A hiring credit scheme for young unemployed people will be without extra safeguards ensuring older Australians aren't sacked.
Pauline Hanson delivered the Morrison government a parliamentary victory with One Nation's two senators abandoning support for the protections on Wednesday night.
The JobMaker program dishes out $200 a week for employers taking on jobless people under 30 and $100 for people aged 30 to 35.
The Senate earlier voted to protect older workers from being sacked so bosses could benefit from hiring young employees.
But the government on Wednesday used its lower house numbers to reject the changes, sending the bill back to the upper house.
One Nation supported the amendments on Tuesday, but after One Nation leader Pauline Hanson met with Treasurer Josh Frydenberg on Wednesday afternoon she and party colleague Malcolm Roberts backflipped.
Senator Roberts said the government had presented the minor party with the latest unemployment data for people under and over 35.
"Two figures changed my mind because I care about young people and older people," he said.
Senator Hanson said she had also received "legal advice" from the treasurer about the bill.
Government Senate leader Simon Birmingham said there was "no deal, no agreement" with One Nation.
He said Mr Frydenberg had merely talked the senators through the "protections in other laws" and the "structure of the rules" in the JobMaker program.
Labor and the Greens accused Senator Hanson of selling out older Australians.
"One Nation pretend to be the party of the battlers and yet they turn around and vote with the government to do over workers right around this country," Greens senator Nick McKim told parliament.
One Nation's two votes ensured the government torpedoed the amendments which would have disqualified companies found to have sacked a worker in order to get the payment.
The amendments also would have legally required transparent reporting.
The government insists the scheme's rules will require companies to keep records to back up their claims, and that Fair Work protections apply to employees.
But unfair dismissal claims can't be lodged by workers who have been with an employer for less than a year.
The government also argues explicit protections are unnecessary as the credit will not be available for bosses who do not increase their headcount and payroll.
Labor used Question Time to focus on older unemployed workers locked out of the JobMaker subsidy scheme.
Prime Minister Scott Morrison said there were other supports already available for older workers.
He also insisted workers would be protected through the $4 billion plan.
"This leader of the opposition is so desperate, leading a party so divided, that he will use the fears and concerns of Australians in a pandemic to butter up support on his own backbench," he said.
Labor leader Anthony Albanese accused the government of not being "fair dinkum" about creating jobs.
"If this legislation is seriously about additional employment rather than about replacing existing workers, they have got to support this amendment," he told parliament.
Mr Frydenberg has the power to make rules for the scheme with the bill lacking fine detail.
The program is expected to create about 45,000 new jobs, despite the budget spruiking 450,000 roles.