Labour hire and supply chains

Businesses can contract out work including labour and services.

If the work is then contracted to another business, this can create a contracting network or supply chain.

Difference between labour hire and other contracting arrangements

Labour hire

A business can have contracts with other businesses to provide them with workers. This is known as labour hire.

Services contracts

Businesses can have contracts with other business to provide services by taking on part of their work. This is known as a services contract.

Supply chains

A business can subcontract labour or services. This happens when a business has been contracted to provide labour or services and contracts out the labour or services to another business. This can create a supply chain or contracting network.

Employers must ensure all employees engaged in their supply chain are receiving the correct minimum entitlements under workplace laws. Otherwise, they could be responsible for not following the law. For more information, visit Managing your labour contracting.

Example: Business engaging workers in different ways

A food packaging company needs more workers to help during a busy period. They bring on these workers in different ways.

First, the food packaging company pays a labour hire employer to provide staff. The labour hire employer has labour hire employees working for them, who then go and work for the food packaging company temporarily. These labour hire employees are employed by the labour hire employer.

The labour hire employer also has workers who are subcontractors, not employees. These subcontractors agree to work for the food packaging company.

Finally, instead of hiring more staff to help with deliveries, the food packaging company decides to contract out their delivery work. The business that takes up this contract will manage their own employees. This is engaging a business to provide a service, rather than labour.

Labour hire

When businesses provide workers to another business, this is known as labour hire. Labour hire employers hire their employees. They are responsible for providing labour hire employees with their pay and entitlements.

Labour hire employers then send their labour hire employees to a host employer (host). The labour hire employee works for the host but is paid by their labour hire employer.

Protected pay rates

Employees, unions and host employers can apply to the Fair Work Commission (the Commission) for a regulated labour hire arrangement order (an order).

When an order applies, labour hire employees working for a particular host must be paid no less than the same pay rate they would receive under the host’s enterprise agreement (or another relevant workplace instrument). This is a ‘protected pay rate’.

For more information, visit Protected pay rates for labour hire employees.

Managing supply chains

Businesses have responsibilities to manage their supply chain, and make sure they are following workplace laws.

This can protect businesses against risks such as:

  • damage to business brand and reputation
  • being held legally responsible when contractors or subcontractors in their supply chain aren’t complying with workplace laws. This is known as accessorial liability.

Some businesses have a legal requirement to report on their actions to assess and address modern slavery risks in their operations and supply chains. The Modern Slavery Act 2018 sets out these requirements and aims to identify and address modern slavery risks. This helps to maintain responsible and transparent supply chains. To learn more about the reporting requirements business, visit the Modern Slavery Register.

Accessorial liability

Accessorial liability happens when a person or company is involved in the contravention of a workplace law. This means that a business may be legally responsible when their contractor or subcontractor is underpaying their staff.

Any person knowingly involved in breaches of workplace laws could be found legally responsible. This includes directors, managers, accountants, or other businesses in the supply chain.

Example: Accessorial liability

A manufacturing business pays a low contract price for workers being provided by a labour hire business. The manufacturing business thinks that the price must be too low to cover the employees’ overtime and penalties but they don't raise the issue with the labour hire business.

If the labour hire business is underpaying its workers, the manufacturing business may be involved in the underpayments because it hasn’t done anything to address the potential underpayments.

The manufacturing business could face court action as a person involved in breaches of the law. If found liable, they may be required to fix the underpayments as well as pay a penalty. If the workers raise the issue publicly, the manufacturing business could suffer reputational damage and lose customers.

Businesses can take steps to ensure they are compliant with workplace laws to:

  • minimise the risk that they will be held legally responsible for underpayments or non-compliance by a contractor or subcontractor
  • minimise the risk that their brand and reputation will be damaged by the actions of a contractor or subcontractor
  • build sustainable relationships with their contractors
  • help improve service quality
  • help improve employment terms and conditions, as well as engagement and motivation, for people working in the supply chain.

Find out more about Accessorial liability.

Tools and resources

Businesses must ensure their supply chain is following workplace laws.

We've developed resources to help businesses monitor and manage contracting arrangements. Download our:

We have information about managing your labour contracting to help businesses effectively engage a new contractor and review their contracts.

Related information

Help for small business