Labour hire is a commercial arrangement where one business (the agency or labour hire provider) employs a worker, pays their wages, super, tax, and workers compensation, and places that worker with another business (the host) to perform work under the host’s day-to-day direction. The host pays the agency a single charge-out rate per hour. The worker is legally an employee of the agency, not the host. This is the entire model in two sentences. Everything else in this guide is the detail you need to engage a provider, set up an agreement, and run the arrangement compliantly.
If you are a business owner in Australia considering labour hire for the first time, you probably have three questions. Who actually employs the worker? Who pays for what? And how does it differ from a contractor, an outsourcing arrangement, or a recruitment-to-hire fee? This guide answers all three, walks through the day-by-day lifecycle of a typical engagement, and flags the situations where labour hire is the right call and where it is not.
The three-party structure
Labour hire is a three-party relationship. Every decision about cost, compliance, direction, and dispute resolution comes back to which party is responsible for what.
Party one: the agency (labour hire provider)
The agency is the employer. In legal terms, the agency:
- Signs an employment contract with the worker (casual, fixed-term, or permanent)
- Pays the worker’s wages, including the 25 per cent casual loading where applicable
- Pays the 12 per cent superannuation guarantee (2025-26 rate, per the ATO)
- Withholds PAYG tax and remits to the ATO
- Holds workers compensation insurance (WorkCover in Victoria, icare in NSW, WorkCover Queensland, ReturnToWorkSA, WorkCover WA)
- Manages leave, performance, and termination
- Holds a state labour hire licence where required (Victoria, Queensland, South Australia, ACT)
Party two: the host (your business)
The host directs the work. The host:
- Briefs the role, shift pattern, site, and any licence requirements
- Provides a safe workplace (a shared duty of care with the agency under WHS law)
- Provides site induction, PPE, tools, and supervision
- Directs day-to-day tasks, including safety-critical instruction
- Approves timesheets
- Pays the agency a single charge-out rate per hour
- Does not pay the worker directly, does not hold their super or tax, and does not carry workers compensation for them
Party three: the worker
The worker is employed by the agency but performs work at the host site, under the host’s direction. The worker:
- Has all the usual employee rights under the Fair Work Act and the relevant Modern Award or enterprise agreement
- Is entitled to casual loading, super, public holiday pay (where applicable), and access to casual conversion after 6 months (12 months for small business employers) per the Fair Work Closing Loopholes reforms
- Follows the host’s reasonable direction at the site
- Takes safety issues to either party
This is not a contractor arrangement. It is not outsourcing. It is not a recruiter taking a fee to fill a permanent role. We explain the differences below.
The lifecycle of a labour hire engagement: day by day
Here is what a typical engagement looks like from first call to end of placement. Timings are realistic, not optimistic.
Day 0: enquiry and brief
You phone or email the agency. A 15 to 30 minute conversation covers:
- Role title and description (pick packer, forklift operator, food processor, general labourer)
- Site address and shift pattern
- Start date and expected duration (week, month, ongoing)
- Licences or certifications required (HRWL, food safety, first aid)
- PPE expectations and site-specific requirements
- Volume (one worker, five workers, a team of 20)
- Preferred charge-out rate or the agency’s published rate
The agency sends a rate quote, a standard labour hire agreement or an MSA draft, and the timesheet and induction process. For the 7 clauses that should be in that agreement, see our labour hire agreement template guide.
Day 1: sourcing begins
The agency runs a pool check first. A pool is a group of workers who have previously worked through the agency, are compliance-cleared (right to work, licence, reference checked), and are available in the timeframe. If the pool has a match, a shortlist is sent the same day.
If the pool does not have a match, active sourcing begins: existing worker referrals, job board targeting, and specialist networks. This takes longer, typically 2 to 5 days for standard warehouse roles and up to 2 weeks for specialist or licensed roles.
Day 2: candidate shortlist
The agency presents 1 to 3 candidates. You may choose to interview them, ask for references, or simply approve for start. Most warehouse and logistics roles in 2026 proceed without a formal interview because the worker has already been assessed by the agency, and the trial shift itself is the interview.
Day 3: induction booked
The worker attends a Wise Recruitment onboarding session (agency-led: timesheet system, agency policies, emergency contacts, pay setup). You deliver the site induction (WHS orientation, site rules, the specific machinery, PPE fit-out, supervisor introduction).
Day 4 or 5: first shift
The worker starts. Expect a ramp-up period. Day one productivity is rarely steady-state. A good labour hire engagement has the agency account manager check in by phone or text on the first day and after the first full week.
Week 1 to ongoing: timesheets and supervision
Timesheets are approved weekly or fortnightly by you as host, usually via a digital system. The agency processes payroll on the standard cycle. If a worker calls in sick or no-shows, the agency sources a back-fill. If performance is below standard, you raise it with the agency account manager, who will either coach the worker or replace them. You do not performance-manage the worker directly; that is the agency’s role as employer.
End of engagement
Three standard end paths:
- Natural end. The project finishes or the seasonal peak ends. The agency redeploys the worker elsewhere.
- Conversion. You decide to hire the worker directly. A conversion fee applies, typically 10 to 20 per cent of first-year salary, often tapered by trial length. See our temp-to-perm staffing guide.
- Extension. The engagement continues on the same terms, often with a rate review at 6 or 12 months.
If the worker has been engaged as a casual for 6 months (12 months for small business), they may request conversion to permanent employment with the agency. That is separate from conversion to direct employment with you.
Who pays what?
This is the question that trips up first-time hosts. The charge-out rate is a single hourly figure. The agency pays the worker, super, tax, WorkCover. You pay the agency.
What you pay as the host
- One invoice, one rate. Say you agree a $42 per hour charge-out rate for a general warehouse pick packer in Sydney or Melbourne. A 40-hour week costs you $1,680 ex GST. Add 10 per cent GST: $1,848 inc GST.
- No separate super. Super is inside the rate.
- No separate WorkCover. WorkCover premium is inside the rate.
- No payroll tax liability. The agency is the employer of record and carries payroll tax.
- No separation cost if the worker leaves. The agency is the employer.
What the agency pays from the rate?
For that same $42 per hour charge-out:
| Line item | Approximate amount |
| Base wage at award (Level 2 Storage Services casual, indicative) | ~$28.90 |
| 25 per cent casual loading | ~$7.23 |
| Super at 12 per cent (on wage + loading) | ~$4.34 |
| Workers compensation premium | ~$1.00 |
| Payroll tax (state, over threshold) | ~$1.75 |
| PPE and onboarding | ~$0.30 |
| Agency cost subtotal | ~$43.50 |
| Agency margin (approx) | Covered by scale efficiency, not always line-by-line |
Indicative only. Actual award, loading, and state-based payroll tax vary. This is the reason ultra-cheap labour hire rates (below $35 per hour for general labour) are either loss-leading, cash-in-hand, or non-compliant. See our full 2026 cost breakdown.
Common misconceptions: what labour hire is not
Labour hire is not a contractor arrangement
A contractor runs their own business and invoices you for a deliverable. They are not your employee and not the agency’s employee. They handle their own tax, super (for themselves above a threshold), and insurance. The Fair Work Ombudsman and the ATO each run tests to decide whether an arrangement is genuine contracting or sham contracting.
In 2024, the Fair Work Act was amended to include a statutory definition of employee that prioritises the “real substance and true nature of the relationship” over the written contract. That change makes sham contracting harder to sustain. If the worker is performing ordinary employee-like work at your direction, they are almost certainly an employee (yours or the agency’s), not a contractor. Our labour hire versus contractor guide covers the classification tests in detail.
Labour hire is not outsourcing
Outsourcing transfers an entire function or deliverable to a third party who manages it end-to-end. A cleaning contract, a managed warehouse service, or a BPO desk are outsourcing arrangements. The provider manages the workers, the equipment, the output, and the KPIs. You buy the outcome, not the hours.
Labour hire supplies the worker and the HR wrap. You still manage the work, the equipment, the output, and the KPIs. You buy the hours.
Labour hire is not a recruitment-to-hire fee
A recruitment agency finds a candidate, presents them to you, and charges a percentage fee (typically 15 to 25 per cent of first-year salary) when you hire them directly. You employ the worker from day one. There is no ongoing agency payroll relationship.
Labour hire is different. The agency employs the worker on an ongoing basis. You pay a single charge-out rate for every hour worked. If you want to convert to direct employment later, a conversion fee applies, which is usually lower than a full recruitment fee and often reduces the longer the worker has been with you.
Labour hire is not a way to avoid employment obligations
You cannot use labour hire to avoid unfair dismissal, underpayment, or safety obligations. Fair Work, the state WHS regulators, and the ATO all treat the shared duty as real. If the arrangement smells like you are directing the worker as an employee while trying to route around your obligations, enforcement will land on both parties.
When labour hire makes business sense?
Predictable demand spikes
Christmas FMCG push, Black Friday fulfilment, EOFY stocktake, back-to-school distribution, or a seasonal production run. Scaling your permanent workforce for a 6 to 10 week window is expensive. Labour hire is built for this pattern.
Short-term projects
A facility move, a warehouse reconfiguration, a product launch that needs 200 units picked and packed in a week. Labour hire removes the permanent overhead.
Temp-to-perm (try before you buy)
You are unsure about the cultural fit or capability of a new role. Engaging through labour hire for a 6 to 12 week trial gives you real performance data before you commit. Conversion mechanics are covered in our temp-to-perm guide.
High-turnover roles
If a role naturally churns (pick pack at peak, casual labour in hospitality adjacent food processing, entry-level warehouse), labour hire carries the churn for you. The agency manages replacement, induction, and payroll each time.
Cover for leave, medical, or parental leave
Standard casual back-fill scenario. Labour hire fills a 4-to-12 week vacancy without committing to a permanent headcount.
Unknown or untested demand
You have won a new contract or opened a new site and do not yet know the steady-state headcount. Labour hire scales up and down while you work it out, then you convert to permanent once the pattern is clear.
When labour hire does not make sense?
Core permanent roles with long tenure expectations
A senior supervisor, a specialist engineer, or a manager that you want in the business for 5 to 10 years. Direct hire with a proper recruitment process is the right call. The ramp-up investment pays off with tenure.
Highly specialised skills with tight labour markets
If the role is niche and the labour market is tight (licensed electrician in a remote region, specialist food technologist), you usually need a direct offer with permanency to attract the candidate. Labour hire will not get you the talent.
Roles where cultural integration is critical day one
Customer-facing roles in brand-sensitive businesses, leadership positions, or roles where long-term team cohesion is the value driver. Labour hire can be used as a temp bridge but is not the long-term structure.
Businesses that cannot support a shared WHS duty
If your site lacks proper induction, supervision, PPE, or risk assessment processes, you are not ready to host labour hire workers. Fix that first, or use a managed service (outsourcing) instead.
Read Also:
How Much Does Labour Hire Cost in Australia
Labour Hire vs Contractor: Legal, Tax, and Practical Differences
Labour hire checklist: before you engage
- Use this list the first time you engage a labour hire provider.
- Written role brief (site, shift, duration, headcount, licences)
- Written agreement covering rates, replacement, termination, WHS, insurance
- Certificate of currency for workers compensation
- Certificate of currency for public liability
- Labour hire licence number (if you are in Victoria, Queensland, South Australia, or ACT)
- Timesheet and approval process
- Induction and PPE responsibility confirmed in writing
- Escalation contact for performance, no-shows, or safety issues
- Conversion fee schedule in the agreement if you might hire direct later
Frequently Asked Questions
Labour hire is a commercial arrangement where a labour hire agency employs a worker, pays their wages and superannuation, and places them with a host business to perform work under the host’s day-to-day direction. The host pays one hourly charge-out rate to the agency and does not directly employ the worker. The agency carries HR, tax, and workers compensation responsibilities.
You brief the agency on the role. The agency sources and presents a candidate. You induct them on site. The worker performs the job under your direction. The agency pays them weekly or fortnightly. You are invoiced a charge-out rate per hour. If a worker is unavailable, the agency supplies a back-fill. Engagement ends naturally, with conversion to permanent, or by notice.
Labour hire is work where a third-party business (the agency) employs a worker and supplies them to another business (the host) for reward. The worker performs work at the host’s direction. The definition is narrower in some states. Victoria, Queensland, South Australia, and the ACT require providers to hold a licence. NSW and WA do not have a state licensing regime.
Yes, for predictable spikes and short-term projects. Labour hire removes the cost of recruitment, the payroll overhead, the workers compensation premium administration, and the risk of severance. For a small business hiring 1 to 5 workers for a 6 to 10 week seasonal peak, labour hire is usually cheaper than direct hire once you factor in indirect costs.
The ATO treats the labour hire agency as the employer of record. The agency pays superannuation, withholds PAYG tax, and reports under single touch payroll. The host business pays the agency under a B2B invoice. The host does not report the worker on its own STP or super, and does not issue a PAYG summary for the worker. If the arrangement is mis-classified (for example, the worker is really a contractor to the host), the ATO can reclassify.
A recruitment agency places a candidate into direct permanent employment with you and charges a one-off fee (typically 15 to 25 per cent of first-year salary). Labour hire is ongoing, with the agency employing the worker and invoicing you per hour. Many agencies, including Wise Recruitment and Consulting, offer both models. Labour hire suits flexible or short-term workforce needs, while permanent recruitment suits long-term roles.
Need labour hire in Melbourne or Sydney?
Wise Recruitment and Consulting supplies warehouse, forklift, food processing, and manufacturing workers across Victoria and New South Wales. Licensed in Victoria (VICLHL10427). Request a quote at /hire-staff/ or call 1300 021 673.
No lock-in Contracts
Payroll and Compliance handled by us
We respond within 2 business hours