From 29 April, contractors will have 6 months to sign up or face significant penalties.

The scheme will bring a new level of integrity and scrutiny to the labour hire sector and ensure vulnerable workers are kept safe from exploitation and being underpaid.

The scheme is in response to the independent Victorian Inquiry into the Labour Hire Industry and Insecure Work which uncovered widespread abuse and exploitation of workers across Victoria.

Under the scheme, providers of labour hire services will be required to hold a licence and hosts will only be allowed to use licensed providers.

To get a licence, providers will be required to pass a 'fit and proper person test' and show compliance with workplace laws, labour hire laws and minimum accommodation standards. They must also report annually on their activities.

Host employers that use unlicensed providers face fines of up to $500,000.

Legislation establishing the scheme passed last year and also led to the establishment of the Labour Hire Authority, which is now operating from Bendigo. The authority is responsible for the rollout of the scheme and will support its implementation with education, enforcement and compliance activities.

Over the next month, the authority will deliver more than 20 industry sessions across the state to peak bodies and key labour hire operating sectors.