Back to BlogNavigating risk: What every government buyer should know about labour hire compliance in 2026
Government procurement teams are entering a decisive period for labour hire and contingent workforce governance. By 2026, public sector buyers will be expected to demonstrate value for money and airtight compliance across increasingly complex labour supply chains.
Labour hire, temporary staffing, and contractor panels remain essential to delivering public services. Yet, they’re also under even sharper regulatory, political, and media scrutiny.
Let’s go into how the compliance landscape is changing, where the most significant risks now sit, and how public buyers can build a defensible framework that stands up to audits, investigations, and public accountability.
The 2026 labour hire compliance landscape: What public buyers must understand
Licensing regimes, wage protections, and ethical sourcing expectations. These are evolving simultaneously, and public sector agencies are expected to join these dots. Here’s an outline of the key structural shifts shaping labour hire compliance:
Evolving labour hire licensing regimes and what they mean for government procurement
Jurisdictions such as Australia have already introduced licensing schemes in multiple states, while other countries are strengthening registration, fit-and-proper-person tests and information-sharing between regulators.
By 2026, public buyers can expect licensing to be less fragmented but far more strictly enforced. This means greater consequences for agencies that unknowingly engage non-compliant providers.
Labour hire compliance is no longer limited to checking licences at panel appointment. Instead:
- Buyers must ensure that licences remain valid throughout the life of a contract and across all subcontractors in the supply chain.
- Regulators increasingly expect government agencies to act as informed, diligent purchasers rather than passive recipients of labour.
Key implications for public procurement include:
- A need for ongoing license verification, not just point-in-time checks
- Greater scrutiny and control of subcontracting arrangements and labour supply chains
- Clear contractual mechanisms allowing agencies to suspend or terminate providers that lose their licence
- Documented assurance processes demonstrating reasonable steps were taken to verify compliance.
“Same job, same pay” obligations and wage-compliance expectations in the public sector
Governments are increasingly unwilling to tolerate scenarios wherein labour hire workers are paid less than directly engaged employees performing equivalent roles, particularly within unionised or award-covered environments.
New industrial relations reforms and court decisions are reinforcing the expectation that labour hire should not be used to undercut wages or conditions.
For public buyers, this creates both legal and operational complexities:
- Agencies often rely on labour hire to manage short-term demand, specialist skills or surge capacity, yet must now ensure that pay rates align with enterprise agreements, awards, or public remuneration frameworks.
- Failure to do so can result in back-pay liabilities, disputes with unions, and reputational damage.
Practical challenges include:
- Determining what constitutes the “same job” across different classifications
- Aligning labour hire rates with changing enterprise agreements
- Managing multiple agencies drawing down from central panels with differing pay frameworks
- Monitoring actual payments made by labour hire providers, not just agreed charge rates
Supply chain transparency, ethical sourcing, and modern slavery responsibilities for agencies
Modern slavery legislation in multiple jurisdictions requires government agencies to identify, assess and mitigate risks of forced labour, exploitation and unethical practices within their supply chains. Labour hire, especially where subcontracting is involved, presents heightened exposure.
By 2026, agencies will be expected to demonstrate not just compliance with reporting obligations, but tangible action to address risks. This includes understanding who workers are, how they’re recruited, and under what conditions they’re engaged. A lack of visibility over labour supply chains is seen as a governance failure rather than an operational inconvenience.
Effective approaches include:
- Mapping labour supply chains beyond tier-one providers
- Embedding modern slavery clauses and audit rights into labour hire contracts
- Requiring providers to demonstrate ethical recruitment practices
- Using centralised systems to track workers, locations, and engagement models
The legal and operational risks government buyers face in 2026
Legal exposure is now closely linked to operational practices, with failures in classification, pay alignment or supplier integrity escalating into enforcement action or public scrutiny. Let’s explore where the most significant legal and operational risks arise in 2026, and why they increasingly sit with the public buyer rather than solely with labour hire providers or intermediaries.
How off-payroll and contractor tax rules intersect with labour hire decisions (IR35, ATO, HMRC, Fair Work)
Off-payroll working rules have transformed how governments engage contractors and consultants—and their interaction with labour hire models often tends to be misunderstood.
Frameworks such as IR35 in the UK, ATO contractor tests in Australia, and similar regimes globally place responsibility on public sector entities to determine employment status correctly and apply appropriate tax treatment. In practice, labour hire is sometimes used as a perceived “safe harbour” to avoid off-payroll complexity.
In 2026, this assumption is increasingly risky. Regulators are examining whether labour hire arrangements really do reflect employment relationships, or whether they’re being used to mask de facto contractor engagements without proper tax or employment protections.
For procurement and compliance leaders, key risks include:
- Inconsistent status determinations across agencies and projects
- Reliance on supplier classifications without independent assessment
- Insufficient documentation to defend decisions during audits
- Exposure to retrospective tax liabilities and penalties
Pay parity, award coverage, and classification errors as sources of enforcement action
Misclassification sits at the heart of many labour hire compliance failures. For government buyers, these risks are amplified by scale and visibility.
In 2026, enforcement bodies are expected to use data-matching and targeted investigations to identify underpayment and misclassification in the public sector. Labour hire providers may be the immediate target, but agencies that failed to exercise due diligence or oversight will be increasingly drawn into investigations.
Common failure points include:
- Treating all labour hire workers as homogeneous, despite differing roles and conditions
- Outdated role classifications that no longer reflect actual duties
- Lack of alignment between procurement contracts and operational reality
- Poor communication between HR, finance, and procurement teams
Supplier integrity risks, licence cancellations, and the reputational fallout for departments
Recent cases involving licence cancellations, criminal infiltration and false declarations by labour hire providers have demonstrated how quickly supplier integrity issues can become public scandals. For government departments, the reputational damage often outweighs the direct financial cost. Plus, it impacts public trust and political confidence.
By 2026, integrity risk will be a core consideration in labour hire procurement. Agencies will be expected to demonstrate that they assessed not only price and capability, but also governance, ownership structures and ethical track records of suppliers. Failure to do so may be interpreted as a breach of probity obligations.
Effective mitigation strategies include:
- Enhanced probity and background checks at panel appointment
- Ongoing monitoring of license status and adverse regulatory findings
- Clear escalation and exit pathways when issues arise
- Central reporting of supplier performance and incidents across agencies
Building a defensible compliance framework for labour hire and contingent workforce procurement
Ad hoc checks, inconsistent practices between departments, and reliance on supplier assurances are no longer sufficient. So what does a robust, repeatable, and auditable compliance framework look like in practice? And how can procurement teams embed due diligence, status determination, and monitoring into everyday labour hire operations?
Mandatory due-diligence checks before awarding or drawing from labour hire panels
Due diligence is no longer a one-off procurement activity, it’s an ongoing obligation that extends throughout the life of a labour hire arrangement.
In 2026, auditors and regulators will expect government buyers to demonstrate structured, repeatable due-diligence processes applied consistently across panels and call-offs.
Before awarding or drawing from a panel, agencies should ensure they have verified the following details and specifications:
- Current labour hire licences across all relevant jurisdictions
- Financial viability and insurances
- Compliance history, including enforcement actions
- Subcontracting arrangements and labour supply chains
- Systems for payroll, record-keeping and worker onboarding
Importantly, these checks must be documented and refreshed periodically. A defensible framework shows not perfection, but reasonable, systematic steps aligned with known risks.
Designing and documenting compliant status determinations for contractors and consultants
Status determinations sit at the intersection of tax, employment law, and procurement governance. Public sector entities are increasingly required to make documented decisions about whether a worker is an employee, contractor, or engaged through labour hire.
In 2026, undocumented or inconsistent determinations are a clear red flag for regulators. Best practices to stay compliant include:
- Using structured assessment tools aligned to relevant legal tests
- Separating role-based assessments from individual worker preferences
- Documenting rationale, evidence, and approvals
- Reviewing determinations when roles or working practices change
Creating an end-to-end monitoring approach to mitigate wage, tax, and licensing exposure
Sadly, monitoring is where many compliance frameworks fail. Even well-designed panels can drift into non-compliance if agencies lack visibility over how labour hire arrangements operate in practice.
In 2026, continuous monitoring will be an expected feature of public sector workforce governance. An effective end-to-end approach includes:
- Central tracking of all non-employee workers
- Regular audits of pay rates against agreed frameworks
- Automated alerts for licence expiries or status changes
- Clear ownership of monitoring responsibilities
How CXC helps government buyers reduce labour hire risk and strengthen workforce governance
Managing labour hire compliance across agencies, suppliers, and jurisdictions is resource-intensive and difficult to standardise internally. This is where CXC comes in. We support government buyers by centralising visibility, applying consistent compliance controls, and enabling fit-for-purpose engagement models that align with regulatory expectations in 2026 and beyond.
Centralised visibility of all non-employee workers and contingent labour across departments
One of the most persistent challenges for government buyers is fragmentation. Different agencies, teams, and projects often engage labour independently. This then results in limited visibility. Our team at CXC addresses this by providing centralised oversight of all non-employee workers, regardless of engagement model or jurisdiction. This visibility enables:
- Accurate reporting on workforce composition and spend
- Identification of compliance gaps and anomalies
- Consistent application of governance standards
- Informed decision-making
Globally consistent worker classification, compliance controls, and audit-ready documentation
CXC supports public sector clients with structured and defensible worker classification frameworks aligned with local regulations and global best practice. This consistency is critical for governance operating across jurisdictions or engaging international suppliers.
Key benefits include reduced misclassification risk, standardised documentation supporting audit readiness, clear accountability for compliance decisions, and alignment between procurement, HR, tax, and legal stakeholders.
Fit-for-purpose engagement models (EoR, contractor, labour hire, SOW) that stand up to 2026 scrutiny
No single engagement model suits every scenario. CXC helps government buyers select and implement the most appropriate model for each role, whether labour hire, Employer of Record (EoR), independent contractor or statement of work (SoW).
By aligning roles to the correct engagement model, agencies can reduce tax and employment risk, improve workforce outcomes, demonstrate proactive governance, and adapt to future regulatory change with confidence.
Reach out to CXC today, and we’ll help you kickstart your 2026.
FAQ
What makes labour hire compliance in 2026 more complex for government buyers than in previous years?
Labour hire compliance has shifted from a transactional issue to a systematic governance challenge. By 2026, public sector buyers face overlapping obligations across labour hire licensing, wage parity, modern slavery, tax, and sophisticated purchasers with the capability and responsibility to identify risks within their supply chains.
How can agencies ensure they meet “same job, same pay” obligations under shifting regulations?
Meeting wage parity obligations requires more than contract clauses. Agencies must understand how roles align with awards or enterprise agreements and ensure labour hire providers apply correct rates in practices. This involves collaboration between procurement, HR, and providers, supported by transparent data.
What should procurement teams check before engaging a labour hire provider or prime vendor?
Due diligence is foundational to labour hire compliance. Procurement teams must move beyond price and capability assessments to evaluate whether providers can meet heightened regulatory expectations. Key checks include valid labour hire licences, insurance and financial stability, past regulatory actions or investigations, subcontracting transparency, and thical sourcing and modern slavery controls
How do off-payroll rules affect contractor engagement in public sector projects?
Off-payroll rules place accountability squarely on public sector entities. Agencies can’t rely on contractor declarations or supplier assurances alone. Clear, documented status determinations are essential to managing tax risk.
What tools help government departments gain visibility across their extended workforce?
Without accurate data on who is engaged, how and where, agencies can’t manage risk proactively. Specialist partners such as CXC provide systems and expertise that many departments lack internally. Effective tools enable whole-of-government reporting, compliance monitoring, audit readiness, and informed strategic planning.
About CXC
At CXC, we want to help you grow your business with flexible, contingent talent. But we also understand that managing a contingent workforce can be complicated, costly and time-consuming. Through our MSP solution, we can help you to fulfil all of your contingent hiring needs, including temp employees, independent contractors and SOW workers. And if your needs change? No problem. Our flexible solution is designed to scale up and down to match our clients’ requirements.
