The Victorian Labour Hire Licensing Scheme is a new licensing system, implemented earlier this year to protect vulnerable labour hire workers from exploitation at the hands of labour hire services.
This new system aims to regulate labour hire providers in Victoria, and will introduce new compliance obligations for those in this industry.
However, it isn’t just providers who will be impacted by this change – if your business relies heavily on labour hire services, you may also be affected by this new scheme.
Under the Victorian Labour Hire Licensing Act 2018, labour hire providers will have until 29 October 2019 to apply for and be granted a licence to operate in Victoria.
Today, our small business accountants will be explaining exactly what that entails, and how your business may be affected.
What is labour hire?
Temp agencies. On-demand hire. Recruitment services. They go by many names, each of them fall under the umbrella of labour hire.
Labour hire is a popular employment solution for many Australian businesses – in particular, businesses that face large seasonal variations in demand such as retail.
Instead of having to add additional staff to their payroll, businesses can pay an outside organisation to provide extra staff when needed for a single upfront fee, avoiding the headache that comes with recruitment.
Labour hire employees, similar to many other industries, are covered by a relevant industrial award, and may be guaranteed superannuation contributions by their agency.
Unfortunately, results from the Labour Hire Enquiry found that many workers were being underpaid, not receiving award minimum rates of pay or their superannuation entitlements.
Additionally, the enquiry also found that many were working in unsafe conditions and staying in substandard accommodation in cases where they had to live on-site.
As a result, the Victorian government created the Victorian Labour Hire Licensing Scheme, which aims to regulate the labour hire industries. Victoria joins Queensland as the only states with such protections in place.
Introducing the Labour Hire Licensing Scheme
As of April 2019, labour hire providers are required to apply for a license to operate.
This license certifies that the labour provider is compliant with:
- Taxation laws
- Superannuation laws
- OHS laws
- Workers compensation laws
In addition to protecting the workers and ensuring that their rights are looked after, the scheme also puts extra tests in place to ensure that organisations are reputable.
Click here for a full list of criteria your labour hire business will have to meet in order to be licensed (and therefore, continue operating).
If you don’t have yours just yet, you have until the 29th of October to get everything in order. We suggest moving quickly, before the deadline comes!
Tax obligations of Labour Hire providers
As small business accountants, our focus is on tax. Needless to say, this is the part that interests us!
Labour hire providers, similar to most other employers, are required to withhold tax from individual workers. This applies regardless of whether or not your workers are employees, or independent contractors.
Agencies that categorise their workers as fully-fledged employees will also have to account for mandatory super contributions, as well as the legally-required amount of sick leave in addition to income tax.
This affects the size of your tax, super and other obligations, and can result in substantial penalties if the incorrect treatment is provided.
Tax obligations for hosts
The new licensing scheme doesn’t just affect labour hire providers – it also affects their clients (referred to as “hosts” in the Act).
The main obligation of labour hire hosts such as business, farms and other organisations is to only employ the services of a licensed labour hire provider. A failure to do so can result in hefty fines, reaching $500,000 at the maximum penalty.
However, there’s also a tax obligation to consider!
While you may not have to worry about PAYG or income tax (as these are processed on your behalf by the agency), you may have to pay other taxes.
For example, your business will have to pay GST on your provider’s hiring fee if they are a GST-registered business.
And if they don’t quote an ABN on an invoice or other documents relating to the supply of work or service, you may have to withhold tax. This will depend on the nature of the agreement you have with your provider.
As with many things relating to taxation, it can very quickly become a confusing mess. If you need help, don’t hesitate to call upon your small business accountant!
Need help? Call our small business accountants in Melbourne
Support for your business
Working out your finances and tax obligations can be tough, especially for small businesses like yours. Adding temps, freelancers and agency workers to the list certainly doesn’t help!
If you’re struggling to manage your accounting, get in touch with Bruce Edmunds & Associates.
Since 1966, our team of small business accountants have been helping businesses all over Melbourne get their tax obligations and financials in order.
Whether you’re thinking of engaging a labour hire agency and are worried about the financial implications or are confused more generally about your deductions, we strongly recommend getting in touch with a professional.
In addition to accounting, our team provide a wide range of other services for businesses and individuals alike, including: