Labour hire companies are among the most compliance-intensive clients a bookkeeper can take on. They sit at the intersection of employment law, state licensing regimes, PAYG withholding, superannuation, workers' compensation insurance, and cash flow management — and the penalties for getting any of these wrong are substantial. If you are onboarding a labour hire company for the first time, this guide sets out the key obligations and how to track them in practice.
State Licensing: A Compliance Flag in the Client File
Victoria and Queensland both require labour hire providers to hold a current licence under their respective Labour Hire Licensing Acts. Victoria's scheme is administered by the Labour Hire Authority (LHA); Queensland's is administered by the Office of Industrial Relations under the Labour Hire Licensing Act 2017 (Qld).
Operating without a licence in Queensland carries a maximum penalty of $130,000 for a corporation. Victoria's penalties are comparable. Beyond the fines, an unlicensed operator cannot legally provide workers to a host business — and host businesses that knowingly use unlicensed providers also face exposure.
Your role as bookkeeper is not to manage the licence application, but you should note the licence status and expiry date prominently in the client file. Regulators can audit a provider's financial records to assess whether the fees paid by host businesses are consistent with the declared number of workers placed. Clean, reconciled books are not just good practice — they are evidence of a compliant operation.
PAYG Withholding: The Rule That Trips Most Operators
The most common compliance failure in labour hire bookkeeping is the failure to withhold PAYG from all workers. Section 12-60 of the Income Tax Assessment Act 1997 (ITAA 1997) specifically includes labour hire arrangements within the withholding net. This means:
- Workers with an ABN: Withholding is still required if the payment is for labour hire. An ABN does not exempt a labour hire worker from PAYG withholding. This is the opposite of the rule that applies to ordinary contractor payments.
- Workers engaged via their own Pty Ltd: If the labour hire company is placing an individual and paying their company, the analysis depends on substance. If the individual is performing labour hire services and the company is merely interposed, the Commissioner can look through the structure. But even where payments are to the company legitimately, the labour hire company should document the basis carefully.
- Workers with no paperwork: Any individual placed without a tax file number declaration must have PAYG withheld at the top marginal rate (currently 47%).
In practice, the bookkeeper should confirm that every payroll run includes PAYG withholding for all placed workers, and that the withholding amounts are reconciled to the IAS lodgement each month.
Superannuation: When the Pty Ltd Structure Doesn't Help
Under section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA), super must be paid where the contract is principally for the labour of the individual — regardless of whether that individual operates through a company. If a labour hire company engages a concreter who has a Pty Ltd, and the contract is essentially for the concreter's personal labour (not the output of a business), the super guarantee applies.
The super rate for 2026–27 is 12%. It must be paid to the worker's nominated fund or, if no fund is nominated, to the ATO's Superannuation Holding Accounts. Payment must be made by the quarterly due date — 28 days after the end of each quarter. Late super attracts the Superannuation Guarantee Charge (SGC), which is not deductible and carries an administration component on top of the missed contributions.
Review each worker engagement against the "principally for the labour of an individual" test. If in doubt, err on the side of paying super and keep documentation of the analysis.
BAS Treatment: Labour Hire Is a Fully Taxable Supply
Labour hire services provided to host businesses are taxable supplies — 10% GST applies to the full fee charged to the client company. There is no GST-free or input-taxed treatment available. This is straightforward, but BAS preparation requires care:
- Ensure all tax invoices issued to host businesses include the GST component clearly.
- The labour hire company claims ITCs on its own expenses (payroll processing fees, recruitment advertising, insurances) in the normal way.
- Where a labour hire fee is invoiced in a prior period but paid in a later period, confirm the BAS is completed on the accruals method if the company is above the $10 million turnover threshold; otherwise either method is available.
Workers' Compensation Insurance: State-by-State Registration
Each state and territory requires employers to register for workers' compensation insurance and pay premiums based on wages. The key point for labour hire companies: workers are covered regardless of ABN status if they are legally classified as workers under state workers' compensation legislation. The definition of "worker" in most jurisdictions is broader than the tax definition of "employee."
Failure to hold adequate cover creates uninsured liability — if a placed worker is injured and the company is not covered, the labour hire company bears the full cost of the claim plus potential penalties. Annual premium reconciliations are required in most states; underreporting of wages leads to premium adjustments and interest.
Maintain a schedule of the company's workers' compensation policy for each state where workers are placed, with premium amounts and renewal dates. Confirm at year-end that the declared wages base matches the total payroll.
Cash Flow: Managing the Timing Mismatch
Labour hire companies pay workers weekly or fortnightly. They invoice host businesses on 30- to 60-day net terms. The timing mismatch between outgoing wages and incoming receipts is the defining cash flow challenge of the industry.
In practice, most labour hire companies require a working capital facility — typically a debtor finance (invoice finance) line — to bridge the gap. The bookkeeper should produce a weekly cash flow forecast that projects:
- Payroll outflow for the coming two weeks
- Expected debtor receipts based on invoice age and host business payment history
- Super and PAYG obligations due in the period
The debtor ledger is the most important report for the labour hire operator. Aged debtors beyond 45 days should be flagged immediately — a large host business that pays slowly can render the operator technically insolvent even when the business is profitable.
STP and TPAR: Year-End Obligations
All workers must be reported through Single Touch Payroll (STP) Phase 2. This includes workers paid as individuals, even if they have provided an ABN. The STP report must include the correct income type — labour hire income has its own disaggregation category under Phase 2.
Labour hire companies are also required to lodge a Taxable Payments Annual Report (TPAR) for all contractors paid during the financial year. The TPAR captures the same contractor data — ABN, name, address, gross amount paid, and GST included — and is due by 28 August each year. Failure to lodge attracts a failure-to-lodge penalty.
End-of-Period Checklist
- Confirm labour hire licence is current and expiry date is diarised (VIC and QLD clients)
- Verify PAYG withholding has been applied to all placed workers, including ABN holders
- Reconcile payroll PAYG withheld to IAS lodgements for the period
- Confirm super has been paid for all personally-delivered labour engagements at the current SGC rate
- Check super payment dates — must be within 28 days of quarter end
- Verify all invoices to host businesses include 10% GST and have been lodged on BAS
- Review debtor ageing — flag anything over 45 days
- Confirm workers' compensation policy covers all states where workers were placed
- Reconcile declared wages to workers' compensation premium calculations
- STP Phase 2 finalisation submitted and all income types correctly classified
- TPAR prepared and ready for 28 August lodgement