Myer and cleaning contractors caught up in underpayment and sham contracting claims

Businesses risk hefty fines and ongoing brand damage if they underpay workers and engage in sham contracting, according to one payroll expert.

The warning comes as Myer and two contractors are facing claims cleaners in the retailer’s stores have been underpaid and incorrectly treated as contractors instead of employees.

The ABC reports the Fair Work Ombudsman is investigating claims of worker underpayments at Myer, which contracts its cleaning services to Spotless, which then sub-contracts the work to other cleaning businesses.

One cleaner who works at Myer’s flagship store in the Melbourne CBD told the ABC he is paid a flat rate of $20 an hour by one of these subcontractors, INCI Corp, despite casual cleaners being entitled to between $23-25 an hour for normal work and higher rates for weekend and after-hours work.

“It doesn’t matter if it’s weekend, or holidays, late hours, long hours, it’s all just a flat rate,” the cleaner said.

The same cleaner said he is required to work as a “contractor” and had to obtain an Australian Business Number to be given the job.

This has led to United Voice, the union representing cleaners, to accuse the businesses involved of engaging in sham contracting, a practice by which direct employees are incorrectly treated as independent contractors.

A spokesperson for Myer told SmartCompany this morning the retailer is “extremely concerned” about the claims and has been in contact with the Fair Work Ombudsman about the matter.

“While cleaners for Myer stores are provided by Spotless, we hold the same concern for the rights and wellbeing of anyone who works in our stores, regardless of their role or employment status, whether they are permanent, part-time, casual or contractor,” the spokesperson says.

Earlier this year Myer terminated its contract with another cleaning services provider Pioneer Facilities Services, after subcontractors to Pioneer were found to have underpaid $6300 to nine cleaners at several Melbourne Myer stores.

Myer’s contract was with RCS Cleaning Services, which subcontracted work to Pioneer Cleaning Services, which in turn sub-contracted to A&K Saana Services.

“We do not tolerate circumstances where our required standards are not met,” the Myer spokesperson says.

“We only recently terminated the contract of a cleaning services provider which was not able to adequately demonstrate full compliance and appointed Spotless as our cleaning services provider to replace less than six weeks ago.”

“We have again sought full and urgent assurances from our cleaning provider, Spotless, that every person working on a Myer premises is being paid according to their rights and entitlements.”

The spokesperson says Myer will assist the Ombudsman with any required investigations and will take “any further steps that are necessary to ensure Myer’s standards continue to be upheld”.

Spotless told the ABC the claims will be investigated thoroughly and INCI Corp owner Mehmet Mesli told the ABC his cleaning staff had all asked to work on ABNs and he would be happy to hire them as employees if they asked.

Warning to SMEs

Tracy Angwin, executive director of the Australian Payroll Association, told SmartCompany this morning the issue of sham contracting continues to come up in several industries, including cleaning services.

“Industries that employ more vulnerable workers seem to be the ones getting in trouble,” Angwin says.

Angwin says there are a series of factors that are considered when determining if someone is a contractor of employee, including whether it is the employer or the worker who bears the financial responsibility for the work being carried out.

Another consideration is who owns the equipment that is being used to carry out the work, with employees generally using equipment that is owned by the employer. In this case, Angwin says it is unlikely the cleaners would be required to bring their own mops and other equipment to work.

Who has operational control, such as when the work can be completed, is also important, with contractors usually able to set their own working hours and timeframes.

But Angwin warns businesses that even if an individual indicates they want to be paid as a contractor, the employer can still be found to be in breach of the Fair Work Act if the conditions of the job mean the worker should be paid as a direct employee.

Angwin says businesses and company directors and HR and payroll managers can also be fined they are found to have known about the existence of sham contracts and done nothing to rectify the situation.

“It can be over $10,200 per breach,” she says.

“Fair Work is fining people.”

As well as the financial cost, Angwin says “payroll scandals” have the potential to cause long-term damage to brands.

She points to the current underpayment claims faced by 7-Eleven and recent reports that workers were being underpaid by burger chain Grill’d as potential examples.

“It really does affect the brand,” she says.

SmartCompany contacted Spotless and ICNI Corp but did not receive a response prior to publication.