Compensation applications submitted to the Department of Veterans' Affairs have doubled in recent years, causing a growing backlog of claims and resulting in lengthy wait times for veterans.

A staffing cap on all agencies has meant the department has relied more heavily on hiring temporary and contracted staff members to work through the backlog.

The federal budget allocated more than $300 million over the next four years to help process rehabilitation and compensation claims with more than a third of that amount dedicated to improving the agency's data and technological capabilities.

The permanent staffing level cap was also raised by 450 staff.

But department secretary Liz Cosson told a Senate estimates committee on Wednesday evening that while the funding and resources boost was welcome, the reality remained dire in the meantime.

"We're still seeing an increase in demand and it is outstripping our capacity to respond to the demand," Ms Cosson said.

"What we are seeing is improvements in productivity with our staff who are progressing the claims."

Labor senator Tim Ayres asked department officials how the additional funding and employee relief would impact the overall staffing split between contracted workers and permanent public servants.

A March estimates committee heard 42 per cent of the department had been hired under non-ongoing contracts while the claims processing team had increased to a 50-50 split.

Ms Cosson said the department's overall number was expected to decrease to 32 per cent while the claims processing department would drop to 23 per cent.

More contracted staff would still need to be hired to deal with the workload, she said.

"If the demand goes up, we must have the flexibility to be able to surge and bring on labour hire to meet that demand," Ms Cosson said.

"That's why I say we'll always have that blended workforce."

Senator Ayres questioned officials over whether the contracted employees were part of a surge hire push or if they intended to keep them employed under less favourable conditions to APS staff.

"That argument might be more credible for me, I suppose, if the number was very small," he said.

"But 23 per cent of quite a large staff [area] is still a pretty big number ... that's not a surge capacity.

"Many of those people will be with you all the way through the year."

Ms Cosson responded the staff were needed in the interim for the backlog of processing claims but the department was reviewing its systems to determine whether more permanent staff were needed moving forward.

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The department was also quizzed on how much money the changes to staffing composition was likely to be saved now there were less overhead figures expected to be paid to private labour hire companies.

Ms Cosson acknowledged an earlier answer provided by the department showed it often negotiated for a 12 per cent margin or negotiated fee with labour hire companies for each hired worker.

But the department's chief operating officer Mark Harrigan said it wasn't a figure the department would easily be able to provide.

"That's a pretty tricky exercise," Mr Harrigan said.

"Over the course of the year, we have new contracted labour hires come on and we have them turn off as well.

"At the same time, we're bringing on increasing numbers of APS so it's a very micro level, granular exercise to come up with the cost differential.

"We haven't had a need to do that as part of a budget process."

Around 80 per cent of Open Arms counsellors are employed through the department under labour hire arrangements, senators also heard.

Senior figures admitted managers were employed as part of the public service in order to manage the program but it relied on a pool of 1100 labour hire or part-time counsellors as part of its larger national network.

Labor's spokesperson for Veterans' Affairs Shayne Neumann said the high percentage of non-ongoing staff was unacceptable.

"Veterans have complained about high turnover and a lack of consistency and continuity with counsellors at Open Arms," Mr Neumann said.

"These are often vulnerable and traumatised people who need stable and reliable services. They don't want to have to deal with different counsellors all the time.

"This is a direct result of the government's staffing cap, which is forcing Open Arms to have ridiculously high levels of poorly trained labour hire workers.

"It's just not good enough."

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