Labour Hire vs Permanent Recruitment: What’s the Difference?

Bringing on staff is a significant cost to your business, so it’s worth choosing the right arrangement from the outset. Whether you’re covering a busy period, staffing a new project or growing your team, the best option will depend on your circumstances. Labour hire can provide flexibility and speed when you need people on site quickly, while permanent recruitment may be a better fit for long-term roles. This guide explains how each approach works, what costs are involved, and how to decide which option is right for your business.

What is labour hire?

Labour hire is where a provider employs a worker and supplies them to your business to work on your site, under your direction. 

The provider is the legal employer, which means they pay the worker’s wages, superannuation, tax, and workers’ compensation. They then invoice you a charge rate for every hour or shift that worker completes. Your supervisors decide what the worker does each day and manage them the same way they manage their own staff. 

What is permanent recruitment? 

Permanent recruitment is where an agency finds and screens candidates, and the person you choose becomes your direct employee.  

The standard process is that the agency advertises the role, checks applicants’ experience and qualifications, and gives you a shortlist of candidates you then interview before making your decision. Once the successful candidate signs an employment contract with your business, you pay their wages, superannuation, and workers compensation directly, and they receive full entitlements under the Fair Work Act.  

You pay the agency a one-off placement fee, which is usually a percentage of first-year salary package, backed by a replacement guarantee of around 3-6 months.   

What is the difference between Labour Hire and Permanent Recruitment? 

When should you use labour hire? 

Labour hire suits work where the volume changes, such as with seasonal peaks, project phases, shutdowns and leave cover. You bring people on for the period that you need them and release them when the work finishes, without a redundancy process. 

It also suits urgent gaps. Providers hold pools of pre-screened workers with tickets and inductions current, so roles can often be filled within days.  

Many employers use Labour Hire as a working trial before offering a permanent role, and plenty of permanent hires start this way. If your business does not have someone dedicated to HR or payroll, the other reason to choose labour hire is that the provider handles the timesheets, pay runs, superannuation, and workers compensation for those workers instead of you. 

When should you hire permanently? 

Permanent recruitment suits the roles you expect to exist for years. Core operational positions, supervisors, and specialists to build value over time as the person learns about your systems and your site.  

A permanent role is what most experienced candidates want. If you are recruiting a project manager or a qualified tradesperson who could take their pick of employers, the direct employment relationship and the career progression that comes with a permanent role will usually be part of what attracts them to the role. 

Is labour hire more expensive? 

An hourly charge rate looks expensive next to a wage, but the rate includes a lot more services within it. The charge out rate includes worker’s base pay plus a margin funding payroll, superannuation, workers compensation and compliance — costs you would otherwise be paying yourself. You also only pay for the hours the worker is on site, so unlike a full-time employee, you are not paying for annual leave, sick leave, public holidays, or weeks where there is not enough work to go around. 

If you hire permanently instead, you pay the agency’s placement fee once and that is your only cost to them. Over a role that runs for several years this works out cheaper than paying a charge rate for the whole period, provided the person stays. You then carry every employment cost yourself, including wages, superannuation, leave, the workers compensation premium and the time your team spends on payroll and HR administration. 

The way to compare the two is to work out the total cost of each option over the length of time you expect the work to last, rather than comparing an hourly rate to an hourly wage. If the work will run for three years, you are generally better off hiring permanently, whereas six weeks of peak season work is better suited to labour hire. 

Working out which option suits a specific role? Most providers will talk it through with you before you commit to anything, and it is a faster way to get an answer than building a cost comparison yourself. Have a chat with our team and we will help you work out which arrangement fits. 

What can go wrong with labour hire? 

• Gaps in safety responsibilities. Both your business and the provider have safety duties for the worker. When each assumes the other has covered the site induction or explained the hazards, workers start on site without the information they need to do the job safely. 

• Cost creep. A rate that suits a six-week placement gets expensive over eighteen months. If a worker has been with you for a year and the work is not going away, it is worth comparing what you are paying to the provider against what it would cost to employ that person yourself. 

• Turnover. In roles where site knowledge takes months to build, a rotating group of workers will slow your team down. Labour hire works best for roles someone can pick up quickly, or where the provider sends you the same people each time. 

What can go wrong with permanent recruitment? 

• A hire that does not work out. You have paid the placement fee; you carry the leave liability; you may have unfair dismissal exposure depending on how long they have been with you, and you then have to run the recruitment process a second time. 

• Timing. Advertising, shortlisting, interviewing, and working through a notice period usually takes several weeks, so permanent recruitment will not solve a gap you need to cover quickly.  

• Before you engage an agency, ask what their replacement guarantee covers, how long it runs for, and if you get a replacement candidate or your money back. 

Should you use both labour hire and permanent recruitment? 

Many businesses use a mix of both. Permanent recruitment helps build a long-term team, while labour hire provides additional support when workloads increase or projects require extra resources. 

The right approach depends on your circumstances, including how long the role is needed, how quickly you need someone in place, and how much time and responsibility you want to commit to managing employment directly. 

Talk to Skill Hire about your workforce needs 

Skill Hire has worked with Western Australian employers for more than 40 years. We have dedicated labour hire and permanent recruitment teams, and we are a Registered Training Organisation and a Group Training Organisation, which means hiring, training, apprenticeships and traineeships are all covered in one place. 

Tell us about your business needs, and we can build a bespoke workforce solution that fits your business, whether that is labour hire, permanent recruitment, apprentices and trainees, or training for the people you already have.