The portable long service scheme: Who really benefits?

Realcorp's John Reale weighs in on Victoria's portable long service scheme.

On 1 July, 2019 the Victorian Government introduced the portable long service scheme in Victoria.

Basically, the scheme means Victorians working in the cleaning, community services or security industries can now access long service leave after seven years of continuous service.

The ‘portable’ part comes into it because employees carry the benefit with them to their next position within the industry.

Therefore, eligibility for the scheme isn’t dependent upon having worked any length of time with a single employer

Employer contributions, set at a rate of 1.8 per cent of normal wages for cleaning and security roles (1.65 per cent for community services), will be collected into a fund managed by the Portable Long Service Benefits Authority, a Victorian Government Department.

Once eligible, employees must then make a claim to access the benefit. It must be claimed within four years of an employee reaching eligibility or the benefit will be “absorbed” into the fund.

To comply with the scheme, all contractors need to have registered by September 30, 2019. They are then required to pay the employer levy and submit a quarterly return, the first of which is due this month (October 2019).

On the surface, it all sounds like a great idea. It certainly acknowledges some of the very real challenges for long-term workers who are employed in these industries.

But upon closer inspection, I’m not convinced some elements of the scheme stand up to scrutiny. In fact, you could drive a fully loaded cleaning cart through some of the holes in this scheme, so excuse me while I get up on my soapbox (pun intended).

In my opinion there are four main problems:

  1. Many employees don’t work in the cleaning industry long enough to collect the benefit

At Realcorp, we estimate 95 per cent of our current staff will leave the cleaning industry within the next seven years.

You see, the majority of cleaning positions are taken as a steppingstone for those working their way through an education (something we strongly support and encourage), or stopgap employment until an employee finds a more engaging role elsewhere.

So, what happens to all the contributions Realcorp makes on those inevitably ineligible employees’ behalf?

It just sits there until ultimately (after four years) the Long Service Leave Authority keep the money. Those employees will never have the opportunity to collect their money from their Portable Service Leave fund.

  1. It’s too late for the extra costs to be incorporated into existing long-term contracts

The terms of many medium to long-term contracts have already been locked in. That means that the costs associated with those contracts have suddenly increased, with no way to offset them. That’s going to hit employers where it hurts – right in the bottom line.

  1. It affects all honest employers’ ability to stay competitive

Unfortunately, there are plenty of dodgy operations out there who underpay their staff with no regard to the Cleaning Services Award and offer cleaning services at rock-bottom prices.

The additional employment on-costs associated with the scheme will make it even harder for ethical employers like Realcorp, who pay their staff a fair wage, to compete.

  1. It makes it harder to offer services at rates the market will accept

These same honest employers have already had to accommodate rising award rates in recent years (at a rate above inflation). A fair wage is now made up of award rate + superannuation + long service leave + on-costs like work cover and payroll tax.

Somewhere in there we must also add some margin to keep our businesses afloat. With the constant threat of a recession hanging over our heads (as well as those less honourable competitors driving down price expectations), will the market accept the prices contractors will need to charge in order to fairly remunerate staff?

It occurs to me that while, in theory, the Portable Long Service Benefits Authority has attempted to close a gap for a potentially vulnerable group of workers, they’ve ended up only really benefitting themselves, while encouraging dodgy operations to continue their practices because it’s even more expensive now to do otherwise.

A better solution 

I believe the resources and energy of the authority would be far better spent on enforcement of the existing award rates, ensuring that all cleaning staff are paid fairly.

Indeed, I am all for cleaning companies having to lodge quarterly data on staff hours and pay. I hope that some efforts are put into examining that data and running exception reports that would expose those not paying award rates.

This would benefit everyone:

  • Workers would be more likely to be paid fairly
  • Ethical employers can remain competitive in the market
  • The Victorian Government could collect higher income taxes from individuals and increased amounts of GST (due to higher contract values).

As for the rogue contractors who ignore the award, perhaps the authority could use the fines they collect from policing them to fund their long service scheme?

We would love to hear your thoughts on the new portable long service leave scheme. Will the market tolerate such a price adjustment?

Is this another lever which increases the competitive gap between companies who pay fairly vs those who sub-contract and ignore the award? Is cleaning a ‘career profession’ where staff typically achieve long service?

John Reale is founder and managing director of Realcorp Commerical Cleaning.  Realcorp service facilities managers, owners corporations and offices across metropolitan Melbourne and regional Victoria.

Comment below to have your say on this story.

If you have a news story or tip-off, get in touch at info@incleanmag.com.au

Sign up to INCLEAN’s newsletter.

2 thoughts on “The portable long service scheme: Who really benefits?

  1. So, this means that we can never recover the long service leave we pay into this fund even when an employee leaves prior to seven years and they do not claim any LSL from the fund?
    Why should we, the good and fair operators who always do the right thing, have to provide funds to a scheme that does nothing to benefit us?
    Why can’t we claim back our contributions for employees who leave the industry before completing 7 years continuous service?
    This needs to be addressed as it seems completely unfair that we have to contribute funds to a fund that we would otherwise not need to pay to an employee who does not qualify for LSL after leaving our employment. Not happy about this at all!

  2. That’s exactly right Jill. It is not a fair scheme. There hasn’t been enough noise from the industry which has made it easy for government to legislate. And unfortunately now that it is legislated, having it reversed or amended is going to be very difficult.

Leave a comment:

Your email address will not be published. All fields are required