Services Australia cuts down on labour hire, will employ more casuals as Labor government audits public service outsourcing

The major federal employer said it would directly employ casual staff instead of using labour hire from July, after lucrative contracts with recruitment firms begin to expire at the end of the financial year.

It will make the shift as the new Labor government moves to fulfil an election promise to audit labour hire in the public service and reduce wasteful spending on contractors, consultants and other outsourcing.

Services Australia spokesman Hank Jongen said the agency would use a "temporary employment register" to fill casual service delivery roles instead of labour hire.

"Over the past two years, we needed to bolster our workforce quickly with labour hire staff to help deliver vital services to Australians throughout the pandemic and emergencies," he said.

"For the new financial year, we will be bringing staff back in-house."

It is understood Services Australia will invite labour hire staff to join the register for casual employees, however the main public sector union is urging the agency to make good on converting the workers to direct employment.

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Labor has promised to end excessive spending on outsourcing and to abolish Coalition government staffing caps that have forced federal agencies to spend more on labour hire and contractors to keep up with growing workloads. The decision would grow the public service's internal workforce after years of staffing cuts and constraints under the Coalition.

More than $21 million in Services Australia contracts for labour hire will expire on June 30. Among them are a $3.6 million arrangement with recruitment firm Aris Zinc, and contracts with Hudson Global Resources ($3.6 million), PAXUS Australia ($1.5 million) and Encore IT Services ($1.2 million) all signed or extended amid growing demand on the agency in the COVID pandemic.

Services Australia turned to labour hire firms for assistance in the face of a surge in income support and disaster payments through COVID lockdowns in 2020 and 2021, and in response to natural disasters around the country.

It also signed contracts with private companies Datacom Connect ($57 million), Stellar Asia Pacific ($56 million) and Serco ($39 million) for help in delivering services and responding to surging demand in the first year of the pandemic.

Services Australia's move away from labour hire spending next financial year will follow years of drastic downsizing under both Coalition and Labor governments, continued in the Morrison government's last budget with a cut to 2700 more agency jobs.

Labor promised before the election to grow service delivery jobs in the public service and vowed to be a model employer by creating more secure roles where temporary forms of work were being used inappropriately. This would include converting labour hire, casual or contract roles into permanent public service jobs.

Labor also said it would audit the extent of insecure work within the public service, limit the number of consecutive fixed-term contracts an employer can offer for the same role, and ensure workers employed through labour hire companies received no less than workers employed directly.

Community and Public Sector Union national president Alistair Waters said Services Australia and several other federal agencies were allowing labour hire contracts to naturally end.

"Those workers are being encouraged to apply for permanent or casual jobs with the agency. It is clear that the experience these staff have built up should not be lost and CPSU expects these agencies to make good on converting these workers to direct employment," he said.

"CPSU expects that this is only the first move of the Albanese government away from costly and insecure labour hire arrangements, and towards a steady increase in permanent and good public sector jobs."

About 10 per cent or 3200 of Services Australia's staff were casually employed in 2021. The headcount of labour hire staff at the agency was 1200 in May last year.

The Fair Work Commission last week ruled that Services Australia must offer to convert employees' casual roles to permanent ones, if they had been employed there for 12 months. They must also have worked a regular pattern of hours for at least six months that could translate to full- or part-time work, and be rated as suitable in a merit process after applying for a vacant role.