Award rate compliance in labour hire is one of the most common sources of Fair Work Ombudsman investigations — not because employers are deliberately underpaying workers, but because the award framework is complex, classification decisions are often made without enough information, and errors that compound across a large workforce add up quickly.
This guide covers how award coverage works in labour hire arrangements, what employers need to check in their agreements with providers, and where the most common errors occur.
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Key takeaways
- The labour hire provider is the employer and is responsible for applying the correct award and classification — but the host employer’s industry and the work performed on site determine which award applies.
- Classification errors — particularly underclaiming the correct level for an experienced worker — are among the most common and costly award compliance failures in labour hire.
- Same Job Same Pay obligations now require labour hire providers to match certain host employer pay conditions in covered industries, which adds a second layer to award compliance for affected arrangements.
How award coverage works in labour hire
In a labour hire arrangement, the worker is employed by the provider — so the provider is the entity with the legal obligation to pay the correct award rate, apply the correct classification, and maintain payroll records. The host employer does not pay the worker directly. However, the award that applies to the worker is typically determined by the industry in which the work is performed and the nature of the tasks being done — not by the provider’s own industry.
This means a provider supplying workers to a manufacturing site will likely need to apply the Manufacturing and Associated Industries and Occupations Award. Workers supplied to a construction site may be covered by the Building and Construction General On-site Award. Workers in a warehouse may be covered by the Storage Services and Wholesale Award. The provider needs to identify the correct award for each host engagement — not apply a single default award across all placements.
Classification — where most errors originate
Most modern awards contain a classification structure with multiple levels, each corresponding to a skill, experience or responsibility threshold. Correctly classifying a worker requires assessing their qualifications, experience and the nature of the tasks they are performing — and updating that classification when the role changes or the worker develops additional competency.
The most common classification errors in labour hire are:
- Starting all workers at the lowest classification level regardless of experience: an experienced tradesperson who meets the criteria for a higher classification must be paid at that level — entry-level classification is not a default for all new placements.
- Not updating classification when duties change: a worker who takes on lead hand responsibilities, trains other workers, or uses skills that correspond to a higher level should be reclassified — the classification must reflect the work actually performed.
- Using the wrong award entirely: applying a generic award to workers on a specialist site, or applying the provider’s own industry award rather than the award applicable to the host’s industry.
- Missing allowances: many awards contain site, tool, travel or industry-specific allowances that must be paid in addition to the base rate. These are not optional — they are part of the minimum entitlement.
Penalty rates and overtime — what host employers often miss
Labour hire invoicing is typically based on agreed charge rates — but those charge rates need to account for the underlying award obligations, including penalty rates for weekend, evening, public holiday and overtime work. Where a host employer requests weekend coverage or after-hours work, the provider’s cost base increases to reflect the penalty rate obligations. Host employers who are surprised by rate variations for shift work often have not reviewed the award structure that underpins their labour hire agreement.
This matters for budget planning: a workforce that operates across a mix of day shifts, afternoon shifts and weekends carries a materially different award cost than a straight-time day shift workforce. The host employer’s commercial relationship with their provider should reflect this — and where it does not, the provider is either absorbing the difference (unsustainable) or not paying it to workers (a compliance failure).
Same Job Same Pay — the additional layer
For labour hire arrangements covered by the Same Job Same Pay provisions introduced under the Fair Work Legislation Amendment (Closing Loopholes) Act 2023, providers are required to pay labour hire workers no less than what they would receive if employed directly by the host employer under the host’s enterprise agreement or applicable instrument. This sits on top of the award minimum — it is a comparison obligation, not a replacement for award compliance.
For a full breakdown of how SJSP works and which arrangements are covered, see Same Job Same Pay in labour hire.
What host employers should check
Host employers are not the employing entity and cannot directly control how a provider manages award compliance — but they can and should take steps to confirm that their provider is managing it correctly. Practical checks:
- Ask which award the provider is applying to workers in your engagement, and confirm it matches the work being performed on your site.
- Ask how classifications are determined at placement and how they are reviewed — particularly for workers who have been on site for more than a few months.
- Review how your charge rates are structured for shift variations, weekends and public holidays — and confirm those rates reflect the underlying award penalty obligations.
- If your site is covered by an enterprise agreement, confirm whether SJSP obligations have been assessed and how the provider is addressing them.
- For context on WHS obligations that sit alongside payroll compliance in labour hire, see WHS responsibilities in labour hire.
Related reading
Also see: Labour Hire vs Permanent Recruitment: Choosing the Right Hiring Model.
Also see: Casual Conversion Under Fair Work: What Employers Need to Do.
Also see: Enterprise Agreements and Labour Hire: How EA Coverage Affects Your Provider.
For a closely related guide, read Payroll Tax and Labour Hire in Australia: What Hosts and Providers Should Know.
Related services
FAQ
Who is liable if a labour hire worker is underpaid?
The labour hire provider, as the employer, is primarily liable for underpayment. However, host employers can face accessorial liability where they were knowingly involved in the underpayment — for example, where charge rates were set in a way that made compliant pay impossible, or where the host had knowledge of the issue and did not act. The safest position is to engage providers who can demonstrate sound payroll compliance practice.
Does the award apply to the provider’s industry or the host’s industry?
The award coverage follows the work performed and the host’s industry, not the provider’s own industry classification. A labour hire company is not covered by a “labour hire award” for all placements — the applicable award depends on where the worker is placed and what they are doing there.
What happens if our provider has been applying the wrong award?
The first step is to assess whether underpayment has occurred and the extent of it. The provider is responsible for back-paying any shortfall to workers. As a host employer, review how your charge rates were structured and whether they were consistent with correct award application — this helps establish that you were not knowingly involved in any underpayment. Going forward, confirm the provider has corrected their award application and has processes to prevent recurrence.
Next step
If you need a workforce provider with transparent, auditable payroll compliance practices, explore managed skilled workforce solutions.
General information only: This article is for general informational purposes only and does not constitute legal advice. Legislation varies by state and territory — consult a qualified employment lawyer or Fair Work adviser for guidance specific to your situation.
