Labour hire is an important workforce strategy for many businesses, particularly in industries such as food, logistics, manufacturing, construction, warehousing and agriculture. It provides flexibility, speed and access to workers when demand increases or specialist capability is required. But while labour hire can solve workforce challenges, it can also create significant safety, legal and insurance risks if not properly managed.
In simple terms, labour hire involves a three-party arrangement:
- a labour hire agency employs the worker,
- the host employer directs the work, and
- the worker performs duties at the host employer’s site.
Safe Work Australia describes labour hire as a host organisation using workers from a labour hire agency, with both the agency and host organisation having duties to ensure labour hire workers’ health and safety. SafeWork NSW also makes clear that labour hire workers are employed by the labour hire agency, not the host employer, but the host employer still has a critical role in keeping them safe.
What is a “worker to worker” claim
One of the most significant risks associated with labour hire is the emergence of “worker to worker” claims. These claims arise when a worker is injured due to the actions, omissions or negligence of another worker on site. The injured person may be a labour hire worker, contractor, subcontractor or employee of another business. The claim often starts as a workers’ compensation matter through the injured worker’s employer, but may later become a liability claim against the host employer or another party alleged to have contributed to the injury.
This is where the risk becomes complex. Although the labour hire agency is usually the legal employer and holds the workers’ compensation policy, the host employer often controls the workplace, the equipment, the supervision and the system of work. If the host employer fails to provide a safe workplace, proper induction, adequate supervision or suitable equipment, they may be drawn into a liability claim. In practice, this can lead to disputes between insurers, recovery actions, legal costs, higher premiums, excesses and reputational damage.
For companies using labour hire, worker to worker claims are a problem because they are often more expensive and harder to resolve than ordinary injury claims. They can involve multiple parties, long delays, competing versions of events and allegations about who controlled the work. These claims typically involve two layers:
- A workers’ compensation claim lodged with the injured worker’s employer (the labour hire agency); and
- A common law claim (liability claim) against the host employer.
This dual pathway creates a complex web of liability and cost recovery between insurers.
Why this is a growing problem
Worker to worker claims are a significant issue for companies using labour hire for several reasons:
- Blurring of responsibility: The labour hire agency is the legal employer, but the host controls the workplace and systems of work, leading to disputes over liability.
- Higher claim costs: These claims often involve multiple parties, extended litigation and higher settlements compared to standard claims.
- Increased frequency: Dynamic work environments with mixed workforces where labour hire is used for “peak” activities often means they are not trained to the same extent, increasing the likelihood of incidents.
- Insurance recovery actions: Workers’ compensation insurers frequently seek to recover costs from the host employer’s liability insurer, impacting premiums and claims history.
For many organisations, particularly in sectors like food, logistics and manufacturing, this risk sits largely unseen until a major claim emerges. The process of the workers compensation insurer seeking recovery from liability insurers can mean there are long delays from the date of incident to the time a claim is raised.
Managing Labour Hire Risk – A Practical Framework
Effective labour hire risk management requires both prevention and proactive response:
- Define accountability upfront
Clearly document roles and responsibilities between the labour hire agency and host employer. Do not assume safety accountability sits with the agency—in fact the host employer should proactively take responsibility for safety for their labour hire employees, as they have a duty under the legislation to provide a safe workplace.
- Conduct robust due diligence
Verify labour hire providers’ insurance, licences, training systems and WHS capability. Ensure policy disclosures accurately reflect labour hire exposure.
- Implement structured onboarding
Provide site-specific inductions covering hazards, safe work procedures, PPE, emergency processes and reporting expectations. Labour hire workers must be treated the same as direct employees.
- Maintain consistent supervision and enforcement
Ensure competent supervision is in place and that safe systems of work are actively enforced—not just documented. Courts will assess what happens in practice, not what sits in a manual.
- Integrate labour hire into safety systems
Include labour hire workers in toolbox talks, safety reporting, incident investigations and consultation processes. A divided workforce is a higher-risk workforce.
- Plan for incident response capability
When an injury occurs, act immediately. Ensure the worker receives medical attention, incidents are properly reported and investigated, and relevant information is shared with the labour hire agency and insurer. Early control of the incident reduces escalation risk.
- Proactively support return to work
A critical—but often overlooked—control is the host employer’s role in recovery. Even though the worker is employed by the labour hire agency, the host employer should actively support return to work by:- Identifying suitable duties on site
- Modifying tasks where required
- Maintaining communication with the worker and agency
- Ensuring supervisors are engaged in the process
Early and meaningful return to work reduces claim duration, improves recovery outcomes and significantly lowers the likelihood of escalation into a worker to worker liability claim.
- Monitor data and trends
Track incidents involving labour hire workers, identify recurring hazards and adjust controls accordingly. Leading organisations treat labour hire exposure as a reportable risk category.
The bottom line: Labour hire is not just a workforce decision—it is a risk decision. If your business directs the work, controls the environment and influences how tasks are performed, it also carries responsibility for the worker. Managing that risk well protects workers, reduces claims and strengthens your overall insurance and operational resilience.
For more information and enquiries, please contact us.
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