Recently, I was asked to comment on how an employer-of-record (EoR) arrangement might affect an on-hire firm’s employment and labour hire licensing responsibilities. It seems that there’s a bit of a view circulating to the effect that, if you put in place one of these EoR arrangements with a payroll company, you can avoid both sets of responsibilities. Frankly, I doubt that you can.
And if you try to do so, I think you could end up with egg on your face… or worse still, with residual employment obligations (for tax, super, redundancy, unfair dismissal and the like), as well as leaving yourself open to a range of claims for anything from involvement in misleading conduct in respect of an offer of employment[i] all the way through to sham contracting and labour hire licence avoidance.
Employer of Record (EoR)
Firstly, let’s clarify what I mean by an EoR.
Corporate Groupings
An EoR is a third party that appears “on the record” as the employer of your workers. It’s a common arrangement within corporate groups of related entities. One entity in the group will go “on record” as employer for workers in the group. It will handle payroll and will probably be the named employer in the employment contract. It will issue pay slips and pay summaries and remit tax and super. These arrangements are often unravelled in insolvency proceedings, where group entities that thought they were shielded from employer responsibilities can be left having to pay up.
Payroll Services Providers
It’s also a common feature of many arrangements made by on-hire firms for the appointment of a payroll services provider. The contract of appointment might even include the individual worker as a party and might go to considerable lengths to insist that the payroll company must employ the individual. I’ll talk some more about those contracts (and some of their common flaws) in a later post on the topic.
Incorporated Worker Entities (IWEs)
You can also encounter aspects of employer-of-record issues when you’re dealing with a worker owned and controlled company through which the worker operates.
We’re talking, here, about those entities that are effectively the alter ego of the individual who actually performs the work. Usually, the entity is engaged to provide the required services (e.g., ITC services) and it is left to the entity to employ or engage the individual worker.
If that’s the arrangement you’re working with, you’d want to make pretty sure that the IWE has employed the individual and that the terms of the employment are comprehensively set out in a written contract between the IWE and the worker. Otherwise, you might find that any looseness or uncertainty, or any mistake about the form of contract used, opens the door to an inquiry about whether you, in fact, might be the employer.
We’ve now looked briefly at three different arrangements under which a third party might be identified as the EoR, and we’ve looked at the sort of things that the EoR might be doing.
But, for present purposes, none of that means that the EoR is necessarily the true employer.
The True Employer and How To Find It
The true employer will be the entity which, on an examination of the totality of the relationship, actually controls the work relationship.
Now, you’re probably going to say that the Golden Trio of recent High Court Cases[ii] put an end to the multi-factor/ totality of the relationship test, and that we can only now have regard to the terms of the contract.
Well, that is mostly true … if we’re trying to decide if a worker is an employee or an independent contractor – that is to say, if were trying to decide thework status question.
But it seems it may not be true if we’re trying to answer the different question of who is the employer – the employer identity question. At least, that’s what the NSW Supreme Court recently said in Spitfire Corp.[iii]
And it seems that the FWC is now finding reasons to distinguish the Golden Trio Cases – even on the work status question.[iv] So, unless your contract is wholly in writing, pretty tight, not a sham, and not unsuited to the use to which you’ve put it, you might still find yourself having to answer some embarrassing questions about how your relationship actually works.
A Panacea?
Taking all this into account, can we be confident that entering into an EoR arrangement with a related entity, a payroll provider, or an Incorporated Worker Entity will relieve an on-hire provider from its employer or labour hire responsibilities.
[ii]WorkPac Pty Ltd v Rossato(2021) 95 ALJR 681; [2021] HCA 23 (“Workpac”); Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd[2022] HCA 1 (“Personnel Contracting”); ZG Operations Australia Pty Ltd v Jamsek[2022] HCA 2 (“ZG Operations”).
[iii]In the matter of Spitfire Corporation Limited (in liq.) and Aspirio Pty Ltd (in liq) [2022] NSWSC 340 (“Spitfire Corp”).
[iv] See Waring v Hage Retail Pty Ltd[2022] FWC 540, where, at paras [52] to [56] Deputy President Anderson summarized the principles in the High Court’s decisions in Personnel Contracting and ZG Operations. DP Anderson’s summary was subsequently cited with approval by the Full Bench in Azad v Hammond Park Family Practice Pty Ltd T/A Jupiter Health Warnbro[2022] FWCFB 66 at para [14]. Hage Retail is noteworthy because of the way in which DP Anderson applied the legal principles to the facts of that case in order to find scope to conduct an inquiry which extended well beyond the strict terms of what purported to be the employment contract.
A female temp desk consultant looking over some documents, whilst discussing an assignment with her labour hire worker.The worker is wearing hi vis jacket , and their safety clothing is scattered about the office.
Discussion of the topic, “Who needs a labour hire licence” often gets diverted by red herring issues about whether a payroll provider is the employer, or at least the employer-of-record, and whether the worker is an employee or not.
My simplified or perhaps simplistic explanation of the licensing schemes is that, regardless of whether you are an on-hire firm or a payroll provider, you’ll need a licence if:
you have an arrangement with an individual to supply the individual perform work for someone else;
the individual qualifies as one of your “workers” (as defined); AND
your arrangement with the individual includes an obligation to pay the worker for the work.
This is what we call having a labour hire “supply arrangement”.
There are some subtle variations between the four existing state and territory schemes. There are also additional circumstances in which you might need a licence in Victoria.
Now, some payroll providers do have such an arrangement; others don’t.
Payroll providers which do have such an arrangement with a worker would seem to need a licence.
Those which don’t would not seem to require a licence. Indeed, I’m aware that this is a view that has been confirmed by at least one scheme regulator and that some payroll providers may be in a position to provide regulator confirmation that they do not require a licence. Of course, it’s always important to make sure that you fully understand the facts and circumstances on which that confirmation is given. Don’t assume that one-size-fits-all in this space.
The fact that a payroll provider, which has such an arrangement, requires a licence will not necessarily relieve the on-hire firm that appoints the payroll provider from having a licence as well.
It won’t matter whether the individual is an employee of the person who has the arrangement or not.
The supply of the worker can be direct or indirect; and it needn’t be contractual.
And if the arrangement needn’t be contractual, then it would seem to follow that the payment obligation needn’t be contractual either. Perhaps a moral or equitable obligation, arising from representations or a loose understanding, would suffice.
So, it would seem to make no difference to the licensing requirement whether the payroll provider is the employer or not.
The focus of the inquiry is always on identifying the presence of the labour hire supply arrangement/s. The involvement of multiple parties: typically, on-hire firms, payroll providers, and incorporated worker entities (IWEs) just makes the inquiry that little bit more difficult.
I’ll say something more about contracts with IWEs in a later post. That’s a whole other story!
As you know, a payment obligation has to be part of the arrangement between the provider and the individual who performs the work if the individual is to be regarded as the provider’s worker (as that term is defined).
Throughout the “Lachie & Martin” series of videos , I’ve been suggesting that, even where a temping agency arranges for a payroll company to go “on record” as the employer of its temps, the agency can be left with a residual payment obligation sufficient to constitute the temps as its “workers” for the purposes of the labour hire licensing Acts. Why is that?
It’s because that Acts are clear that the arrangement between a labour hire provider and the individual who performs the work needn’t be contractual.
Now, if the arrangement needn’t be contractual, it follows that the payment obligation needn’t be contractual either. So what sort of obligations could those be? I can think of several different sources for such an obligation. Perhaps you can too.
Keep in mind that an arrangement, as distinct from a contract, is essentially a plan of action that the parties intend to put into effect with a sense of (moral) committment to it even though it may not be legally enforceable.
What temping agency, when it is setting its temps up to be employed by a payroll company, doesn’t enter into such an arrangement? It’s the arrangement, rather than the employment contract, that can leave the temp agency with the residual obligation… and, hence, the need to obtain a licence.
We’ll take a closer look at some typical arrangements next month, when we examine the “employer-of-record” phenomenon as well as some of the myths surrounding it.
In thisa third and final part of the series, Fictional characters, Lachie & Martin are back to examine the staffing arrangements for their consulting project team. This time, they’re focusing on the Interstate Temp Agency and Payroll (Employer of Record) Providers. Does anyone need a licence? Let’s find out.
I wonder if the message is getting through to labour hire providers, yet, that the reason why all four Australian labour hire licensing schemes need an “incorporated worker exemption” is that all those companies that their “ACN contractors” are working through are supplying their people to other people to perform work.
In short, they’re micro labour hire firms.
There are probably thousands of them – maybe tens of thousands.
So, the regulations and exempt worker declarations exclude some individuals who are supplied to perform work through their own companies from the definition of “worker“.
And because you can only be a labour hire provider under a supply arrangement if you suppply a “worker” as defined, excluding them from the definition means that the individuals are not “workers” for their own companies, which therefore don’t need licences.
Pretty cool work-around when you think about it. But there’s a hitch.
The exemptions are very technical and they differ from jurisdiction to jurisdiction. Basically, that can mean that your ACN Contractor mightn’t need a licence in, say, Victoria; but could need one in the A.C.T.
The sort of factors you need to consider include:
how many directors the company has;
how many individuals it supplies to perform work for other people;
whether the individuals have a management role or share in profits.
You also need to check how the individuals actually get paid by their ACN entities, because not all payments are payment for the work performed. Some are share dividends; others are trust distributions; some payments might be by way of directors fees – all of which might not be able to be characterized as payments for the work performed.
So, keep checking the arrangements that your ACN contractors have with the individuals who perform the work.
And keep in mind that circumstances can change. Someone’s mother is appointed as a director and suddenly the maximum number of directors required for the exemption to operate is exceeded; or someone’s little brother starts freelancing through the Contractor’s entity, and the maximum number of workers required for the exemption to operate is exceeded.
Before you know it – and perhaps without knowing it – you’re involved in an unlicenced labour hire supply arrangement.
In discussions throughout October and November about labour hire licensing, I’ve observed that there seems to be a bit of a misconception about who’s a provider and who’s merely an intermediary.
The misconception is fueled by the false notion that it comes down to who’s on record as the employer.
We know that notion doesn’t stack up, because the labour hire licensing Acts all state that a person can be a labour hire provider regardless of whether the provider enters into any contract with the worker for the performance of the work.
One view that I’m coming to is that the critical question is not, “Who’s the employer?”; but rather, “Who makes a labour hire arrangement with the individual who performs the work?”
And those arrangements can come in many different forms.
There can even be more than one labour hire arrangement with the same worker in respect of the same labour hire transaction.
So, when you’re examining your workforce supply or procurement models, ask yourself this question: “Who makes ‘arrangements’ with the individuals who are to perform the work?”
Try to keep in mind that an “arrangement” need be nothing more than a plan of action between two people that may not be enforceable at law but which they have every intention of following to the extent that they feel some moral commitment to it.
Some of the answers could be:
Recruiters
Temp agencies
Payroll providers
Accommodation providers
Contractor management services providers
The individuals’ own entities – if they are operating as “incorporated workers”.
Give it a try.
Make a list, and then check to see whether the arrangements that you’ve identified need to be supported by labour hire licences (Qld, SA, Vic, ACT) and/or private employment agency licences (SA, WA, ACT).
Fictional characters, Lachie and Martin, are back to use their 4-Step process once more, as they examine their consultancy workforce supply arrangements to check for A.C.T. labour hire licensing issues. In Part 1, they examined the in-house employee members of the workforce. Nowthey have to examine arrangements with the external specialist contractors they’re recruiting for a secret defence industry project– all hypothetical of course!
Spoilers: Lachie and Martin uncover a few new issues that might resonate with commercial litigators searching for “triable issues” in the labour hire licensing schemes of the four states and territories. Let’s hope they never have to argue them!
A big “Thank You” to Ian Lindgren of PayMe for contributing this scenario, which allowed me to test the principles and methodology I’ve been developing to identify labour hire licensing issues in supply arrangements.
Fictional characters, Lachie & Martin, examine their consultancy workforce supply arrangements to check for A.C.T. labour hire licensing issues. In Part 1, they examine the in-house employee members of the workforce. In later eposodes, they will examine the external contracted specialists and the auxiliary staffing agency sourced members of a consultancy workforce they’ve assembled for a secret defence industry project– all hypothetical of course!
A big “Thank You” to Ian Lindgren of PayMe for contributing this scenario, which allowed me to test the principles and methodology I’ve been developing to identify labour hire licensing issues in supply arrangements.
In this post, I report on WorkAccord’s continuing examination of the topic of Australian labour hire arrangement intermediaries and attempt to untangle the knotty problem of distinguishing providers (who need labour hire licences) from mere intermediaries (who don’t).
I put forward a fresh proposition that it is possible, within labour hire supply arrangements, for there to be more than one labour hire provider in respect of the same worker/s, and suggest that the possibility arises from the different types of arrangement which a provider may have with its workers and from the different sources of the attendant payment obligation.
Drawing on the competition cases, I also discuss what is meant by an “arrangement”, and how the licensing schemes’ focus on arrangements rather than on contracts results in casting a very wide net that is intended “to ensure that labour hire arrangements cannot be hidden behind a particular set or combination of arrangements”.
I conclude with some practical tips for identifying and analysing labour hire arrangements under the labour hire licensing schemes.
Progress so far…
So far, we’ve untangled the following threads:
In order to distinguish between providers (who need labour hire licences) and intermediaries (who don’t, but may need other types of licence)[i] it is necessary to examine the whole of the arrangement by which workers are engaged, supplied, managed, accommodated, and paid.
That means we need to consider arrangements made with:
The arrangements can be distinguished according to their different functions and the different definitions of worker applicable to each type of arrangement.
We can identify three broad types of intermediaries who may participate in the arrangements recognised in the legislation: supply intermediaries; recruitment/ placement intermediaries; and payment intermediaries. They can also be distinguished by the functions they perform.
Intermediaries participate in arrangements between:
a provider and a host (“host-side intermediaries”); and/or
a provider and a worker (“worker-side intermediaries”)
Other participants may sometimes be involved in labour hire arrangements – e.g., by supplying supporting services without being either an intermediary or provider.
Intermediaries and other contributing participants can be distinguished from providers because only providers have workers (as defined).
The definitions of worker in Qld, S.A. and the A.C.T. all require that the individual who is to perform the work enters into the requisite arrangement with the provider. This would seem to require that the provider and the worker make reciprocal commitments to each other; although they need not be legally enforceable.
Contrastingly, the various definitions of worker in Victoria require merely that an arrangement be “in force”. The different formula used in Victoria potentially raises a question about whether a worker could be a passive participant in such an arrangement – that is to say, whether a worker could be “entered into an arrangement” made by others, without the necessary reciprocal commitment and perhaps without knowledge or consent.
We prefer the view that this question should be answered in the negative, because Vic. s. 9 requires that the arrangement must still be between the individual and the provider. We also consider that passive entry into a labour hire arrangement would be inconsistent with the principle that a contract of employment (at least) cannot be novated or assigned without the employee’s consent;[iii]and would run counter to the dictum in Gribbles Radiology that “no employee is an asset in the employer’s balance sheet to be bought or sold”.[iv] Accordingly, we take the view that the making of reciprocal commitments between provider and worker is also an essential element in Victoria.
Weaving some of the threads untangled so far
We applied these propositions to examine a hypothetical scenario for a fictional, Canberra-based, temp staffing agency.
Our fictional agency, “Holdings” claimed that:
it did not supply its temps directly; other related companies did that; and
it did not pay its temps; an outsourced payroll company did that.
In that examination, we reached a point where it appeared that “Holdings” would require a labour hire licence for the supply arrangement it had with its temps.
We also discovered some additional supply intermediaries and a payroll intermediary. Finally, we highlighted some “loose ends”, which we were able to pick out from the intermediaries’ involvement in Holdings’ supply arrangement.
The exercise led us to uncover a further proposition, which we can now state provisionally:
When intermediaries, participating in an arrangement, additionally form their own arrangements with workers, there arises the possibility that those participants have ceased to be intermediaries and have become providers. In this scenario, it seems that there can be multiple providers, having different payment obligations – some legal (e.g., arising from an employment contract); some “moral” or equitable arising from non-contractual “arrangements”.
It’s not just about the contract
This possibility suggests that we need to look more closely at what is meant by an “arrangement” – particularly as there seems to be a view, currently circulating, that all issues can be determined by the agreed terms of the parties’ formal contract.
We know that view doesn’t stack up because the express provisions of the labour hire licensing Acts of Qld, Vic and the A.C.T. all state that a person can be a labour hire provider regardless of whether the provider enters into any contract with the worker for the performance of the work.
Focus on the arrangement
The labour hire licensing Acts focus on arrangements between providers and their workers. We know, from our consideration of “the Regardlesses”, that an arrangement need not be contractual.
The “Regardlesses” are the set of provisions, inserted into each of the four Acts,[v] that provide that a person may be a labour hire provider regardless of whether they: employ their workers; have a contract with their worker; have a contract with their hosts/hirers; or supply workers directly or through intermediaries.
There are some variations between the states and territories, but the labour hire licensing Acts are intentionally cast very wide. The pattern was laid down in Qld and set out in the accompanying Explanatory Memorandum:
“…a provider provides labour hire services whether or not:
the worker is their employee;
a contract is entered into between the worker and provider, or between the provider and the [hirer];
the worker is supplied by the provider to another person directly or indirectly through one or more agents or intermediaries, for example through a chain of labour hire arrangements; and
the work done by the worker is under the control of the provider… or another person…
This is to ensure that labour hire arrangements cannotbe hidden behind a particular set or combination of arrangements.”
What is an arrangement?
The Australian Competition and Consumer Commission (ACCC) provides helpful guidance about what is meant by an “arrangement” in competition law, where certain contracts, arrangements or understandings may be unlawful. It says:[vi]
“Essentially, [arrangements and understandings] involve the development of a plan of action between two or more people that may not be enforceable at law but they have every intention of following.
…when each of two or more parties intentionally arouses in the others an expectation that he (sic) will act in a certain way, it seems …that he (sic) incurs at least a moral obligation to do so. An arrangement as so defined is therefore something whereby the parties to it accept mutual rights and obligations.”[vii]
“To …make an arrangement itis not necessary for anything to be written down. In fact, such agreements are often not put into writing. Nothing need even be expressed—a ‘nod and wink’ is sufficient.
If necessary, the court will infer the requisite ‘meeting of minds’ from circumstantial evidence such as evidence of joint action, similar pricing structures, or even from evidence of opportunities the parties had to reach an understanding.
It is important to consider both what is actually said and what each party understands to be the position.”
Consistently with that broad view of what amounts to an arrangement, the Victorian regulator explains, simply, that “arrangements include informal or formal agreements.[ix]
Something more than a mere hope.
However, an arrangement involves something more than a mere hope or expectation.
In ACCC v Channel Seven Brisbane Limited, the High Court said:[x]
“An arrangement or understanding ordinarily involves an element of reciprocal commitment even though it may not be legally enforceable. It involves more than a mere hope or expectation that each party will act in accordance with its terms.”
So, what is the something “more” – the additional element that converts loose assent, or a sense that “we are all on the same page”, into an arrangement of interest under the labour hire licensing Acts?
A helpful explanation was provided by Gray J in Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd,[xi] when considering the related expression, “understanding”. Once again, it takes us back to a sense of “moral obligation” or – an expression that I especially like – something that is “binding in honour”.
“…there can be no such thing as an understanding that leaves each party to it free to do whatever it wishes. Whatever word may be chosen to represent the essential element of an understanding for the purposes of the relevant statutory provisions, it is clear that element involves the assumption of an obligation, unenforceable in any court of law, but merely morally binding or binding in honour.”
Practical application
Armed with this information, you may now be in a position to review your own operations to see if you are involved in any labour hire arrangements that you make, participate in, or support – whether as a provider, host/hirer, intermediary, user, or contributor.
Think about who all the participants in the arrangement are and identify what roles they play. You might want to pay particular attention to any points in your operations that interface directly or indirectly with the people who are to perform the work.
Keep in mind that inter-state labour hire arrangements may be governed by more than one licensing scheme.
Next, you might try to identify what type of labour hire arrangements they are – whether they are supply arrangements, recruitment/accommodation arrangements, or recruitment/ contractor services management arrangements.
When you are scanning for labour hire arrangements governed by the South Australian and Victorian licensing schemes, you’ll have to apply the different “work-(in-and)-as-part-of” qualifications. That could necessitate your undertaking fact-sensitive inquiries similar to those required to apply the employment agency provisions of payroll tax legislation.
In South Australia, you’ll be able to limit your investigation to arrangements for the performance of “prescribed work”.[xii]
In Victoria, you’ll additionally need to scan for recruitment/ accommodation arrangements[xiii] and recruitment/ contractor services management arrangements.[xiv]
Once you’ve identified your arrangements of interest, check to see if they involve persons who are your workers (as defined) for each type of arrangement that you participate in.
Remember, that some workers are exempted under the supporting regulations and declarations. If you reach a conclusion that an individual appears to be your worker (as defined) make sure you go on to the next stage and consider the various grounds for exemption.
For supply arrangements and recruitment/ accommodation arrangements, where the payment obligation falls can be a deciding factor.
Keep in mind that a payment obligation can arise even if you are not the employer or engager of the worker, and that it needn’t be a contractual obligation – a moral obligation would seem to suffice.
Work out where each payment obligation falls. It might fall on you, or it might fall on another participant in the arrangement. Different types of payment obligation may fall on more than one participant in the arrangement.
You will use that information to work out whether the people who are to perform the work are your workers (as defined) for the purposes of the particular type of labour hire arrangement you are investigating.
Under a supply arrangement, the payment obligation falls on the person/s who is/are supplying the worker.
Under a recruitment/ accommodation arrangement, the payment obligation falls on the person for whom the work is performed.[xv]
If the persons who are to perform the work turn out to be your workers (as defined), you are probably a labour hire provider. If they are not your workers, you are likely to be an intermediary, user, or host/hirer; or to be providing support services.
Under a recruitment/ contractor management services arrangement, it is not material where the payment obligation falls. What matters is whether the person who recruits the worker manages the contract performance by the worker.[xvi]
Note that the object of the management services is performance by the worker. Although the Victorian Regulator has issued guidance material[xvii] indicating that:
Examples of businesses that are captured by this provision include businesses that recruit or place independent contractors, and then provide ongoing administration and payroll functions, or supervision or performance management functions for hosts.
It may be necessary to distinguish between performance of the work contract by the worker and performance by the person for whom the worker performs the work. It is difficult to see, for example, how the provision of a payroll function for a host involves performance of the work contract by the worker – except perhaps to the extent that it involves management of time sheet completion and validation.
Conclusion: A problem for the commercial courts?
You will quickly see what the problem is – the Labour Hire Licensing Acts are couched in language that is either so general or so nuanced that it is difficult to interpret.
Those points might not be pursued in an enforcement action, where priority might be given to the prosecution of clearly unlawful and egregious conduct. But they are precisely the sort of point that could be fairly taken by a commercial litigation defence lawyer to defeat or delay a claim for payment on the grounds that the services for which payment is claimed arguably involve unlicensed labour hire services.
In later posts, I will address additional scenarios and begin to explore the worker exemptions in greater detail. I’ll also address intermediary and host/hirer responsibilities and penalties that may be imposed for breach or involvement in avoidance schemes.
I hope this exploration to date has helped to distinguish between providers and intermediaries a little more clearly, and that it has outlined an approach to characterisation that you can implement. So far, the results have been promising.
Let’s talk again soon.
[i] For example, an employment agents licence under the Agents Act 2003 (ACT); Employment Agents Registration Act 1993 (SA); Employment Agents Act 1976 (WA). Qld and NSW also have vestiges of private employment agent regulation but no longer have PEA licensing schemes.
[ii] We distinguish hosts/hirers as the person for whom the work is performed from users (of labour hire services) who are found as host-side intermediaries in a workforce services contracting chain. Users typically do not enter into any arrangement of substance with workers, but merely “buffer” the relationship between a labour hire provider, who does have such an arrangement, and a host who requires work to be performed.
[iii]Nokes v. Doncaster Amalgamated Collieries, Ltd. [I9401 A.C. 1014.
[iv]Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd Gribbles Radiology Pty Ltd v Health Services Union of Australia[2005] HCA 9 at [48].
[v] Qld s. 7 (2); SA s. 7 (3); Vic ss 7 (2), 8 (3) and 9 (3); ACT s. 7 (3).
During October we’ve been working on several projects that examine different aspects of the Australian labour hire licensing schemes.
In this short video, fictional characters, “Ashlee & Daniel” examine their ACT non-standard labour hire supply arrangement and learn about the distinction between providers who need a licence and intermediaries who don’t.
Should they apply for a licence? What do you think?
Recruiters' Casebook 