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Contractual Pitfalls in Labour-Hire Agreements: A Risk Manager’s Guide

Australia’s labour-hire sector is dynamic, and as a critical piece of the country’s economic growth trajectory, it needs to function fluidly. When it doesn’t, the problem is often found in the fine print. With companies under pressure to scale quickly and satisfy evolving workforce demands, the contracts that govern labour supply agreements can become legal landmines, particularly when roles, responsibilities, and liabilities aren’t clearly articulated. It is essential for risk managers in labour-hire companies to fully understand the contractual and coverage nuances of each arrangement. From a business perspective, this isn’t just a best practice—it’s an existential requirement. 

Labour Hire Agreements - Risk Manager's guide
Labour-hire risks

The Problem: Ambiguity Breeds Exposure

Labour-hire agreements can create complex, multi-party arrangements involving host employers, labour-hire firms, subcontractors, and sometimes payroll providers. Companies can face exposure to legal and financial risks they never anticipated without tight contractual definitions.

Common pitfalls include:

  • Vague scope of work: Contracts often fail to outline specific tasks or limitations, opening the door to disputes and uninsured claims.
  • Unclear liability allocation: If a worker is injured on-site, which party is legally responsible—the host company or the labour-hire agency?
  • Onerous indemnity clauses: Labour-hire firms may unknowingly accept unreasonable liability for events outside their control, especially when indemnifying larger host companies.
  • Contractual obligations beyond insurance cover: For example, contracts may require liability for certain damages or fines explicitly excluded by standard policies.

One major claim denial in this space can derail a small or mid-sized labour-hire firm, particularly if it involves injury, wage underpayment, or regulatory breach.

Coverage Gaps: Where Insurance May Not Catch You

When it comes to labour-hire insurance, many labour-hire companies carry the basics—public liability, professional indemnity, and workers' compensation. But that doesn’t mean they’re fully covered.

Typical insurance gaps include:

  • Labour-hire specific endorsements: Some policies exclude labour-hire services altogether unless specifically endorsed.
  • Host employer responsibilities: If contracts shift Australian Work Health and Safety (WHS) obligations to the labour-hire company (often unintentionally), insurers may push back on claims.
  • Employment practices liability: Disputes over termination, discrimination, or harassment may fall through the cracks if not backed by an Employment Practices Liability cover.
  • Cyber liability: Labour-hire firms increasingly store candidate data and payroll records, making them prime targets for breaches—but many still go uncovered if no cyber insurance solution is in place.

Various industry data suggest that labour-hire workers face significantly more health and safety risks than direct employees in comparable roles. Without the right policies in place, consequences can be catastrophic.

How to Mitigate: A Risk Manager’s Checklist

Whether you’re in-house or advising a labour-hire firm, here’s how to reduce exposure:

1. Scrutinise Contracts Ruthlessly

2. Align Insurance with Real-World Risk


3. Train Front-Line Managers

Ensure those negotiating contracts or assigning workers understand the firm’s obligations and limitations, contractual and legal.

4. Conduct Regular Contract Audits

Labour-hire agreements often roll over or get renewed without legal review. Set up a quarterly review cadence to catch issues before they become claims.

Partnering with a Broker Who Knows the Terrain

Knightcorp Insurance Brokers specialises in complex commercial risks—including labour-hire, recruitment, and professional services. Our risk specialists work closely with clients to review contracts, assess exposures, and build tailored insurance programs that don’t just meet policy minimums, but actually respond in a claim.

Ambiguity may be the enemy of risk management, but clarity is only a conversation away.

Let’s Talk



DISCLAIMER: This information is provided to assist you in understanding the risks, implications, and common considerations for your industry.  It does not constitute advice and is not complete. Please contact Knightcorp Insurance Brokers for further information.

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