Temp-to-Perm Staffing: How It Works, When It’s Worth It, What It Costs

Temp-to-perm is a hiring model where you engage a worker through a labour hire agency first, use the labour hire period as a working trial, and then convert the worker to a direct permanent employee of your business if the trial works out. You pay the agency a conversion fee at the point of conversion, typically 10 to 20 per cent of first-year salary, often tapered so a longer trial attracts a lower fee. This guide covers how temp-to-perm works commercially, conversion fee mechanics, the legal and tax implications of converting a labour hire worker into your direct employee (continuous service, super continuity, leave accruals), and when the model is right (and when it is not).

If you are a business owner considering temp-to-perm for the first time, the short answer is: it de-risks a permanent hire, costs less than a failed direct hire in most cases, and works best for warehouse, logistics, production, and administrative roles where 8 to 12 weeks of on-site work gives you a real read on capability and fit. It does not work as well for highly specialised, senior, or culture-critical roles where a candidate will not accept a casual trial as the entry point.

How temp-to-perm works in practice?

Here is the standard commercial flow, from first engagement to direct employment.

Step 1: initial labour hire engagement

You brief the agency on a role that you might convert to permanent if the right worker turns up. The brief is the same as any labour hire brief (site, shift, duties, licences), with the added note that conversion is on the table.

The agency employs the worker on a casual labour hire basis. You pay a charge-out rate per hour as normal. The worker has no guarantee of conversion, and you have no obligation to convert.

Step 2: trial period at the host site

The worker performs the role at your site for a defined trial period, usually 8 to 16 weeks.

During this period:

• You observe real performance on real work, not a rehearsed interview.
• The agency handles payroll, super, tax, and workers compensation.
• You can end the engagement with standard labour hire notice (often 1 to 2 weeks) if the fit is wrong. No redundancy, no unfair dismissal exposure to you as host (because the worker is not your employee).
• You can request another worker if the first does not work out, without triggering a conversion fee.

Step 3: conversion decision

At the end of the trial, you make the call. Three paths:

• Convert. Offer the worker a permanent role with your business. Trigger a conversion fee to the agency.
• Extend. Keep the worker on labour hire for another trial period. Conversion fee calculation usually tapers further with longer engagement.
• End. Let the engagement end at the standard labour hire notice. No fee.

Step 4: direct employment transition

If you convert, the worker transitions from agency payroll to your payroll. That transition has legal, tax, and leave implications. They are covered in detail below.

Conversion fees: how they are structured in 2026

The conversion fee compensates the agency for losing an ongoing charge-out margin. Industry standard in 2026 for warehouse, logistics, manufacturing, and food processing roles is 10 to 20 per cent of first-year base salary, often tapered by trial length.

Taper structure

The most common taper looks like this:

Tapering incentivises both parties to commit through the trial period rather than racing to early conversion.

Worked example: warehouse supervisor conversion

A Melbourne 3PL engages a warehouse supervisor on labour hire at a $48/hour charge-out rate. After 12 weeks, they decide to convert to a direct permanent role on a $78,000 salary package plus super.

• Trial completed: 12 weeks
• Taper tier: 10 to 15 per cent
• Negotiated conversion fee: 12 per cent
• Fee amount: $78,000 x 12 per cent = $9,360 ex GST

Compared with the alternative of running a full permanent recruitment process (typical agency fee 15 to 22 per cent, so $11,700 to $17,160), the temp-to-perm route is usually cheaper in direct fees alone, before counting the insurance value of having seen the worker perform the role for 12 weeks.

Flat fee structures

Some agencies offer flat fees instead of percentage-based. Typical flat-fee shapes for warehouse and logistics:

• $3,500 to $5,500 flat for general warehouse roles converted after 8 weeks
• $5,500 to $8,500 for licensed forklift operators or team leaders
• $6,500 to $12,000 for supervisory roles

Flat fees work well when the role is hard to salary-benchmark or when the host prefers predictability over performance-linked pricing.

Legal and tax implications of conversion

The moment the worker transitions from the agency payroll to your payroll, several legal and tax rules apply. Get these wrong and you carry liability.

Continuous service: does labour hire time count?

This is the most commonly misunderstood point. The short answer: labour hire service with an agency does not automatically count toward continuous service with the host employer under the Fair Work Act. The worker’s employment with the agency ends (resignation or mutual termination) and a new employment relationship starts with you.

However, there are exceptions:

• Transfer of business provisions. If the conversion is part of a broader transfer of business (for example, you are taking over the operation of a site), Part 2-8 of the Fair Work Act may apply and service could carry over. This is uncommon in standard temp-to-perm conversions.
• Certain enterprise agreements. Some EBAs explicitly include labour hire service for accrual purposes once a worker converts. Check your EBA if you operate under one.
• Long service leave (state-based). Long service leave rules vary by state. In Victoria, the Long Service Leave Act 2018 has portable long service leave provisions for some industries (not warehouse generally), and in the Community Services Portable LSL scheme. For warehouse workers, state LSL usually starts fresh with the new employer.

The default position: the worker starts a new continuous service period with you on the date of conversion. Communicate that clearly in the offer letter to avoid confusion later.

Super continuity

Super is portable. The worker’s super fund, balance, and contributions history move with them regardless of employer change. The only change is which employer is making the contributions.

You must contribute the 12 per cent Super Guarantee from the first day of direct employment per the ATO SG schedule. Ask the worker to confirm their chosen super fund via a TFN declaration and super choice form, or default to your workplace fund if they do not nominate.

Leave accruals

Casual labour hire workers do not accrue paid annual leave or personal leave (this is what the 25 per cent casual loading covers). On conversion to permanent:

• Annual leave starts accruing from the conversion date (4 weeks per year for full-time, pro-rata for part-time).
• Personal/carer’s leave starts accruing from the conversion date (10 days per year for full-time, pro-rata for part-time).
• Long service leave accrual starts fresh in most states for most industries (see the continuous service note above).
• Parental leave entitlement requires 12 months continuous service, which starts fresh on conversion unless a specific rule carries over.

Employment contract on conversion

Prepare a full employment contract for the worker covering:

• Start date with your business
• Position title, classification, and reporting line
• Salary and super arrangement
• Leave accruals start date
• Probation period if any
• Restraint, confidentiality, and IP clauses
• Termination notice per the National Employment Standards

Do not simply issue a letter saying “congratulations, you are now a permanent employee”. The worker is entitled to the same contract rigour as any other permanent hire.

When temp-to-perm is the right model?

Temp-to-perm is a strong fit when:

• The role has a hands-on, observable skill set. Pick pack, forklift operation, food processing line, production, general labour, admin. You can see performance in weeks.
• Cultural fit matters but you cannot fully assess it in an interview. Warehouse supervisors, team leaders, and anyone whose effectiveness depends on how they work with the existing crew.
• You have been burnt by a bad direct hire in the last 12 months. Temp-to-perm is insurance.
• Your ramp-up needs are faster than a standard recruitment timeline. You can get someone working in 3 to 5 days through labour hire, then decide in 8 to 12 weeks whether to commit.
• You want to offer permanency but aren’t sure of the right classification level. Trial at casual rate, then offer at the correct permanent level based on observed performance.
• You are opening a new site or ramping a new function. Try workers before locking headcount.

When temp-to-perm is the wrong model

• Senior roles. A general manager or operations director will not accept a casual trial entry. They need permanency from day one to leave their current role.
• Specialist tight-labour roles. If the candidate pool is tiny, you will lose the candidate to a competitor willing to offer permanent from day one.
• Roles with long training investment. A role that requires 6 months of training before productivity kicks in is not a good temp-to-perm candidate, because the trial ends before you have enough data to decide.
• Culture-critical roles where day-one integration matters. A head of people or a client-facing lead role needs to be on the team from the start.
• Workers already in a long casual pattern. If you have had a worker on labour hire for 12+ months with regular shifts, the casual conversion rules may already have been triggered. Review before extending or converting direct.

Conversion checklist: the Monday morning version

• Decision to convert made, documented, and sign-off obtained
• Conversion fee calculated per the agreement schedule
• Permanent employment contract drafted
• Start date aligned with agency payroll end date (avoid double payment)
• Super fund nominated by worker and set up in your payroll
• Leave accrual start date confirmed in writing
• TFN declaration, bank details, and emergency contact collected
• Induction or onboarding refresh if role scope changes on conversion
• Probation period documented
• Existing colleagues briefed (if appropriate)

Those numbers are the basis for your brief at 8 weeks out. Not a spreadsheet in your head 1 week before.

How to structure the trial to make a good decision?

A temp-to-perm engagement is only as useful as the structure you put around it. The worst outcome is a 12-week trial where nothing is measured and the conversion decision is a gut feel.