow their instructions.

Scope of Services for the Supply of Labour

Agreements should identify the scope of services which the worker should fulfil.

Labour hire workers sign contracts with the labour hire company, not the host employer. However, they must still follow the terms set by the host employer. This can include the host employer’s day-to-day management and control of the worker. Plus, the hours and expectations of workers at the host business.

The scope should include that the labour company will handle all administrative tasks for the worker’s employment. Administrative tasks can include the employment contract, award interpretation, wages and taxes, WorkCover and super, group certificates and assignments.

Farrah Motley holds degrees from the Queensland University of Technology in both law and accounting. Farrah is a registered Australian Legal Practitioner and has been pracising employment law for over a decade

Statutory Entitlements

Hosts and labour hire companies have obligations under the Fair Work Act 2009 (Cth) (Fair Work Act).

The Fair Work Act provides a safety net of employee entitlements through the National Employment Standards (NES) and awards. The NES covers all employees in Australia. Workers must receive at least the minimum entitlements in the NES.

A modern award or enterprise agreement may also cover employees. Awards are industry specific and apply to certain employers and employees.

In Australia, the labour hire company is the legal employer of the worker. As the employer, the labour company is responsible for meeting the employee’s employment entitlements, including these statutory entitlements.

Host organisations may also face responsibility if they breach the Fair Work Act. This includes failing to provide a hired worker with their NES or award conditions. Host employers must also ensure that they do not discriminate against workers employed in their facilities under equality laws.

Our lawyers assist companies with creating, reviewing, and negotiating labour hire agreements and can provide top-notch advice. 

Health and Safety

Both the labour hire company and host employer must ensure that the workplace is safe for employees.

This involves conducting a risk assessment of potential hazards and taking appropriate safety measures. This is an important step for both the host employer and the labour hire company. If the worker makes a claim, both businesses will likely have legal responsibility.

To comply with health and safety regulations, we recommend that the company and host employer work together to:

  • implement effective health and safety management systems to address hazards and risks;
  • ensure adequate briefing and site and task-specific training;
  • ensure the adequacy of pre-assessments for workers; and
  • ensure adequate safety representation and consultation.

Further, there should be continuous and effective communication between all parties.

You should outline these recommendations in your contracts to ensure transparency.

Termination of the supply of labour

Labour hire arrangements where the host employer can exclude workers from its workplace, are becoming increasingly common in employment. Discussing termination when negotiating labour hire agreements is important. This can include when and how the relationship ends.

While these agreements can create more flexibility, the host employer can usually terminate the working relationship at any time. Labour hire companies have limited rights when a client requests the removal of an employee. This can make workers insecure about guaranteed working hours or ongoing work. This may even lead to unjustified dismissal claims.

Seeking legal advice when implementing a labour hire agreement can help ensure legal compliance.

Insurance

In practice, both a host employer and a labour hire companies owe an obligation to workers. The labour hire company should hold workers’ compensation insurance. The company can rely on this insurance if a worker sustains an injury.

The host employer is not responsible for worker’s compensation insurance. This is because the host employer does not consider a labour hire worker as an employee. However, they should have a public liability insurance policy. A public liability policy will cover injuries to a hosted worker.

See our article explaining when a company is responsible for paying compensation.

labour hire arrangement and law

Licensing Requirements

Several Australian States require labour hire licences, including Queensland, Victoria, the Australian Capital Territory and South Australia. Authorities make licensing rules to regulate labour hire services and keep workers safe from exploitation.

Host employers must ensure that they use licensed labour hire companies.

Other legal considerations in labour hire agreements include the use of confidential information, dispute resolution processes, and each parties liabilities and indemnities.

We have extensive experience in dealing with employment matters. If you need help with your labour hire agreements, contact our friendly team. We’re here to assist businesses with hired workers.

Frequently Asked Questions

1. Who pays the employee?

Workers sign contracts with the labour hire company, not with the host employer.

The host employer pays the labour company for the work performed by the employee. The labour company then pays the worker.

The host employer generally pays the labour company an hourly rate for each hour worked by the hired employee. These hourly rates usually include taxes, insurance, statutory entitlement, and super.

The benefit to the host employer is that it receives the skilled workers it needs without going through the hiring process itself.

Labour hire workers continue the working relationship with labour hire companies. Whereas, recruitment agencies do not maintain the relationship with the employee once they place them with an employer.

Additionally, the labour hire company must continue to support and pay these employees in their role with the host. The labour hire company also needs to fulfil other employer responsibilities.

In addition to flexibility for both employees and host employers, labour hire agreements can allow hosts to:

  • test out new roles before committing to a permanent employee;
  • scale up or down during peak or low demand times;
  • obtain skilled assistance quickly and cost-effectively; and
  • not stress about administrative tasks for hired employees (as the labour company deals with this).

There have been changes to the Fair Work Act as part of the new ‘Closing Loopholes’ laws.

A key change impacting labour hire services is the introduction of protected rates for hired employees. This ensures that the company pays workers the same salary they would receive if the host hired them directly.

The Fair Work Commission (Commission) can issue a regulated labour hire arrangement order (order). Any orders made by the Commission won’t come into effect until at least 1 November 2024. Read more about the Closing Loopholes amendments in our article.

About the Author

Farrah Motley
Director of Prosper Law. Farrah founded Prosper online law firm in 2021. She wanted to create a better way of doing legal work and a better experience for customers of legal services.

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