Victorian state Labor MP Cesar Melhem was AWU state secretary at the time and was involved in the Cleanevent negotiations.

The royal commission heard the union benefited by inflating its membership numbers, which in turn gave it a greater level of representation on the Labor Party conference floor.

The Royal Commission into Trade Union Governance and Corruption on Thursday heard that Cleanevent Australia Pty Ltd described the $25,000 payments as "membership fees" to the Victorian branch of the AWU.

Counsel assisting Jeremy Stoljar said Cleanevent supplied lists of names of cleaners to the AWU, without the knowledge of the cleaners and despite some of them already being members who were paying union dues.

"In some cases these persons were then entered upon the membership roll of the AWU (Vic), but these persons knew nothing of any of this," Mr Stoljar said.

"[I]n some cases these persons were already members of the AWU (Vic) or other branches of the AWU, and were regularly paying their union dues by payroll deduction. They did not know that their dues were being paid twice over."

Mr Stoljar said the benefits to Cleanevent included savings in the order of $2 million which it would otherwise have paid its employees in wages and penalty rates.

Under a memorandum of understanding between Cleanevent and the AWU, workers were paid according to a 2006 enterprise agreement, with some adjustments, instead of using the 2010 Award.

Mr Stoljar said the arrangement meant that some workers were paid about $18.14 per hour instead of at least $50.17 per hour - about 176 per cent more that would have applied under the 2010 Award.

"[So] far as Cleanevent was concerned, keeping the MOU in place saved it some $2 million per year that it would otherwise have to pay its employees by way of wages or penalty rates," he said.

An email sent by the general manager of operations at Cleanevent on June 25, 2012 described the benefits to the company "by not having the EBA and employing labour through the modern Award is circa $2 million".

"The $25K was part of that negotiation and was approved by [the then general manager], the $25K is an annual cost."

Mr Stoljar said evidence from a commission witness suggested the pay rates and agreement terms were very attractive to Spotless and one of the reasons it acquired the Cleanevent business in 2010.

Mr Stoljar said deal included a benefit to the AWU in the form of inflated membership numbers which in turn boosted its number of delegates to the ALP conference.

This is turn "leads to greater influence over ALP policy formation, greater influence over membership of powerful ALP committees and, in particular, greater influence over the selection of ALP candidates for political office".

"In short, the benefits to Cleanevent and the AWU are obvious," Mr Stoljar said.

"The persons who miss out are the workers.

"Cleanevent's employees, or at least its casual employees, appear to have been significantly worse off under the MOU than they would have been under the relevant 2010 award."

Steven Webber, who was general manager at Cleanevent when it was acquired by Spotless in 2010 said it was agreed that the 2006 enterprise agreement would be extended by way of an MOU.

He said he attended the AWU's office to meet with Cesar Melham, now a Victorian Labor MP, and Mr Melham told him that it would be necessary for Cleanevent to pay $25,000 per annum for membership fees.

"The way this was put by Mr Melham was that the AWU wanted there to be a certain number of union members amongst Cleanevent employees, and that up to $25,000 would be paid by Cleanevent on behalf of employees that were or would become union members," Mr Webber said in a sworn statement.

A spokesman for the royal commission said Mr Melhem had been summonsed to face the inquiry for further questioning early next week.

It comes after the embattled MP was implicated in separate claims of wrongdoing last year. The royal commission heard evidence that he spent almost $30,000 from a union slush fund on personal expenses without reimbursement.

An interim report by commissioner Dyson Heydon said political spending by Mr Melhem's slush fund, Industry 2020, was likely to have helped him secure the support he needed to enter the state upper house in May 2013 when a vacancy arose.

AWU national secretary Scott McDine said on Thursday the royal commission was a politically motivated "witch hunt".

He said the union had cooperated with all notices to produce from royal commission investigators and would continue to do so.