Businesses sometimes contract out work (eg. labour or services) to another business. This can help businesses lower their operational costs, focus on core services, and access specialised knowledge and skills. If the business that they contract the work out to then subcontracts that work to another business, this can create a contracting network or supply chain.
In this section we explain contracting labour and supply chains, why you should manage your labour contracting and supply chain, and the practical steps that businesses can take to minimise their legal or reputational risks. We have information, tips and tools to help you (and your contractors):
- understand labour contracting and supply chains
- know why you should manage your labour contracting
- know what steps to take when contracting labour
- review and manage your contracts and supply chain.
You can also read about what we do when it comes to contracting labour and supply chains.
When you contract another business to provide you with workers, or services that include labour, this is labour contracting. For example, you could contract out the cleaning of your business premises.
Sometimes the businesses you contract labour out to then subcontract that work to another business. This can create a ‘supply chain’ or ‘contracting network’.
There are different ways workers could be engaged by a business. For example, a business could contract out work to a contractor who in turn engages workers as employees or independent contractors, or a combination of both. Businesses can also engage workers through a third party labour hire service provider.
It’s good business practice to understand how the workers in your business and your supply chain are engaged so you can minimise the risk of non-compliance with workplace laws.
It makes business sense to manage your supply chain and use contractors who do the right thing and follow workplace laws. This helps protect your business against risks such as:
- damage to your business brand and reputation
- being held legally responsible when your contractor or a subcontractor in your supply chain is not complying with workplace laws. This is known as ‘accessorial liability.’
What is accessorial liability?
Businesses may be held legally responsible when their contractor (or subcontractor) is underpaying their staff. It’s not just direct employers who can be held liable for contraventions such as underpayments – any person knowingly involved in contraventions could be found legally responsible. This could extend to directors, managers, accountants or businesses involved in the supply chain.
Find out more about accessorial liability and what it means for individuals and businesses.
Money Makers pays a low contract price for workers being provided by Business Pty Ltd. Money Makers thinks that the price must be too low to cover the overtime and penalties the employees should get but they don’t raise the issue with Business Pty Ltd.
If Business Pty Ltd does underpay its workers, Money Makers may be involved in the underpayments because it has done nothing. Money Makers could face court action as a person involved in breaches of the law. If found liable, they may be required to fix the underpayments as well as pay a penalty. If the workers raise the issue publicly, Money Makers could suffer reputational damage and lose customers.
Take steps to make sure your business and contractor is compliant with workplace laws to:
- minimise the risk that your business will be held legally responsible for underpayments or non-compliance by a contractor or subcontractor
- minimise the risk that your brand and reputation will be damaged by the actions of a contractor or subcontractor
- build sustainable relationships with your contractors
- help improve service quality
- help improve employment terms and conditions, as well as engagement and motivation, for people working in your supply chain.
We’ve developed resources to help you do this. Download our:
- Guide to labour contracting (DOCX 164.5KB) (PDF 1.3MB)
- Guide to contracting labour for small business (DOCX 100.6KB) (PDF 1.2MB)
- Guide to monitoring your labour contracting (DOCX 1.8MB) (PDF 1.6MB)
- Guide to self-auditing your business (DOCX 112.1KB) (PDF 900.8KB)