Recruitment agencies operating both permanent placement and temporary staffing divisions carry two fundamentally different revenue models in the same entity, and the bookkeeping treatment for each is distinct enough that combining them into a single revenue account produces financial statements that are misleading for both management and compliance purposes.
Permanent vs. Temporary Placement Revenue Recognition
A permanent placement fee — typically 15–25% of the candidate's base salary — is contingency-based in most arrangements: the fee is earned when the candidate commences employment with the client. Revenue should be recognised on commencement date, not when the invoice is raised, and not when the fee is received. AASB 15 Revenue from Contracts with Customers requires that revenue be recognised when the performance obligation is satisfied, which for a contingency placement is the start date.
For retained search engagements (where the client pays portions of the fee at engagement, at shortlist, and at placement), revenue is recognised as each milestone is reached — provided that milestone corresponds to a separately identifiable performance obligation with a standalone value. Upfront retainer payments for work not yet performed are deferred income until the relevant milestone is satisfied.
Temporary and contract staffing is a different model entirely. The agency is the employer of the temporary worker and charges the client a gross hourly rate that covers the worker's pay, on-costs (super, WorkCover, payroll tax), the agency's margin, and profit. The gross charge-out rate to the client is the agency's revenue. The worker's wage, plus super and WorkCover, is COGS. The margin is gross profit. Under no circumstances should a temp agency recognise only the margin as revenue — it is the employer, not an agent, of its temporary staff.
Temp Worker Payroll and On-Costs
The wage on-costs for temporary workers are substantial and must be tracked per worker and per assignment:
Superannuation guarantee: 11.5% (rising to 12% from 1 July 2025) on ordinary time earnings, payable quarterly into the worker's nominated fund. The SGC must be paid by the 28th of the month following each quarter — failure to pay on time eliminates the deductibility of the contribution and triggers SGC liability with the ATO uplift.
PAYG withholding: withheld from each worker's gross pay at the individual's marginal rate (using the ATO's tax withheld tables), remitted monthly or quarterly to the ATO depending on withholding scale.
WorkCover: labour hire businesses are classified as labour hire employers and pay WorkCover premiums based on remuneration paid to workers. Premium rates for labour hire are materially higher than for equivalent direct employers. The premium is payable annually in advance and adjusted based on actual remuneration at the end of the policy period.
Payroll tax: each state and territory imposes payroll tax on wages above the applicable threshold. For labour hire businesses with significant temp worker payrolls, payroll tax is often one of the largest compliance liabilities. Wages paid to workers placed interstate are subject to that state's payroll tax rules.
TPAR Obligations for Labour Hire
Labour hire businesses are required to lodge a Taxable Payments Annual Report (TPAR) each year by 28 August, reporting all payments made to workers who are engaged as contractors rather than employees. The TPAR reports the contractor's name, ABN, and total gross payments received during the financial year.
The purpose of TPAR is to enable the ATO to cross-reference contractor-reported income against the payments reported by their payers, identifying unreported income. Labour hire businesses that fail to lodge TPAR face penalties of $313 per quarter per failure (for businesses with turnover above the penalty threshold). The bookkeeper should maintain a register of all contractors engaged during the year and their ABN details, and produce the TPAR from this register rather than attempting to reconstruct it from the accounts at year end.
Superannuation on Contractors: The Section 12-60 Deeming Rule
One of the most significant and frequently misunderstood compliance exposures in the recruitment sector is the superannuation guarantee liability on contractors placed with clients under labour hire arrangements.
Under s.12-60 of the Superannuation Guarantee (Administration) Act 1992, a person who performs work under a contract that is principally for their labour is an employee for SGC purposes, even if they are engaged as an independent contractor and have an ABN. The agency that engages the contractor (not the client business that receives the contractor's services) is the deemed employer responsible for the SGC.
This means a recruitment agency that places a contractor with a client — where the contractor is engaged under a contract for their personal services — owes superannuation on the contractor's earnings regardless of the contractor's ABN status or their corporate structure. Agencies that have been remitting SGC only on their internal employee workforce, and treating placed contractors as outside the SGC system, have typically been accumulating a substantial unrecognised liability.
Rebate Provisions and Credit Notes
Many permanent placement contracts include a rebate clause: if the placed candidate leaves or is terminated within a specified period (typically 3–6 months), the agency must refund a proportion of the placement fee. The rebate percentage usually declines over the guarantee period.
At the time the placement fee is recognised as revenue, a provision for expected rebates should be created, based on the agency's historical rebate rate for similar placements. This provision reduces reported revenue (via a contra or provision account) to the amount expected to be retained. As rebates are actually paid, they are charged against the provision rather than expensed in the period of payment — smoothing the income effect.
The bookkeeper should review the rebate provision at least quarterly and update the historical rebate rate assumption if actual experience has diverged. An agency with a historically low rebate rate that has recently placed candidates in a volatile sector should increase its provision.