How to draft an effective labour hire agreement in 8 steps

By Portner Press on December 4th, 2019
  1. Employee Management
  2. Recruitment & Induction

Labour hire enables you to source labour to meet temporary needs without incurring the costs associated with direct employment.

As a host employer, labour hire can benefit you by:

  • allowing you to source employees quickly to meet temporary operational needs;
  • enabling you to fulfil specific tasks or projects without committing to permanent or ongoing employment;
  • reducing your administrative burden because the agency is responsible for the financial and administrative overheads associated with employment, including payroll tax, superannuation payments and workers’ compensation; and
  • reducing your liability for employment-related obligations.

When you enter into a labour hire agreement with an agency, it is imperative you have an effective labour hire agreement between your business and the agency.

Your labour hire agreement must make it clear that the workers are employed by the agency, and then hired out to you.

As a general guide, the following points should be incorporated into the labour hire agreement:

1. Clearly identify the parties

  • List the parties to the agreement.
  • Define all the key terms, including the nature of the parties, e.g. ‘agency’, ‘agency employee’ and ‘host employer’.
  • Use terms such as ‘assignment’ to highlight the nature of the indirect relationship between the host employer and the worker.

2. State the nature of the relationship

  • Both parties should acknowledge that the worker is at all times the employee of the agency and not the employee of the host employer.
  • Emphasise that although the host employer will instruct the worker in relation to its conduct on the worksite, ultimately the worker remains under the managerial control of the agency.

3. State the agency’s obligations to the host employer

  • Define the purpose of the agreement, i.e. for the agency to provide workers to the host employer for an assignment at the request of the host employer.
  • Where the worker is unsatisfactory for the assignment, the host employer should be able to request that the agency replace the worker and the agency should not require that you provide a reason for this request.

4. Ensure the agency complies with the employer obligations in the Fair Work Act 2009 (Cth) (FW Act)

  • The agency has a responsibility to the worker for rights under the FW Act (including provisions under any relevant modern award).
  • The agency is responsible for all employer obligations owed to the labour hire worker, such as:
    • remuneration;
    • making superannuation contributions;
    • remission of payroll tax and GST;
    • withholding and remission of RAYG instalments of taxation; and
    • payment of workers’ compensation premiums.

5. The agent must comply with the host employer’s policies

  • The agency must ensure that the worker has undertaken a proper induction course and complies with the policies and work rules of the host employer.

6. The agency takes out and maintains a valid insurance policy

  • The agency is to take out an insurance policy for professional liability, or errors or omissions for an insured worker (the amount of which should be determined with your insurer) to cover any claim against the host employer for any loss and damage caused by the worker.
  • The agency is also to take out workers’ compensation insurance in relation to injuries arising out of or in the course of employment at the host employer’s worksite.

7. The host employer’s obligations to the agency

  • The host employer is to pay the agency a fee for every worker it provides and for every hour the worker works during an assignment.
  • The host employer is to pay the agency pursuant to an invoice tendered by the agency.

8. The agency is to indemnify the host employer for actions arising out of the employment relationship

  • The agency will be solely liable for any claim of unfair dismissal, workplace injury and breach of general protections under the FW Act, as it is the true employer.

Checklist: Ensuring that an on-hired employee is suitable for your business

Check that the on-hired employee is appropriately qualified, licensed or authorised to carry out the work.



Require the agency to provide references from past jobs.



Develop selection criteria to help you assess the on-hired employee’s ability to perform the required work safely and efficiently — you can do this by asking what training they have received in risk assessments, their site safety plans, etc.



Review the machinery, equipment and tools the on-hired employee will use.



Discuss safety issues directly with the on-hired employee.



Develop a safety induction, supervision, monitoring and risk assessment process with the on-hired employee. Obtain evidence from the agency regarding their history of:


  • workers’ compensation claims;
  • injuries that resulted in employees being unable to work;
  • medical treatment injuries; and
  • operational safety, e.g. details of prohibition or improvement notices.





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