Agency and temporary workers in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Agency and temporary workers fill a genuine need — flexible capacity without a permanent headcount commitment — but they come with distinct legal and payroll obligations that employers often underestimate.
What "agency worker" and "temporary worker" actually mean
The two terms are often used interchangeably, but they describe different arrangements.
An agency worker (also called a labour hire worker) is employed or engaged by a labour hire agency, which then supplies that worker to a host employer. The agency is the legal employer. It runs payroll, withholds PAYG tax, pays superannuation and meets other statutory obligations. The host employer directs the day-to-day work but generally has no direct employment relationship with the worker.
A temporary worker is hired directly by a business on a fixed-term or casual basis. The hiring business is the employer of record and carries all the associated obligations itself.
Knowing which arrangement you are using matters, because the compliance responsibilities sit with different parties.
Labour hire licensing
Several Australian states and territories require labour hire agencies to hold a licence before they can supply workers. Queensland, Victoria, South Australia and the Australian Capital Territory all have licensing regimes in place.
As a host employer, you have a direct interest in this. Using an unlicensed agency in a jurisdiction that requires licensing can expose your business to penalties, not just the agency. Before engaging a labour hire firm, ask for proof of their licence and keep a record of it. Check the relevant state regulator's public register if you want to verify it independently.
If you are directly employing temporary or casual workers yourself, licensing does not apply to you — but all of the standard employment obligations do.
Payroll and superannuation obligations
For agency workers: the agency handles payroll. From 1 July 2026 the Superannuation Guarantee sits at 12% of ordinary time earnings, and the agency is responsible for making those contributions to a complying fund on the worker's behalf. You should confirm this in your labour hire contract rather than assuming it is happening.
For directly hired temporary and casual workers: you are the employer, so you run payroll and meet every statutory obligation yourself.
That means:
- Withholding PAYG income tax at the correct marginal rate and remitting it to the ATO
- Paying the 2% Medicare levy (factored into PAYG withholding)- Checking whether the worker has a HECS/HELP debt, which requires additional withholding through a banded repayment schedule — the worker discloses this on their Tax File Number declaration
- Paying 12% superannuation on ordinary time earnings to a complying fund by the quarterly due dates
- Reporting every pay event to the ATO through Single Touch Payroll (STP), with end-of-year finalisation completed by 14 July
Casuals have a higher base pay rate on award or enterprise agreement than their permanent equivalents because a casual loading compensates for the absence of paid leave entitlements. Make sure you are applying the correct rate under the relevant Modern Award or registered agreement.
Entitlements under the National Employment Standards
The National Employment Standards (NES) apply to all employees covered by the Fair Work Act, including fixed-term and casual workers, though some entitlements differ.
Casual employees do not accrue annual leave or personal/carer's leave in the same way as permanent employees — the casual loading is meant to compensate for this. However, casual employees who have worked regularly and systematically for 12 months do have a pathway to request conversion to permanent employment. This is a legal right, not a discretionary offer, and businesses have obligations around how they respond to those requests.
Fixed-term employees do accrue leave and have standard NES entitlements. They are also entitled to redundancy pay if their role is made redundant before the end of their contract, calculated on the NES scale by years of service.
Agency workers' entitlements are governed by their contract with the labour hire firm, but they are still covered by the relevant Modern Award applicable to the type of work they perform at the host site.
Contractor misclassification risk
A common mistake is engaging someone as an independent contractor when the working arrangement actually looks like employment — regular hours, direction and control from your business, use of your equipment, and no real ability to subcontract. The ATO and Fair Work both look at the substance of the relationship, not just what the contract says.
Misclassification can result in back-payment of superannuation, PAYG shortfalls, penalties, and entitlement claims. If you are unsure whether an arrangement is genuinely a contractor relationship, take legal advice before you formalise it. Getting this wrong at the start is far more costly than getting it right.
If you are curious about how payroll obligations differ when you bring on workers across multiple countries, the structure of employer-of-record arrangements adds another layer to consider.
Keeping records
Regardless of whether you use agency workers or hire temps directly, keep documentation. For agency arrangements, retain copies of the agency's licence (where applicable), the labour hire agreement, and invoices. For directly hired workers, maintain payroll records, Tax File Number declarations, superannuation payment receipts, and STP reporting records. The ATO can request payroll records, and the Fair Work Act requires employment records to be kept for seven years.
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