Labour hire industry profile: Construction
3 October 2024
The Labour Hire Authority (LHA) has taken a range of actions against labour hire companies in Victoria’s construction industry to date, including in response to practices that may be unlawful, coercive or systemic.
The construction industry is the fourth largest employer in Victoria and contributes to the development of essential transport infrastructure, as well as industrial, commercial and residential buildings.
Labour hire has been a significant feature of the construction industry for decades, and businesses that supply labour hire workers to construction sites must comply with their legal obligations under the Labour Hire Licensing Act 2018 (Vic).
As at June 2024, there were 720 licensed labour hire providers operating in the construction industry.
These providers often employ hundreds of workers and may supply them across multiple host businesses at any given time.
Labour hire workers in the construction industry perform a variety of roles, including traffic management, rail work, crane operation, trades, formwork, and labouring work.
Labour hire licensing obligations in the construction industry
Businesses that supply labour hire workers, including those in the construction industry, must be licensed to operate in Victoria.
Host businesses must only source labour hire workers through licensed labour hire providers.
Under the Act, penalties for using or providing unlicensed labour hire services can exceed:
- $630,000 for a corporation
- $150,000 for an individual.
Labour hire providers must also be run by fit and proper persons and comply with relevant laws. Non-compliance can lead to actions including refusals of licence applications, imposing licence conditions, or suspending or cancelling licences.
Businesses should use the tools on the LHA website to ensure providers have a valid licence:
- Check a labour hire provider is licensed using LHA’s Labour Hire Licence Register.
- Stay up to date on any changes to a labour hire provider’s licence status using Follow my Providers.
- Report any suspected non-compliant or unlawful activity using the Report a Problem tool.
Compliance and enforcement in construction
LHA has taken a range of actions against labour hire companies in Victoria’s construction industry to date, including in response to practices that may be unlawful, coercive or systemic.
LHA has also taken enforcement action against businesses and individuals who have contravened the Act.
In September, the Supreme Court of Victoria issued a total of $759,674 in penalties to five companies and three company directors for their involvement in unlicensed labour hire operations in the construction industry.
The penalties were issued to the companies and individuals reflecting unlawful conduct across multiple layers of subcontracting.
The Supreme Court of Victoria held that construction company Rocktown Pty Ltd had engaged two companies to supply workers, which engaged two further companies to supply workers, and that none of the companies held a labour hire licence.
LHA’s undertakes compliance and enforcement actions to make the industry fairer for businesses and workers.
The risk of non-compliance within construction
LHA compliance and enforcement activities target high-risk areas of non-compliance in the construction industry, as well as common business practices that may increase the risk of non-compliance.
Compliance with legal obligations
Under the Act, directors and other key people involved in managing labour hire businesses must be ‘fit and proper’, to protect workers and improve the integrity of the industry.
LHA must be notified if directors or other relevant persons change, or are no longer fit and proper under the Act.
Non-compliance with these obligations has been identified by LHA as an area of high risk in the construction industry.
Labour hire businesses must also comply with a broad range of legal obligations, including in relation to pay, entitlements, and workplace health and safety obligations.
A failure to comply with these requirements may lead to refusal of a licence application, the imposition of licence conditions, or suspension or cancellation of a licence.
Complex supply chains
Complex, multi-tiered supply chains are common in the construction industry. While not unlawful, LHA has found an inherent increased risk of non-compliance in complex supply chains.
The risk of worker exploitation and non-compliance increases as supply chains get more complex.
Every company within a supply chain that supplies labour hire workers must be licensed - so it’s crucial for host businesses to have oversight of the supply chain their workers are sourced from.
Misclassification of workers
The misuse of independent contracting arrangements in the construction industry can increase the risk of harm to workers, and LHA undertakes a range of compliance and licensing activities when it is identified.
Businesses may misclassify workers as independent contractors because they mistakenly believe that PAYG withholding tax, superannuation, workers compensation and payroll tax obligations do not apply if workers are engaged as independent contractors.
But in reality, the cost of meeting a provider’s legal obligations to labour hire workers are often the same, regardless of whether the workers are engaged as employees or independent contractors on ABN.
Independent contractor labour hire workers operating under ABN may also be deemed to be employees under the Fair Work Act 2009 (Cth), which can create direct liabilities for providers and the directors personally.
Keeping on the right side of the law while engaging workers as independent contractors can be much more complex and involved than providers typically appreciate.
As well as being unfair to workers, employee misclassification and related non-compliance can disadvantage legitimate businesses, by making it harder for them to compete and win contracts against companies with artificially low-cost structures.
Education and engagement in the construction industry
In late 2023, as part of a rolling program of industry engagement, the construction industry was identified as an upcoming focus for LHA information sessions and communications, with activities held to date including:
- open information sessions for labour hire hosts and providers, focusing on business obligations under the Act, promoted through LHA and construction industry channels and held in November 2023 and July 2024
- direct engagement with industry stakeholders and regulators, including the Victoria Building Authority around industry communications