If you’re hiring staff, scaling quickly, or even thinking about starting your own staffing business, it’s easy to lump “recruitment agency” and “labour hire” into the same bucket.
But legally (and practically), they can be very different models - especially when it comes to who the employer is, who carries the day-to-day risk, and what you need in your contracts.
This guide is updated to reflect the current compliance focus and modern workforce realities - including privacy expectations, contractor vs employee risks, and the way businesses now engage temporary and project-based workers.
Let’s break it down in plain English so you can choose the right model and get your legal foundations sorted from day one.
What’s The Difference Between A Recruitment Agency And Labour Hire?
The simplest way to think about it is:
- A recruitment agency introduces a candidate to you, and you hire them directly.
- A labour hire business supplies a worker to you, but the worker is usually employed by (or contracted to) the labour hire provider.
That one difference - who employs the worker - affects almost everything else: payroll, liability, health and safety duties, disciplinary processes, performance management, termination, and what happens if things go wrong.
Recruitment Agency (Permanent Or Temp Recruitment)
In a typical recruitment agency arrangement:
- The recruiter sources and screens candidates.
- You choose who you want.
- You enter into an employment relationship with the successful candidate (or sometimes a direct contractor relationship).
- The agency is paid a placement fee (often a percentage of salary or a fixed amount).
Once the worker starts, the agency usually steps back (other than warranty/replacement periods or ongoing support, depending on the service).
Labour Hire (On-Hire / Agency Workers)
In a labour hire model:
- You engage a labour hire provider to supply workers.
- The labour hire provider sends a worker to your workplace or project site.
- The worker performs work under your day-to-day direction (e.g. your roster, your tasks, your supervisors).
- You pay the labour hire provider an hourly/daily rate, and the provider pays the worker.
If you’re exploring this model from the provider side, the operational side matters just as much as the legal side - a good overview is in the labour hire business considerations.
Who Is The Employer (And Why It Matters So Much)?
This is the key “fork in the road” that determines most of your legal obligations and risk exposure.
If You Use A Recruitment Agency
In most recruitment placements, you become the employer. That means you’re generally responsible for:
- Offering compliant employment terms (including pay, hours, leave, and notice)
- PAYE deductions and KiwiSaver obligations
- Following a fair process for performance management and termination
- Complying with workplace policies and minimum entitlements
Practically, that usually means you’ll want a fit-for-purpose Employment Contract in place before day one.
If You Use Labour Hire
In a labour hire arrangement, the worker is often employed by the labour hire provider (or sometimes engaged as their contractor). You are the host business (sometimes called the “client”).
Even though you might not be the legal employer, you can still have major responsibilities - particularly around health and safety and how work is directed in your workplace.
Also, from a risk perspective, labour hire can create confusion if the paperwork doesn’t match the reality. For example, if your business treats an on-hired worker like an employee (controls their hours, disciplines them directly, integrates them into your team), you want the arrangement documented properly so expectations and responsibilities are clear.
Watch Outs: “Sham Contracting” And Misclassification
Whether you’re hiring through a recruiter or engaging labour hire, it’s important not to accidentally misclassify someone. The difference between a contractor and an employee isn’t just what you call them - it’s how the relationship works in real life.
If you’re unsure, it’s worth checking the common risk signs in contractor vs subcontractor guidance, because misclassification can lead to disputes, arrears, and penalties.
What Laws Apply In New Zealand (No Matter Which Model You Use)?
The legal obligations don’t disappear just because you’re using an agency. They simply apply differently depending on the structure.
Some key laws to keep on your radar include:
Employment Relations Act 2000
This governs employment relationships in New Zealand, including good faith obligations, personal grievance risks, and what a fair process looks like. If you’re the employer (common in recruitment placements), this will be central.
Holidays Act 2003
Leave entitlements (annual holidays, sick leave, public holidays) can become a flashpoint - especially for variable-hour workforces and temp arrangements. Even if a labour hire provider is the employer, leave compliance still matters to you commercially (because it affects charge-out rates and disputes can disrupt your workforce).
Health And Safety At Work Act 2015
This one is crucial. In labour hire, both the labour hire provider and the host business can have duties as a PCBU (Person Conducting a Business or Undertaking).
In plain terms: if someone is working in your workplace, you need to take health and safety seriously - including site induction, supervision, hazard management, and ensuring the worker has the training and equipment required.
Privacy Act 2020
Recruitment and labour hire are data-heavy businesses. CVs, references, right-to-work documents, background checks, medical information - it adds up fast.
If you’re collecting and handling personal information (either as the agency or as the hiring business), a clear Privacy Policy and proper privacy processes can help reduce risk and build trust.
Human Rights Act 1993
Both recruitment and labour hire involve selection decisions. Discrimination risks can arise in job ads, screening criteria, interview questions, and client “preferences”. Even where a client requests a certain kind of worker, you need to be careful about how those requests are handled and documented.
If You’re Dealing With Overseas Workers
If you engage offshore contractors or remote workers (either for recruitment operations or service delivery), make sure you’re clear on the engagement structure, tax, and confidentiality expectations.
It’s also worth reading up on engaging overseas contractors so you don’t accidentally create compliance issues across borders.
What Agreements Should You Have In Place?
The fastest way for agency arrangements to become messy is when the business relationship is based on “we’ve always done it this way” rather than clear documentation.
Here are the common agreements we recommend you consider - depending on which side of the arrangement you’re on.
If You’re A Business Using A Recruitment Agency
- Recruitment services agreement (sets out fees, replacement guarantees, candidate ownership, confidentiality, and limitations of liability)
- Offer letter / employment agreement between you and the worker
- Confidentiality and restraint clauses (where appropriate, and realistically enforceable)
- Privacy and consent wording for candidate data handling (particularly if you receive candidate profiles)
If you’re building a staffing business yourself, it’s also worth thinking about what your service model is - permanent placements, temp placements, executive search, niche contracting - as the agreement structure changes. Many founders start by validating the model first (similar to the planning considerations in start a recruitment company guidance), and then lock in the documents.
If You’re A Business Using Labour Hire
At minimum, you want a written agreement with the labour hire provider that clearly allocates responsibilities. A tailored Labour Hire Agreement usually covers:
- Who is responsible for payroll, PAYE, KiwiSaver, and leave
- Timesheets and approval processes
- Charge-out rates, overtime, minimum shift lengths, and cancellation terms
- Health and safety responsibilities (including inductions, PPE, incident reporting)
- Training, licensing, and competency requirements
- Insurance expectations
- Replacement worker process and performance concerns
- Confidentiality and IP (especially if workers access systems or sensitive information)
Depending on the workforce, you may also want to make sure your labour hire supplier has the right internal documentation in place (for example, if they engage workers as contractors rather than employees). In those cases, a tailored Contractors Agreement can be part of keeping the model compliant.
If You’re A Labour Hire Provider Or Recruitment Agency Supplying Workers
If you’re on the provider side, you’re often managing two relationships at once:
- Client agreement (with the host business)
- Worker agreement (employment agreement or contractor agreement)
Many providers also use a combined structure that fits recruitment + labour hire services, so the business can offer both “find and place” and “supply staff” solutions without reinventing the wheel each time. For some businesses, a Recruitment Labour Hire Agreement can make that dual model clearer and easier to manage.
Common Risk Areas (And How To Avoid Costly Disputes)
When these arrangements go wrong, it’s rarely because someone set out to do the wrong thing. It’s usually because expectations weren’t aligned from day one.
Here are some of the most common legal and commercial risk areas we see.
1. Candidate “Ownership” And Introduction Fees
Recruitment agencies often include candidate ownership clauses - meaning if the candidate is introduced by the agency and you hire them within a certain period (even indirectly), a fee is payable.
Problems happen when:
- you already knew the candidate (or they applied directly too)
- a candidate is referred between related entities
- the worker starts as a contractor/temp and later becomes permanent
The fix is usually simple: define “introduction”, “hire”, “related entity”, and the fee trigger clearly, and make sure the agreement reflects how your business actually hires.
2. Health And Safety Gaps In Labour Hire
In labour hire, everyone can assume “the other party” is handling safety obligations - which is exactly how gaps happen.
As the host business, you’re typically best placed to manage on-site risks because you control the workplace. As the provider, you may be responsible for ensuring workers are fit for the role, trained appropriately, and supported.
Good labour hire documentation will spell out practical steps like:
- who does induction (and how it’s recorded)
- who provides PPE
- who reports incidents to whom (and how fast)
- what happens if a worker refuses unsafe work
This is a classic labour hire tension point.
If a worker isn’t performing, the host business usually wants them removed immediately. The provider needs to manage employment law obligations (fair process) if the worker is their employee.
Your agreement should set out:
- who gives day-to-day feedback
- how performance concerns are escalated
- whether the host can direct the worker to stop work pending investigation
- replacement expectations and timeframes
4. Poaching And Restraints (Temp-To-Perm Hires)
Often, a labour hire worker turns out to be a great fit and you want to hire them directly.
That can be totally fine - but it needs to be handled in line with the contract (for example, transfer fees, minimum assignment periods, or notice requirements). If you ignore those terms, you may end up in a fee dispute that costs more than the hire was worth.
5. Confidentiality, Systems Access, And Data Handling
Modern labour hire and recruitment isn’t just “turn up and do the job” - many workers need access to systems, customer data, pricing, or internal processes.
Make sure your documents deal with:
- confidential information and return of property
- cybersecurity expectations (especially for remote work)
- privacy and data sharing boundaries
- IP ownership where workers create materials or content
For example, even a simple spreadsheet of candidates can be sensitive personal information under the Privacy Act, so it’s worth being deliberate about what is shared and why.
Key Takeaways
- A recruitment agency introduces candidates, and you typically hire the worker directly - meaning you become responsible for employment law compliance and payroll.
- Labour hire usually supplies workers who are employed by the provider, but as the host business you can still carry significant responsibilities, especially under health and safety law.
- Who the employer is should be clear in writing, because it impacts leave, termination processes, tax obligations, and liability if disputes arise.
- Both models require good contracts to clarify fees, replacement terms, performance processes, confidentiality, and (for labour hire) day-to-day supervision and safety responsibilities.
- Privacy compliance matters in both recruitment and labour hire because you’ll likely handle sensitive candidate and worker information.
- Misclassifying workers (contractor vs employee) can create major risk, so it’s worth getting the engagement structure right upfront.
If you’d like help setting up or reviewing a recruitment or labour hire arrangement, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
