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Michigan AG plans crackdown on worker misclassification
LANSING — Michigan Attorney General Dana Nessel said her office will target businesses that cheat their employees of wages, pledging a forceful crackdown on what she called an under-the-radar problem that also lets companies dodge taxes.
“Our office intends to be as aggressive as possible in pursing this issue,” the Democrat said at a recent news conference, where she was joined by Democratic lawmakers who announced related bills to be proposed in the Republican-led Legislature.
Nessel said she is establishing a Payroll Fraud Enforcement Unit to investigate wage theft, including the misclassification of workers as independent contractors and the nonpayment of overtime. It is the fourth new unit to be created in the attorney general's office since Nessel took over in January.
She said payroll fraud varies by industry but is most prevalent in the construction, landscaping, janitorial services, child care, beauty and personal care services, retail, food service, car wash and home health care industries.
“The majority of Michigan companies play by the rules. But those who don't are cheating the system, raking in unfair profits and hurting Michigan in the process,” Nessel said. “These fly-by-night operators are lying, cheating and stealing from all of us.”
By misclassifying employees or paying them under the table, businesses contribute less to the unemployment system and avoid paying toward workers’ compensation and companies’ share of Social Security and Medicare taxes. It enables them to easily bid 20% to 30% less for contracts than legitimate companies, she said. Workers lose legal protections and benefits.
Nessel pointed to an analysis from the liberal-leaning Economic Policy Institute estimating that unscrupulous businesses “stole” $419 million in wages and overtime pay from Michigan workers between 2013 and 2015. A Michigan State University study showed that worker misclassification costs governments $107 million per year in tax revenue.
Nessel said employees do not report wage theft because they are afraid of retaliation or think nothing will be done. Her goals, she said, include raising awareness of wage theft and how to file complaints, increasing the number of investigations, facilitating cooperative resolutions and obtaining judgments against repeat offenders.
At her Lansing news conference — Nessel also held one in suburban Detroit — two carpenters told of problems they had working for dishonest contractors. One said he had to sue to recover wages.
Also speaking were the president of an Ann Arbor construction company who complained of lax enforcement against “crooked” businesses and a retired Social Security Administration manager who said many people who work as independent contractors do not know it is their responsibility to pay more toward Social Security and Medicare.
Democrats plan to introduce legislation that would increase civil and criminal wage-theft penalties, strengthen whistleblower protections, audit violators and require businesses to pay back wages if they are caught. Similar bills were introduced in the last two-year session but never were considered by House or Senate committees.
“These workers are exploited through no fault of their own, and they must be made whole,” said House Minority Leader Christine Greig of Farmington Hills.