MI AG Says: Shady Businesses Cheating Michigan Workers Through Payroll Fraud

Michigan business owners will do well to comply with the state’s rules and regulations when it comes to wages, overtime and taxes, because the State’s Attorney General is working with the Michigan Legislature to crack down on payroll fraud in the Great Lakes State. In a recent stretch such fraud was approaching half-a-billion dollars in Michigan.

Attorney General Dana Nessel and Michigan legislators unveiled measures today to crack down on companies that misclassify workers in order to avoid paying full wages, overtime and taxes.  According to a Michigan State University study, payroll fraud robs those workers and Michigan taxpayers of hundreds of millions of dollars in lost wages, benefits and tax revenues every year.

The Attorney General says, “Payroll fraud affects all of us, especially the families who are robbed. When shady businesses exploit people by cheating them of the wages they are owed, families have less money in their pockets, zero benefits, and an uncertain future.” She adds, “No family should live in poverty because greedy businesses cheat the system and refuse to play by the rules. This has gone on for far too long and Michigan isn’t going to wait any longer to crack down on these crimes.”

Nessel is establishing the Payroll Fraud Enforcement Unit within the Department of Attorney General, dedicating resources to receive credible complaints of payroll fraud and misclassification.  The unit will investigate those claims with the assistance of other departments and agencies, and take appropriate actions available under existing laws to deliver meaningful remedies to the workers of Michigan.

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Nessel argues, “Without enforcement and regulations that have real teeth, bad actors will continue to break the law, steal from their workers and shortchange Michigan taxpayers.” She notes, “The proposals we are announcing today will give us the tools we need to crack down on the businesses that cheat the system and send a clear signal that Michigan puts our families first, not businesses that break the rules. In Michigan, we believe in supporting good companies that pay workers what they’re owed, and we need laws that reflect this.”

Unscrupulous businesses stole an estimated $429-million in wages and overtime pay from Michigan workers between 2013 and 2015, impacting more than 2.8 million workers, according to an analysis by the Economic Policy Institute. Meanwhile, Michigan taxpayers are shortchanged $107-million a year in revenue through tax fraud when businesses misclassify workers, by reporting employees as self-employed independent contractors or paying them off the books as a way to avoid paying their fair share of taxes, a Michigan State University study found. According to the U.S. Treasury, the United States loses $45.6-billion every year because of payroll fraud, which affects one in five U.S. households.

Democrats in the Michigan Legislature said they will introduce anti-fraud legislation that includes:

  • Increasing civil and criminal penalties for payroll theft…
  • Strengthening whistleblower protections and creating incentives to turn in violators…
  • Auditing companies that commit violations…
  • Requiring companies that cheat workers to pay back-wages…

Companies that cheat the system use crooked labor brokers and subcontractors, shell companies and check-cashing businesses to avoid paying workers full wages, overtime and benefits, while dodging federal, state and local taxes. By violating basic labor and employment tax laws, these companies save significant costs, which inflate profits while giving them a competitive advantage over companies that pay their employees full wages and benefits, as well as all taxes.

Wage theft rates vary by industry but are highest in construction, landscaping and janitorial services as well as childcare, beauty and personal services, retail, food service, car wash and home health care.

Jim Cowhy is President of Cowhy-Hayes Construction, Inc. He suggests, “Companies that cheat their workers and steal from taxpayers put communities, legitimate businesses and the local economy at risk,” and adds, “As a company that follows the law, we have a hard time competing against businesses that don’t. We hire skilled local workers and pay good wages and overtime, while many of our competitors hire unskilled, out-of-state workers and pay them under the table to avoid payroll taxes, workers’ compensation and unemployment insurance costs. We’re proud to contribute to the local economy where we work and to the families who rely on us. Payroll fraud and tax theft have been problems for too long, and these proposals are long overdue.”

Joe Meyer from Jackson, Michigan says, “The overwhelming majority of regular working people don’t know labor laws or understand their rights at the workplace,” and adds, “They do what their bosses tell them. They accept whatever their bosses give them. They’re just regular folks caught in a bad situation. Unless policymakers step up and pass real worker protections against wage theft and tax fraud, this problem will continue to go on, greedy businesses will continue to profit by cheating people, and hardworking men and women will be kept in the dark and in poverty.”

Employers rob minimum wage employees of twenty-seven-percent of their earnings.  Cheating causes twenty-percent of minimum wage workers to live in poverty, and over 30-percent of cheated workers receive public assistance. Workers don’t report issues out of fear of retaliation or because they think nothing would be done to correct the issue.

Meanwhile, more than 30-percent of workers cheated of full wages live in poverty, according to the EPI report.

Michigan Senate Democratic Leader Jim Ananich says: “Too many Michiganders are playing by the rules and working hard, day after day, just to turn around and be cheated out of the pay they’ve earned. It’s not too much to ask that CEOs compensate their workers in full. It’s that simple. My Democratic colleagues and I are committed to standing with Michigan workers and their families in saying, enough is enough.”

Michigan House Democratic Leader Christine Greig says: “Hard work and fairness are Michigan values, and companies that cheat their workers and on their taxes do not reflect those shared values. Cracking down on payroll fraud is a nonpartisan issue; it hurts all Michiganders. Companies that cut corners are getting a free ride off the backs of hard-working Michigan families and they are hurting legitimate businesses that follow the rules.”