Levelling up labour hire pay to become law

Same job, same pay for labour hire arrangements

In order to “close the labour hire loophole”, the Act amends the Fair Work Act 2009 (Cth) (FW Act) to introduce provisions which aim to prevent bargained rates in enterprise agreements from being undercut by the use of labour hire.

Labour hire is popular across the mining, agriculture and transport sectors – sectors in which businesses traditionally negotiate enterprise agreements with their employees to set minimum rates of pay.

However, most enterprise agreements do not apply to labour hire workers hosted by businesses, meaning they often receive lower rates of pay when compared to enterprise agreement-covered employees they work alongside.

Under the new regime, labour hire workers, unions, host businesses, and employees of host businesses, can apply to the Fair Work Commission (FWC) for a regulated labour hire arrangement order (Order) requiring that hosted labour hire employees are paid no less than what they would receive if:

• they were directly employed by the host business; and
• paid in accordance with an applicable enterprise agreement (or other employment instrument, such as a workplace determination).

While the new provisions of the FW Act dealing with the new labour hire regime will commence on the day after the Act receives Royal Assent, the FWC will only be able to make Orders effective from 1 November 2024.

Eligibility for regulated labour hire arrangement orders

Section 306E of the FW Act will provide that, upon application, the FWC may make an Order where:

• an employer supplies, or will supply, either directly or indirectly, one or more workers to perform work for a host business; and
• an enterprise agreement (or other employment instrument) that applies to the host business would apply to the labour hire workers if the host business were to employ the workers directly, for work of that kind;
• the host business is not a small business employer; and
• the requirements set out below are met.

Firstly, the FWC must be satisfied that the performance of the work by the hosted workers is not “for the provision of a service”, rather than the supply of labour. Broadly, this seeks to distinguish between:

• on the one hand, suppliers who provide workers to undertake specialist/expert services (such as consulting companies), and therefore retain a substantial degree of control over how the work is performed, with the work performed substantially separate from the host business’s systems and subject to professional standards; and
• on the other hand, labour suppliers who provide workers to perform labour principally under the control of the host business and with substantial integration of the workers into the host business’s operations.

Secondly, the FWC can only make an Order if it is fair and reasonable in the circumstances, having regard to any submissions made with respect to:

• existing pay arrangements that apply to employees of the host business and the hosted workers;
• the history of industrial arrangements applying to the host business and the supplier;
• the level of connection between the supplier and the host business (for example, if they are related companies or part of a joint venture); and
• the terms and nature of the arrangement under which the work will be performed, including the duration of that arrangement, location of work being performed and the industry in which they operate.

The Act also contains provisions dealing with the extension of Orders to cover new labour suppliers which begin supplying workers to a host business after the original Order is made, and replacement enterprise agreements.

Effect of an Order

Commencing from 1 November 2024, where an Order is in force, the supplier must pay the hosted workers at no less than the “protected rate of pay” in connection with the work being performed by the workers for the host business.

For these purposes, protected rate of pay means the full rate of pay that would be payable to the hosted worker if they were covered by the enterprise agreement of the host business.

Further, where an Order is in force, the supplier must use the protected rate of pay when calculating any termination payments which are calculated on the basis of a “full rate of pay”, such as statutory notice payments.

Host businesses are subject to obligations to provide the supplier with information about the protected rate of pay.

Exceptions

Exceptions may apply to the requirement to pay the protected rate of pay, including:

• where training arrangements apply, and
• where certain exemption periods apply to the use of short-term, non-ongoing labour hire work (generally for periods of no longer than 3 months, but also including for short-term recurring periods each year on order of the FWC).

Anti-avoidance provisions

The FW Act will contain broad anti-avoidance provisions to stop employers from entering arrangements for the purpose of preventing the FWC making an Order or avoiding the application of an Order, including dismissing an employee and engaging them as an independent contractor. As these are civil remedy provisions, employers who engage in anti-avoidance schemes could face significant penalties.

The anti-avoidance provisions will operate retrospectively from 4 September 2023 to catch any avoidance arrangements entered into from that time.

Disputes

The FWC will be able to deal with disputes concerning Orders - including in relation to the amount of a protected rate of pay, and whether a hosted worker is being paid the protected rate of pay –if the dispute cannot be resolved at the workplace level.

The FWC must deal with disputes by means other than arbitration (such as mediation) in the first instance, unless there are exceptional circumstances, but may arbitrate if the matter does not resolve.

Next steps

As noted, the new labour hire provisions will commence on the day after the Act receives Royal Assent, but the FWC will only be able to make Orders effective from 1 November 2024.

Labour hire companies, and host businesses, should ensure that they are prepared to navigate the new regime well in advance of that time.

If you would like to discuss the proposed changes in more detail, including what they may mean for your organisation, please don’t hesitate to contact us.

Our next article will be released in the new year, and will consider the introduction of the criminal offence of wage theft, protection for employees experiencing family and domestic violence, and the impact of the new limits on the small business redundancy exemption.

Our Workplace Health and Safety team will also be releasing an article with respect to WHS-related aspects of the new Act.