Despite describing it as "frivolous spending", the NSW government has increased the amount it pays contractors at the same time that it sheds up to 15,000 public servant jobs.
The government has increased the amount it spends on labour hire in the public sector from $468,057,260 in 2010-2011 to $492,270,285 in 2011-2012.
The Department of Transport is the biggest spending agency, having paid $100,506,398 for contract workers in the 2011-2012 financial year.
Information obtained by the Public Service Association under freedom-of-information laws shows the number of contract staff has increased from 11,976 in 2010-2011 to 15,943 in 2011-2012.
However, the number of hours worked has decreased from about 7million in 2010-2011 to 6.8million in 2011-12.
The increased spending comes at the same time the state government is shedding 15,000 public servants.
When asked in January last year about the money being spent on temporary staff, the Minister for Finance and Services, Greg Pearce, said it was "yet another display of frivolous spending under the previous Labor government with no net benefit to taxpayers".
"The NSW government will ensure where any savings can be achieved that we actively do so to rein in the former government's 16 years of fiscally irresponsible governance," he said.
The general secretary of the Public Service Association, Anne Gardiner, said the union was concerned that "extravagant use of labour hire and short-term contract workers in the NSW public sector is continuing to grow".
"At the same time the NSW government is announcing cutbacks of 15,000 public sector workers, it is engaging 16,000 contract staff each financial year," she said.
"The NSW government is the biggest employer in the state. It is doing the wrong thing by employees, putting them out of permanent work, and the wrong thing by taxpayers, hitting them with the cost burden of expensive private sector contracts."
Mr Pearce said the government contract figures "are remnants of the process developed under the previous Labor government".
He said that under Labor's scheme, firms went through a costly tender process that could take up to 18 months.
"After wading through hundreds of pages of documents, there was no guarantee of any work. Some requirements included exorbitant professional indemnity and public liability insurance costs," he said.
The government introduced last month a new approach to hiring temporary workers that would achieve savings, he said. It would simplify contract terms and conditions. The changes would reduce professional indemnity and public liability insurance costs and open the scheme to new suppliers.
Suppliers would no longer be charged the management fee imposed under the Labor government, saving millions of dollars, he said.
However, Ms Gardiner said the new system was less transparent than the previous one.