Labour Hire vs Direct Hire: What It Costs Builders

Your carpenter doesn't turn up on Monday and you have a slab to pour. Do you ring a labour hire firm, or start hiring someone for good?

That is the labour hire vs direct hire call, and it comes down to the numbers.

Is labour hire cheaper than hiring directly?

For short jobs and busy spikes, often yes, because you pay only for the hours you need. For long work, labour hire usually costs more per hour, because the firm adds a margin. Compare the full cost of your own employee, not just their wage.

It comes down to how long the work lasts. Labour hire usually wins for short jobs and busy spikes. Direct hire usually wins for steady work and for crew you want to keep.

With labour hire you pay a margin on every hour. On a short job that can be worth it. On a long one it adds up.

I've spent over ten years in construction recruitment and twelve on the tools before that. I've placed more than 1,000 trades, labour and management staff. I don't sell labour hire, and I'm not an agency. So this is a builder's view, with the costs laid out plainly.

Work out your own numbers

Use the free hiring cost check to see what an empty role costs you before you choose labour hire or a direct hire.

What is the difference between labour hire and direct hire?

With labour hire, a firm employs the worker and charges you an hourly rate. With direct hire, you employ the person yourself and pay their wages and on-costs. Labour hire is faster to start. Direct hire usually costs less over time and builds your own crew.

Here is a bit more detail on each one.

Labour hire. The firm covers the worker's pay, its own costs and its margin in the hourly rate. You don't put the worker on your payroll.

Direct hire. You pay their wages and the extra costs that come with them, like super, leave and insurance. They are your crew.

Employment rules vary, and they depend on how the person is engaged. This post is not legal advice. For the rules, go to the Fair Work Ombudsman and check the details for your case.

Where labour hire wins

Labour hire earns its margin in a few spots.

Short projects. If the job is six weeks, you don't want to hire someone for the long haul. You pay for the hours you need and no more.

Sudden peaks. A big pour, a rush on fit-out, a deadline you didn't see coming. You need more hands for a short burst. Labour hire gives you that without the effort of a full hire.

Covering a gap while you look. Someone quits or gets hurt. You need a body on site tomorrow while you search for the right person. Labour hire can bridge that.

Trying someone out. Some builders use labour hire to see a worker in action before they take them on. That can work well if the contract allows it. I'll come back to that.

If any of these sound like you, labour hire is a fair tool. Don't feel bad about using it.

Where direct hire wins

Direct hire is better when the work is steady and you hire the same trades again and again.

Crew who know your jobs. After a few months, a good worker knows how you work. They know your standards and your suppliers. You don't get that from a rotating cast.

No margin on every hour. You pay the person's wage and on-costs. You don't pay a margin on top of each hour.

A team you can build. Direct hires can be trained, promoted and kept. People stay where they feel part of something.

Less churn. With labour hire, the firm decides who turns up. You can end up training new faces again and again.

For regular work, direct hire is often the better deal. The catch is that you need to be able to hire well. That is a skill, and you can learn it. I cover the steps in how to hire tradies without a recruitment agency.

Labour hire vs direct hire: the cost comparison

First, a fact about margins, with a warning. One Perth trades recruiter says labour hire margins run about 20% to 35% on the hourly rate (PerthTrades). That is one firm's figure, and it sells recruitment.

Manpower says the rate you pay for a temp includes the worker's pay, on-costs and the agency's margin (Manpower). Manpower writes for all industries, not only construction.

Ask each firm for its rate in writing and compare more than one.

Now a worked example. This is an example only. The numbers are made up to show how the sums work. Use your own.

Say you need a carpenter for 400 hours. That's about ten weeks of full-time work.

• Labour hire: say the firm charges you $75 an hour.
• Direct hire: say you pay the carpenter $50 an hour, and on-costs add $12.50 an hour. That is $62.50 an hour.
• Finding the person: say $1,500 for ads, plus your own time.

	Labour hire	Direct hire
Cost per hour	$75	$62.50
400 hours	$30,000	$25,000 + $1,500 = $26,500
100 hours	$7,500	$6,250 + $1,500 = $7,750

On these example numbers, direct hire saves $3,500 over 400 hours. The longer the job, the bigger the gap. On a 100-hour job, labour hire is slightly cheaper.

That is the whole story in miniature. Short job, labour hire can win. Long job, direct hire usually does.

Two cautions. First, your real on-costs will differ from my example. Second, direct hire isn't free of risk. If you hire the wrong person, you pay for that too. That's why a good hiring process matters.

Free report: 7 Hiring Mistakes

Thinking of hiring direct? Get the free 7 Hiring Mistakes report and see where hires go wrong.

The costs people forget

The hourly rate is not the full picture. Here is what people leave out.

Empty roles. Every week a role sits empty, the crew works short. Jobs slip. You pay overtime. You take the calls. That cost is real, even if it isn't on an invoice. You can check what your hiring really costs you with the free tool, or see how ready you are with the free hiring scorecard.

Supervision time. A new face needs to be shown the site, the plans and the way you work. With labour hire, that happens each time someone new turns up.

Turnover. If workers keep changing, you keep training. That takes your time and slows your crew.

Your own hours. When you chase workers and sort out gaps, you aren't pricing jobs or running the site. Your time has a price too.

Put these next to the hourly rate before you decide. A cheap hourly rate with lots of churn can end up costing more than it looks.

How to move from labour hire to your own crew

Say you've used labour hire and found someone good. You'd like to keep them. Here is how to do it.

Ask about conversion terms before you start. The contract may have a conversion fee or a minimum period before you can hire the person directly. Ask the firm before the worker starts. Get the answer in writing. If you like someone, ask what it would cost and how soon you can hire them.

Check the rules. Employment rules vary. The Fair Work Ombudsman is the place to confirm what applies.

Have your hiring tools ready first. Before you make the offer, have these in place:

• A short brief for the role, with the pay, the start date and who they report to.
• A clear ad, in case you need to hire more people like them.
• A plan for the first 14 days, so the move goes smoothly.

If you don't have those yet, my free 7 Hiring Mistakes report is a good first step. It shows where hires usually go wrong.

If you plan to hire more than once or twice a year, the Construction Hiring System course ($497 AUD) teaches the full method. It lets you stop depending on any one firm.

If you'd like to talk it through first, book a free 15-minute discovery call. To compare this with agency placement, read in-house recruitment vs agency.

Labour hire vs recruitment agency: the difference

A lot of people mix these up, so here it is in short.

A labour hire firm employs the worker and hires them out to you by the hour. You keep paying the hourly rate for as long as the worker is on your job.

A recruitment agency finds a person for you to employ. It charges a fee once, usually a percentage of the first year's pay or a flat fee. After that, the person is on your payroll.

Some firms do both. So before you sign anything, ask: "Am I paying you an hourly rate, or a one-off fee?" The answer decides what you owe.

For more on agency fees, see construction recruitment agency fees Australia. Not sure if someone is an employee or a contractor? See employee vs contractor in construction.

General information only, not legal, tax or employment advice. Employment rules depend on your case, so check with the Fair Work Ombudsman or an adviser. The example numbers are made up.

Want help with your next hire?

Book a free 15-minute discovery call and we will talk through your next hire. Prefer to learn it yourself? The Construction Hiring System course teaches the full method.

FAQ

How much margin does labour hire add?

It varies by trade, firm and time of year. One Australian trades recruiter says labour hire margins run about 20% to 35% on the hourly rate (PerthTrades). Treat that as one view. Ask each firm for its rate in writing, and compare more than one quote.

What is the difference between labour hire and a recruitment agency?

A labour hire firm employs the worker and hires them out to you by the hour. A recruitment agency finds a person for you to employ and charges a fee once. Some firms do both, so ask which one you are buying before you agree to anything.

Can I turn a labour hire worker into my own employee?

Often yes, but the contract may include conversion terms or a fee. Ask about this before the worker starts. If you like someone, ask the firm what it would cost and how soon you can hire them. Check the rules with the Fair Work Ombudsman.