AG plans clampdown on ‘payroll fraud’

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Updated, 3:58 p.m. and 5:01 p.m. with comments from Charles Owens and legislative Republicans.

Michigan Attorney General Dana Nessel and Democratic legislators want to crack down on businesses that misclassify workers in an effort to dodge paying payroll taxes, overtime and other benefits.

Such practices cost Michigan workers about $429 million in lost wages between just 2013 and 2015, according to a 2017 report by the Economic Policy Institute, a left-leaning policy think tank in Washington, D.C.

Dana Nessel after a House Judiciary Committee hearing, Feb. 19, 2019 | Ken Coleman

Nationally, 1.4 million employers owed $45.6 billion in taxes, interest and penalties, according to a 2015 report by the U.S. Treasury Department.

In response, Nessel announced on Monday that her office will establish a Payroll Fraud Enforcement Unit to investigate “credible” complaints of payroll fraud and employee misclassification. The new unit will work closely with other departments and agencies to carry out the investigations and take action to rectify cases it finds in violation.

“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,” Nessel said in a statement. “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.”

The attorney general’s elimination of 12 executive office positions that the Advance first reported — resulting in cost-savings of about $1.6 million — will fund the new unit, according to Nessel spokeswoman Kelly Rossman-McKinney. The attorney general’s office did not yet have any projections on how many cases it might be able to handle.

Susan J. Demas

Labor unions and various Democrats were quick to applaud Nessel’s efforts to clamp down on employee misclassification.

“For too long, shady businesses and individuals have cheated their workers and gotten away with this crime, and Attorney General Dana Nessel and legislative leaders announcement today shows that Michigan is committed to standing up for the men and women who work hard every day to provide for their families and help build our communities,” said Tom Lutz, president of the Michigan Regional Council of Carpenters and Millwrights.

Business groups like the Michigan chapter of the National Federation of Independent Businesses (NFIB) have balked at similar, past efforts, saying such regulations are largely “punitive” and unnecessary. Messages to the Michigan Chamber of Commerce weren’t immediately returned.

NFIB Director Charlie Owens said that the group polled its membership in 2018. Fifty percent did not support increasing penalties and enforcement activities on employers who allegedly haven’t correctly paid their employees, 32 percent did and 18 percent were undecided.*

Charles Owens

“What that means for us is that’s one of those rare situations where our members are split down the middle. So we’re not going to take a position opposing this. We’re not going to support it, either,” he told the Advance. “I think what our members are trying to say is that they have little sympathy for employers who try to take advantage of their employees and not pay them properly. Of course, if they’re playing by the rules, then that’s a competitive disadvantage to them if there’s someone they’re competing with that’s not paying what they’re supposed to.”

Owens added that he hopes Nessel draws a distinction when investigating claims and understands that there are employers who are trying to follow the payroll laws and make mistakes.

Michigan Democratic Party Chair Lavora Barnes supports the new fraud investigative unit, saying it could help pay for other key policy priorities like infrastructure and education. The unit also has the support of top Democratic legislative leaders, including state House Minority Leader Christine Greig (D-Farmington Hills) and state Senate Minority Leader Jim Ananich (D-Flint).

“Hard work and fairness are Michigan values, and companies that cheat their workers and on their taxes do not reflect those shared values,” Greig said in a statement. “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.”

Senate Minority Leader Jim Ananich speaks to reporters, Feb. 14, 2019 | Nick Manes

Democrats plan to once again introduce legislation curbing payroll misclassification this term. The planned legislation would increase penalties for businesses that engage in the practice, strengthen whistleblower protections, requiring back pay for violating companies and other enforcement measures.

Ananich was one of the sponsors of the legislation in 2017 to curb the practice. However, those bills never received a hearing. The Senate leader plans to be a sponsor legislation introduced this term, as well, said Ananich spokeswoman Rosie Jones.

Amber McCann, spokeswoman for state Senate Majority Leader Mike Shirkey (R-Clarklake), said he’s “concerned it may be a solution in search of a problem and would be interested in reviewing more data. Bad actors should be dealt with, but we don’t want to unintentionally punish job providers with extensive oversight.”

A House GOP spokesman declined to comment.

Nick Manes
Nick Manes covers West Michigan, business and labor, health care and the safety net. He previously spent six years as a reporter at MiBiz covering commercial real estate, economic development and all manner of public policy at the local and state levels. His byline also has appeared in Route Fifty and The Daily Beast. When not reporting around the state or furiously tweeting, he enjoys spending time with his girlfriend, Krista, biking around his hometown of Grand Rapids and torturing himself rooting for the Detroit Lions.

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