As attempts by Australia’s labor states to create a multi-jurisdiction, labour hire licensing scheme gain critical mass, it is becoming more important, and perhaps a little easier, to make comparisons and ask questions at a practical level rather than merely at a policy or ideological level.

One such question, which seems to be causing concern amongst industry participants, relates to the involvement of payroll providers in labour hire arrangements. Kudos, therefore, to the industry participants, who have appreciated the detail and complexity of the legislation well enough to formulate the following question:

Will our outsourced payroll arrangements alter our requirements to have a labour hire license?

The answer is, “Probably not”.

Let’s say you provide labour hire services – i.e. you engage a worker and supply that worker to another person (a host) to do work.

Your engagement of that worker creates an obligation – and it’s your obligation – to pay your worker for her or his work. You can’t escape that obligation by entering into a pay-when-paid-by-client arrangement. And, importantly, you can’t escape it by outsourcing your payroll function to a third-party payroll provider. It’s still your source obligation; and it is sourced in the work/wage or work/remuneration bargain that you made with your worker.

Neither, in most cases, can you transfer your worker to the payroll company. As the High Court has reminded us:

No worker is an asset in the employer’s balance sheet to be bought or sold.

So, whilst ever you continue to engage the worker, you have a payment obligation – even if a payroll company is going to perform it for you.

Now, I’ve heard it suggested from time to time, that terms and conditions of appointment of a payroll provider often attempt to shift responsibility for engaging the worker onto the payroll provider. They might say something like:

 You, the payroll provider, agree that you employ the worker and are responsible for all employer obligations.

In my opinion, you will have to be especially careful if your terms of business say anything like that – and that’s so regardless of whether you are the payroll provider or the labour hire provider.

The work/wage or work/remuneration bargain is made between the engager and the worker. It’s not something that you can transfer on paper – even if you have a paper consent from the worker and payroll provider – because the paper transfer and consent might not reflect the reality of the situation if it’s actually you, who continue to supply the worker to your client and are getting paid for it.

Even though there may be some very limited circumstances in which you could successfully transfer a worker’s engagement to a payroll company, it may still be important for you to ensure that you have a licence.

Remember, you can’t transfer a worker whom you haven’t first engaged. How did the worker become engaged with you in the first place? Did you advertise, or hold out that you were willing to provide labour hire services? Under all three state schemes, you must not advertise or hold yourself out as willing to provide labour hire services unless you have a licence that is in force.

If your attempt to appoint a payroll provider is designed to circumvent or avoid an obligation imposed upon you by the labour hire licensing legislation, you may also have committed an avoidance offence. Your client, and indeed your payroll provider, may be obligated to report the attempt as an avoidance arrangement under the reporting provisions of the legislation.

If you DO successfully transfer the worker to the payroll company, remember:

• It’s probably not just the payroll function that you have transferred – it’s likely to be pretty much the whole show; and it might be difficult to know what your client will be paying you for.

Ask yourself: Are you still providing what you agreed with your client you would provide? If you’re no longer providing what you agreed with your client to provide, you might find that your agreement with your client (including its terms and conditions) will be swept aside by a court, as happened in Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd.[i]

• Perhaps you’re being paid a type of pay-as-you-go placement fee and you’re really acting in the role of a private employment agent (PEA) providing placement services.

Ask yourself: Do your terms of business support that characterization of your arrangement; and do they accurately reflect the arrangement?

• Even if that is the case, you may still require a labour hire license if, as a PEA, you are doing anything more than merely providing a recruitment or placement service.

For example: If you are arranging safety inductions, PPE,  accommodation,  transport, message handling to coordinate worker attendance at the worksite etc, you will not have the benefit of the private employment agent exception under the Queensland and South Australian legislation; and you may be caught by the extended coverage provisions in the Victorian legislation that relate to PEA’s, who arrange accommodation; or Contractor Management Companies, who recruit and place independent contractors.

• You may also require a PEA licence in those states and territories that still have them.

Ask yourself: Do you need and do you have a PEA licence?

• Your arrangement is likely to convert the payroll provider into a labour hire provider if the payroll provider now has to supply the worker to the user or “host”.

Ask yourself: Does your payroll provider have a labour hire licence? If not, you may need to consider whether you have an ancillary liability arising from placing workers with unlicensed labour hire providers. The ancillary liability penalties can be as severe as those imposed upon the principal offender.

• You may have made a type of split placement – i.e. you have placed the worker operationally with the host, but administratively with the payroll provider. In doing so, you may have implicated your client in the offence of dealing with an unlicensed labour hire provider if either you or your payroll providers are unlicensed.

If your attempt to transfer the worker to the payroll company was NOT effective, – and there may be a number of reasons why it will not be effective – then you would clearly remain the labour hire provider. You will need a licence – even though the payroll provider is paying the worker.

The interactions between payroll arrangements and the coverage and avoidance provisions of the labour hire licensing legislation are complex and are affected by nuances in definitions, exclusions and extensions. That will mean that payroll providers (and labour hire providers) will need to exercise special care to understand the effects of a transfer of payroll responsibility from a labour hire provider. They will need to be thoroughly familiar with the legislation and will need to scrutinize the terms and conditions upon which the transfer of payroll responsibility takes place.

But wait! There’s more…

So far, we’ve only been discussing the situation where a labour hire provider appoints a payroll provider. There’s also the possibility that the payroll provider might be appointed by the client (host) or even by the worker. There’s the additional possibility that the payroll provider is, in fact, the worker’s own incorporated entity. That’s a whole other story!

Andrew C. Wood

[i] [2015] FCAFC 37 per North and Bromberg JJ at [paras 215 to 218].

This is an opinion piece intended to promote public discussion. It is not, and should not be relied on as legal advice. If you do want legal advice, please seek it from a lawyer, who is familiar your industry and with the laws that apply in the jurisdictions where you carry on business. Your industry associations or local Law Societies may be able to help you to find professional legal advisors, who can assist you.