When an organisation reduces its headcount, the workforce model it has been using determines how quickly, cleanly and legally it can do so. Labour hire and direct employment create very different obligations at the point of reduction — and employers who have not thought about this in advance are the ones who face the most complexity when it matters most.
This guide covers how redundancy obligations differ depending on whether workers are direct employees or labour hire, the role of labour hire in managing workforce reduction, and the risks employers should plan for before initiating a reduction process.
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Key takeaways
- Labour hire workers employed by a provider are not employees of the host — when a host ends a labour hire arrangement, the redundancy obligation sits with the provider, not the host.
- Ending a labour hire arrangement is not the same as making someone redundant — but it can trigger genuine redundancy obligations for the provider if the worker has no suitable alternative placement.
- Employers who over-rely on direct employment through periods of high demand create larger and more complex restructure obligations when demand falls.
How redundancy works differently for direct vs labour hire workers
For a direct employee, redundancy arises when the employer decides that the position is no longer required. The Fair Work Act entitles eligible employees to redundancy pay based on their period of continuous service — from four weeks for one year of service through to sixteen weeks for nine or more years. There is also a minimum notice period, and a redeployment obligation: the employer must consider whether there is a suitable alternative position before confirming a redundancy.
For a labour hire worker, the employment relationship is with the provider, not the host. When the host ends the placement — because the project is complete, the role is no longer required, or the operation is scaling back — that decision ends the commercial arrangement between host and provider. Whether the worker is made redundant depends on whether the provider has a suitable alternative placement for them. If the provider can redeploy the worker to another host engagement, the employment continues and no redundancy entitlement arises. If there is no suitable alternative placement and the employment ends, the provider’s redundancy obligations apply.
The redeployment obligation — what it means for both models
Under the Fair Work Act, an employer who is considering making an employee redundant must consider whether there is a suitable alternative position available — either within the employer’s business or an associated entity. Failing to consider redeployment before confirming a redundancy can expose the employer to an unfair dismissal claim even where the redundancy itself is genuine.
For direct employers reducing headcount, this means examining all available positions across the organisation before finalising who is affected. For labour hire providers whose placements are ending, this means actively canvassing what other host engagements are available before treating the end of a placement as a termination. A provider with a large portfolio of placements has more redeployment options than a smaller provider — which is one reason why the scale and placement diversity of a provider matters in a restructure.
When the host employer may still carry exposure
While the formal redundancy obligation sits with the provider in a labour hire arrangement, host employers are not entirely insulated. Two scenarios create residual risk for hosts:
- Sham arrangements: if the labour hire arrangement is not genuine — if the worker is in substance an employee of the host despite the provider structure — the host may be found to be the actual employer for redundancy purposes. Correctly structured labour hire is protective; poorly structured or mislabelled arrangements are not. For more on this risk, see sham contracting in Australia.
- Casual conversion: if a labour hire worker has been placed with the same host on a regular and systematic basis for an extended period, and the provider has not managed casual conversion obligations, the worker may have entitlements that complicate a clean end to the arrangement. The provider carries this obligation, but hosts who direct the rostering of long-term casual workers may be implicated in the pattern of engagement.
Using labour hire strategically to manage restructure risk
Employers who maintain a clear segmentation between their core permanent workforce and their contingent labour hire workforce have more flexibility when demand falls. The contingent component can be reduced first — by ending placements — without triggering the notice periods, redundancy pay and redeployment processes that apply to direct employees. This is not about avoiding worker obligations; it is about structuring the workforce so that the permanent headcount reflects genuinely permanent roles and the variable component is appropriately structured as contingent.
The planning question is not “how do we use labour hire to avoid redundancy costs?” — that framing leads to sham arrangements and accessorial liability. The right question is “which roles in our business genuinely need to be permanent and which are variable enough to suit a contingent model?” Clear workforce segmentation, maintained over time, is what makes the contingent component genuinely available as a flexibility lever when conditions change.
What to do when a reduction is imminent
- Identify which workers are direct employees and which are labour hire — the process, timeline and obligations are different for each group.
- For direct employees: follow the genuine redundancy process — consultation, redeployment consideration, correct notice and redundancy pay calculation, and Fair Work notification requirements if fifteen or more employees are affected.
- For labour hire workers: give the provider as much notice as possible of the placement ending. A responsible provider will begin canvassing redeployment options immediately — which benefits the worker and reduces the provider’s redundancy exposure.
- Document the decision-making process for both groups. An undocumented selection process is the most common reason a genuine redundancy becomes an unfair dismissal claim.
Related reading
Also see: Labour Hire vs Permanent Recruitment: Choosing the Right Hiring Model.
For a closely related guide, read Using Labour Hire During Business Restructures: Timing, Sequencing and Risk.
Related services
FAQ
Can we end a labour hire placement without any notice?
The commercial contract between the host and the provider typically specifies a notice period for ending a placement. Outside of misconduct situations, ending a placement without notice may breach the commercial agreement and leave the provider unable to manage the worker’s employment transition properly. Give as much notice as operationally possible — it protects the provider’s ability to redeploy the worker and reduces the risk of a back-and-forth about the placement end.
Do labour hire workers get redundancy pay?
They may, depending on whether the employment ends. If the provider redeploys the worker to another engagement, no redundancy arises. If the provider cannot redeploy the worker and the employment ends, the provider’s redundancy obligations apply — based on the worker’s period of continuous service with the provider, not with any particular host.
What is the Fair Work notification requirement for large-scale redundancies?
Under the Fair Work Act, employers who are making fifteen or more employees redundant must notify Services Australia before the dismissals take effect. There is no equivalent obligation for ending labour hire placements — the obligation sits with the provider if it results in employment terminations at the provider’s level.
Can we use labour hire to backfill roles after making direct employees redundant?
This is legally risky if done too quickly after the redundancy. If a direct employee is made redundant and the same role is filled by a labour hire worker shortly after, it can undermine the genuineness of the redundancy and support an unfair dismissal claim. There is no bright-line rule on timing, but the closer in time the backfill is to the dismissal, the greater the risk. Take legal advice before doing this.
Next step
If you want to structure your workforce to reduce restructure risk while maintaining operational flexibility, 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.
