Improving compliance in complex supply chains – a security industry case study

28 October 2022
Improving compliance in complex supply chains – a security industry case study

LHA has been working closely with the security industry to identify compliance issues in supply chains, and design approaches to ensure:

  • LHA has transparency of all labour hire providers in a supply chain
  • Head contractors are acting responsibly to ensure their subcontractors can comply with their legal obligations.

In a recent example, after receiving reports about the treatment of workers engaged by subcontractors to MSS Security (MSS), LHA reviewed MSS’s arrangements with its hosts and subcontractors.

MSS cooperated with LHA’s enquiries and has indicated its full support for our work to regulate multi-tier supply chains, acknowledging this presents a significant challenge for the security industry.

By examining contract arrangements across supply chains, LHA can assess whether each provider in the chain is capable of meeting its minimum legal obligations and investigate where there are concerns.

New guidance is now available for security industry providers, to support supply chain compliance:
Guidance for the security industry: cost of meeting your legal obligations.

Outcomes of LHA’s compliance work regarding MSS

LHA determined that MSS's arrangements reasonably allowed both MSS and its subcontractors to comply with their legal obligations – including wages, leave entitlements, superannuation, portable long service leave levy, workers’ compensation insurance and GST.

However, to manage the increased inherent risk of non-compliance in multi-tier supply chains, LHA imposed a condition on MSS’s licence, requiring regular reports about the identity of its subcontractors. This condition enables LHA to monitor subcontractor compliance more effectively, in line with our mission to improve the transparency of the labour hire industry.

Inquiries into the compliance of the subcontractors as a result of the reports are ongoing.

During the review, MSS also worked with LHA to address concerns about payment for employee inductions, voluntarily reviewing its induction processes.

Any activities a worker performs as instructed, directed or required by their employer counts as time worked, including inductions. Failure to pay workers where required may result in licensing action.

MSS also addressed payment for Q Fever vaccinations, which providers are required to provide to employees. LHA reviewed MSS’s processes in line with a previous decision.

LHA imposed licence conditions to monitor compliance with these obligations.

Keeping compliant across complex supply chains

The risk of worker exploitation and non-compliance increases as supply chains get more complex. So it’s important that providers maintain transparency and responsibility throughout multi-tiered supply chains.

As a starting point, providers should be aware of the cost of meeting their minimum legal obligations – for pay and key entitlements. Our recently released Guidance for the security industry can assist in this.

In short, if the contract price being charged for labour does not add up, there is an increased risk of non-compliance. If LHA identifies a high risk of non-compliance, it will investigate whether the labour provider is meeting its legal obligations. If it finds non-compliance, this could result in warnings, licence conditions, suspension, or cancellation – impacting or preventing a provider’s ability to operate.

LHA may also impose licence conditions on head contractors to address risks in their supply chain, improve transparency, or change behaviour around multi-tier supply chains.

More about subcontracting

A written contract should be used in any subcontracting arrangement between providers. This should clearly identify the legal person they are contracting with, including their ABN.

Subcontracts should also include clauses that:

  • Require subcontractors to inform a provider if their labour hire licence is suspended or cancelled
  • Limit further subcontracting or require a provider’s consent before further subcontracting out work
  • Entitle a provider to obtain information and documents to verify that employees are being paid correctly, and there is no sham contracting.