The Australian Public Service is in the middle of a significant workforce transition. The 2023 Independent Review of the APS (the Thodey Review follow-on), the Government's response to the ANAO's repeated findings on contractor and labour hire dependency, and the ambitious capability uplift agenda articulated in the APS Reform Agenda are all pulling in the same direction: a more capable, more permanent, less contractor-reliant APS workforce.
At the same time, agencies are managing workforce complexity that hasn't diminished. The velocity of policy change demands rapid capability surges that permanent workforce planning cycles struggle to accommodate. Digital transformation programmes require specialist skills that the APS has historically under-developed. Demographic ageing is creating succession risk in senior technical and policy roles. And the agency funding model — which makes permanent headcount growth politically visible in a way that contractor spend is not — creates structural incentives that perpetuate the contractor dependency the Government is trying to reduce.
This article covers the workforce planning framework that enables APS agencies to navigate these competing pressures — managing capability, cost, and compliance simultaneously.
The Current Workforce Context
Several specific developments are shaping APS workforce planning in 2025–26.
The contractor and labour hire reduction agenda. The Government's commitment to reducing Commonwealth contractor and labour hire spend — announced as part of the 2023–24 Budget and progressively implemented — requires agencies to review contractor engagements, convert ongoing arrangements to APS employment where appropriate, and demonstrate active management of contractor dependency. The ANAO's 2023 report on the use of contractors and labour hire by entities found that contractor and labour hire spend had grown to over $20 billion annually across the Commonwealth, with inadequate monitoring, inadequate role justification, and poor compliance with the Statement of Work requirements. Agencies are under active scrutiny on this dimension.
Capability uplift requirements. The APS Reform Agenda identifies data and digital capability, policy design capability, and implementation capability as priority areas for investment. The APS Academy and the Australian Government Graduate Programme are expanding. But building capability takes time — and the workforce planning question is how to bridge the gap between current capability levels and the future state requirement while managing the cost of doing so.
Workforce mobility and talent retention. The APS faces persistent challenges attracting and retaining specialist talent — digital professionals, economists, data scientists, engineers — in competition with private sector and state government employers. Remuneration constraints (APS pay rates have historically lagged private sector equivalents for specialist roles), career flexibility expectations, and geographic concentration in Canberra all affect competitiveness. Workforce planning needs to address supply-side risks explicitly, not just demand.
Enterprise bargaining outcomes. The majority of APS Enterprise Agreements were renegotiated through 2023–24, with outcomes including above-CPI wage increases, improved flexibility provisions, and changes to classification structures. These outcomes affect workforce cost modelling and need to be reflected in multi-year workforce cost projections.
The Workforce Planning Framework for APS Agencies
Effective APS workforce planning operates across four interconnected elements.
Demand modelling. What work does the agency need to deliver, and what capabilities and headcount does that work require? For APS agencies, demand is driven by the Government's policy and programme agenda — which changes with ministerial priorities, Budget decisions, and external events. An effective demand model needs to be flexible enough to accommodate this variability, not built around a static assumption of stable workload.
The starting point is an activity analysis — breaking the agency's work down into activity types (policy development, programme delivery, regulatory functions, corporate services, project-based delivery) and modelling the driver of demand for each. For project-based work, the capital works or programme pipeline drives demand. For regulatory functions, regulated entity volumes or legislative obligations drive demand. For policy work, ministerial priorities and legislative timetables drive demand. This driver-based approach produces a demand model that can be updated as priorities shift.
Workforce segmentation and capability assessment. Not all APS roles are the same. An effective workforce planning model segments the workforce by role type (policy, operational, digital, corporate, specialist technical, leadership), capability level, classification, and employment type (ongoing, non-ongoing, contractor, labour hire). For each segment, the model should reflect current headcount, vacancy rates, turnover trends, and capability assessment against required standards.
The capability assessment dimension is often underdeveloped in APS workforce planning. Many agencies can tell you how many FTE they have in each classification — few can tell you what proportion of those FTE have the specific capabilities required to deliver the agency's current and future work programme. Closing this gap is essential for identifying genuine capability risk and planning targeted investment.
Contractor and labour hire analysis. Given the Government's active focus on contractor reduction, agencies need a clear picture of their contractor and labour hire position — total spend, by function and role type, duration of engagements, and the proportion of contractor roles that represent ongoing functions that could be performed by APS employees.
The framework for analysing contractor dependency has three categories:
Legitimate ongoing contractor use: Genuine specialist skills with no APS career path (highly specialised IT, legal counsel for specific matters, short-duration technical advisory). This use is defensible and appropriate.
Project surge capacity: Temporary uplift for defined programme delivery with a genuine end date. This is appropriate where the workload genuinely doesn't justify ongoing APS employment — but requires active management to ensure end dates are real, not continuously extended.
Proxy APS: Contractors performing ongoing functions that could and should be performed by APS employees — managed on rolling engagements because it is administratively convenient, or because headcount constraints make contractors more politically palatable than FTE. This is the category the Government is targeting, and it is the category that produces the highest unit cost per function delivered.
Cost modelling and scenario planning. Workforce cost in APS agencies is typically the largest operating cost line. Multi-year workforce cost modelling — covering base salary, oncosts (superannuation at 11.5%, workers compensation, payroll tax for relevant entities), contractor and labour hire spend, and workforce transition costs — gives leadership teams the financial framework to evaluate workforce strategy options.
Scenario planning — what does the workforce cost if we convert 20% of contractor FTE to APS employment? What does it cost if we invest in building digital capability internally versus continuing to buy it? — connects workforce planning to budget strategy in a way that headline FTE planning alone cannot.
Managing the Permanent-Contractor-Contractor Mix
The most practically important workforce planning challenge for most APS agencies is managing the ongoing/non-ongoing/contractor/labour hire mix in a way that delivers the right capability at an acceptable cost while meeting the Government's contractor reduction expectations.
A structured approach:
Map the current mix. For each functional area, map current FTE by employment type — ongoing APS, non-ongoing APS, labour hire, contractor (through ICT and non-ICT panel arrangements). Calculate the effective cost per FTE for each category. Identify the proportion of contractor and labour hire spend that represents ongoing function delivery.
Assess conversion candidates. Apply a conversion assessment framework to contractor roles: Is the role ongoing (not genuinely project-specific or short-duration)? Is the skill available in the APS or can it be developed? Is the role classified at a level the APS can compete for on remuneration? Roles that satisfy these three criteria are conversion candidates.
Build a conversion programme. A structured conversion programme — with recruitment plans, capability development plans, and a realistic transition timeline — demonstrates active management of contractor dependency rather than just aspiration. Agencies that can show the ANAO a documented programme with tracked progress are in a substantially better position than those that acknowledge the problem without a plan.
Invest in APS capability where conversion is the goal. Converting a contractor role to APS employment only produces value if the APS employee who fills it has the capability to do the work. Conversion programmes need to be paired with targeted capability development investment — training, structured on-the-job development, APS Academy programmes — that builds the internal capability pipeline.
Workforce Planning for State Government Agencies
The same framework applies, with adjustments for the specific regulatory environment and workforce context, to state government agencies across Australian jurisdictions. Victorian, NSW, Queensland, Western Australian, and South Australian public service agencies face analogous challenges — contractor dependency, capability uplift requirements, enterprise bargaining pressure, and the need to plan workforce systematically against a variable demand environment.
State-specific considerations include: the relevant Public Service Act and its provisions on employment types and flexibility, state Treasury's workforce cost management frameworks, and the state's specific sector priorities (which may drive demand surges in health, infrastructure, emergency services, or other areas with different workforce dynamics from the Commonwealth).
How Trace Consultants Can Help
Trace Consultants works with Commonwealth and state government agencies to develop and implement workforce planning capability — from strategic workforce strategy through to contractor dependency reduction programmes and workforce cost modelling.
Workforce strategy development: We develop workforce strategies for government agencies that connect the agency's policy and programme agenda to a multi-year workforce plan — addressing capability, cost, and supply risk across employment types.
Contractor dependency analysis and reduction programmes: We assess contractor and labour hire dependency, identify conversion candidates, and develop structured programmes that reduce dependency in a way that maintains operational capability.
Workforce cost modelling: We build multi-year workforce cost models that give agency leadership teams the financial framework to evaluate workforce strategy options and plan budget submissions.
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