Key issues

Misclassification of employees as independent contractors is a strategic focus for LHA because of the significant harm:

• to workers, through undercutting minimum wages set in the modern award or enterprise agreement and the perceived ability to avoid other legal obligations such as superannuation and portable long service leave
• to the community, through the avoidance of taxation obligations such as PAYG withholding and payroll tax, and failing to pay adequate premiums for workers’ compensation
• to compliant businesses, which are unfairly disadvantaged when competing against non-compliant providers that have unlawfully lowered their costs.

Businesses may misclassify workers as independent contractors because they mistakenly believe that PAYG withholding tax, superannuation, workers’ compensation and payroll tax obligations do not apply if workers are engaged as independent contractors.

In reality, a business’s legal obligations to workers are often similar or identical, regardless of whether they are engaged as employees or independent contractors.

Labour hire workers may be misclassified as independent contractors:

• regardless of them being engaged under an Australian Business Number (ABN)
• if working as part of the labour hire provider or host’s business, rather than genuinely conducting their own business
• if subject to control about how their work is performed, as an employee would be.

If workers have been misclassified, LHA can take a variety of actions, including educating the applicant about the laws, imposing conditions or refusing or cancelling a labour hire licence.

Illegal phoenixing – where a company is liquidated, wound up or abandoned to avoid paying debts, and a new company is started to continue the same business activities – harms both workers and the community:

• Employees miss out on wages, super and entitlements.
• Legitimate businesses are put at a competitive disadvantage.
• The community loses out on revenue that could contribute to community services.

LHA utilises a range of intelligence and analysis mechanisms, including through data-sharing with other agencies, to detect and address phoenixing.

Licence applications may be refused or licences cancelled where it is believed illegal phoenix activity is taking place.

Pyramid contracting involves a host engaging a labour hire provider to supply workers, who then subcontracts to other providers, who subcontract further. 

Subcontracting can be legitimate in labour hire, but the risk of worker exploitation and non-compliance increases as supply chains become more complex, due to factors including:

• confusion about who the true employer of the workers is 
• reduced visibility of companies further down the supply chain and their compliance
• the potential for unlicensed providers to be introduced into the supply chain
• each business in the supply chain taking a cut, leaving workers exposed to underpayment.

Generally, every business that supplies labour hire workers to a host – whether directly or through intermediaries – must have a labour hire licence.

Labour hire providers can manage supply chain risk by ensuring subcontracting arrangements 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.

All parties in the supply chain should also ensure contract prices are sufficient for businesses to meet their legal obligations. 

Labour hire hosts and providers both have responsibilities for the health and safety of labour hire workers, and cannot pass their duties onto one another via contract. 

Under workplace health and safety laws:

• a host is taken to be the ‘employer’ of a labour hire worker if a provider supplies or places the worker to perform work at a host
• a provider has the same occupational health and safety duties to a labour hire worker as to any other employee.

Providers and hosts should consult, coordinate and cooperate to meet their shared workplace health and safety duties, including by:

• sharing information that allows them to jointly manage health and safety
• implementing health and safety arrangements and responding to reasonable requests
• working together to eliminate gaps in health and safety measures.

Where a labour hire worker requires PPE, providers and hosts should ensure it is provided at no cost to the worker, and meet standards required by health and safety legislation.