Department secretary Liz Cosson appeared before a Senate estimates committee on Wednesday evening to answer questions over long processing wait times for veterans' claims and a growing backlog.

In the secretary's opening statement, she admitted the split between public servants and labour hire, the rates of which have reached 48 and 42 per cent respectively, could not continue.

"I also want to respond to the recent reporting regarding the contracted workforce and acknowledge that current 42 per cent is not sustainable but DVA will always have a blended workforce," Ms Cosson said on Wednesday evening.

"It is important to acknowledge the work of all DVA staff, APS and contractors for the work they do supporting the veteran community."

In the claims processing team, the split increased to 50 per cent, Ms Cosson said.

Senator Jacqui Lambie questioned whether the department could hire extra full-time staff members with the money saved from paying labour hire companies a premium.

Ms Cosson acknowledged the contracts cost more but said she did not have the figures available.

In a separate estimates hearing last year, the department admitted it often negotiated for a 12 per cent margin or negotiated fee with labour-hire companies.

To deal with the growing demand, Ms Cosson said she had been given additional reprieve from the government to maintain the existing average staffing level - the policy limiting departments from hiring extra public servants - which was set to drop from 1615 APS employees.

"We will continue to put forward a case [to the government]," Ms Cosson said.

"I'm certainly confident that people understand that that growth in demand is real."

The department was also given $54.8 million over the two most recent financial years to help hire more contracted staff.

READ MORE:

Senator Amanda Stoker, who represented the government at the hearing, said the levels were high because there had been a surge in requests following a "deliberate" approach by the department.

Labour hire was a quick and flexible solution to the sudden demand, she said.

"There have been unusual circumstances that are the product of the quite deliberate, and very effective, outreach that has been done by the department to make sure that more and more of our veterans' community were being embraced by this system and supported by it," Senator Stoker said.

"That means there has been a need to quickly and flexibly put on a lot more help in order to provide the service levels that are desirable to be able to process those claims as timely as is possible."

But Labor senator Tim Ayres slammed the idea, calling the policy pushing the department to rely on non-permanent staff "indefensible".

"If I was you [Senator Stoker], I'd be setting about making the argument to lift the ASL cap so that veterans actually get looked after so there's some decency behind all the rhetoric," he said.

Senator Stoker said she had spoken to many people who expressed support for more flexible working arrangements.

"There are many people who choose, and indeed prefer to, have their own business that contracts," she said.

"I speak to many people in our community who like the ability to be their own boss, who like the ability to choose their own terms.

"While the permanent nine-to-five arrangement suits some people, for other people, the arrangements of labor hire or being an independent contractor suit them just fine."

The Community and Public Sector Union, which has long campaigned for the removal of the average staffing-level cap, said the government's unwillingness to budge on the policy was dangerous.

The union's deputy national president, Brooke Muscat, said it was time to remove the cap.

"Contrary to Senator Stoker's uninformed speaking points ... our labour-hire members don't choose to work for labour-hire companies because it's better for them or it's more convenient - it is their only option due to this government's bizarre and dangerous ASL cap," Ms Muscat said.

"The government could fix this problem today if it wanted to, but ideology is getting in the way of veterans' services and secure jobs.

"In an environment where services to clients can have life or death consequences, DVA needs more staff, and staff with experience to meet its clients' needs."

A Canberra Times analysis in January showed government departments averaged nearly one labour hire worker per five employees.

While the split for Veterans' Affairs remained well above other federal departments, the Defence and Attorney-General's Departments trailed behind at 24 and 21 per cent respectively.