What does the future of labour hire in Australia look like?

Labour hire arrangements are often considered some of the most complex to navigate due to the involvement of multiple parties. At the core of this model, an employee is directly employed by a labour hire firm, which then enters into a commercial agreement with a separate organisation known as the host company to provide the employee’s labour in return for a fee. The host company pays the labour hire firm this agreed fee, and the labour hire firm then pays the employee.

This arrangement offers businesses significant flexibility and can be an invaluable resource for filling short-term or seasonal vacancies, supporting ongoing operations, or even replacing an existing workforce. Their versatility makes them an essential part of modern workforce strategies, particularly for industries facing fluctuating workloads or skills shortages. Understanding these nuances of these arrangements is crucial to effectively leveraging their benefits in today’s dynamic business environment.

Painting the picture: the state of labour hire in Australia

According to the Australian Bureau of Statistics, in August 2024, approximately 747,500 employees had secured their current roles through a labour hire arrangement.

Importantly, because the employment relationship exists solely with the labour hire firm, workers don’t have the legal standing to lodge an unfair dismissal claim against the host company. The responsibility to honour the labour hire employee’s legislative rights in relation to unfair dismissal rights lies with the labour hire firm.

Additionally, in Kool v Adecco Industrial Pty Ltd [2016] FWC 925, the Fair Work Commission (FWC) confirmed that a labour hire company can’t avoid liability for unfair dismissal by pointing to a commercial contract with the host company. If a dismissal would be considered harsh, unjust, or unreasonable if carried out by the labour hire employer directly, it doesn’t automatically become fair simply because a host company was involved. The FWC can still find the dismissal unfair, even where the labour hire firm acted on the host’s instructions.

Besides ensuring labour hire employees have access to unfair dismissal protections, recent legislative changes have also aimed to ensure they’re paid fairly in these multi-party arrangements.

The impact of ‘Same Job, Same Pay’ laws

Parliament introduced ‘Same Job, Same Pay’ reforms when it passed the Fair Work Legislation (Closing Loopholes) Act 2023. The reforms took effect in November 2024, authorising the FWC to make and enforce Regulated Labour Hire Arrangement Orders (RLHA Orders) upon application.

An RLHA Order requires labour hire workers to be paid, at a minimum, the same amount they would have received if the host company directly employed them. The host company’s enterprise agreement, or relevant workplace instrument, would govern the pay conditions of the labour hire employee. This would entitle the labour hire employee to be paid:

• a base salary;
• incentive-based payments and bonuses;
• loadings and allowances;
• overtime and penalty rates; and
• any other additional payments the host company’s directly employed staff would receive.

This mechanism was introduced to close the pay gap that often exists under labour hire arrangements, ensuring workers are paid in line with the relevant industrial instrument, regardless of their employment arrangement.

However, there are exceptions. The FWC can’t make an RLHA order if:

• the host company is a small business employer;
• the labour hire employee is engaged on a training agreement;
• the employee is employed by the labour hire company for a short time, typically less than three months; or
• there are any other fair and reasonable exemptions.

Key messages

For the employee, RLHA Orders provides an added layer of protection, ensuring they’re not falling victim to unfair compensation.

For labour hire employers and host companies, this means an urgent review of all contractual arrangements to ensure that labour hire employees receive at least the same benefits as those directly employed by the host company.

Additionally, labour hire employers should be aware that their contractual arrangements with host companies don’t override or exclude the legislative protections related to unfair dismissal.

If any of this information has raised questions about labour-hire practices for your business or you’ve got another workplace compliance matter you need assistance with, please reach out to our experts via our 24/7 HR Advice Line.

Not a Citation HR client? To learn more about how Citation HR can help streamline your people management and take your business to the next level, reach out to our friendly team for a confidential, no-obligation chat.

About our author

Tuvini Jayakody is a Workplace Relations Advisor at Citation HR. She assists clients with a range of employment relations and compliance matters via the HR Advisory Service. She is currently studying for a Bachelor of Commerce and Laws.