Nessel creates enforcement unit to crack down on payroll fraud

Lansing — Attorney General Dana Nessel launched a new unit Monday to tackle payroll fraud at Michigan businesses, a crime she said “is committed with greater frequency than perhaps any other crime in Michigan.”

It was a plan treated warily by at least one business group that noted the increasing complexity of payroll laws across the country.

The unit will focus primarily on the misclassification of employees as self-employed independent contractors so an employer is able to avoid paying overtime, health benefits or worker’s compensation, Nessel said in a Monday press conference.

More common in construction, landscape and janitorial jobs, the practice bilks employees, undercuts legitimate businesses and deprives the state of millions of dollars in tax revenue, Nessel said.

“Payroll and tax fraud have been allowed to go on under the radar for far too long, and it’s a crime that robs all of us,” she said.

While there certainly are bad actors who attempt to game the payroll system, some mistakes are simply a result of increasingly complicated payroll laws, said Charlie Owens, state director of the National Federation of Independent Businesses.

Independent contractors are defined differently by various government departments, he said, and unions and mandated benefit activists are often trying to challenge the definition so as to decrease the number of employees exempted from their rules.

“I hope the attorney general and legislators attempt to make a distinction between those who make mistakes and those who are breaking the law,” Owens said.

Several Democratic legislative leaders attended the press conference Monday, but Republicans were absent. Since the GOP controls the Legislature, it signals an uphill climb to gain support for accompanying legislation that would increase civil and criminal penalties, strengthen whistle-blower protections, audit bad actors and require violators to pay back wages.

“These workers are exploited through no fault of their own and they must be made whole,” said House Democratic Minority Leader Christine Greig, D-Farmington Hills.

No business groups have officially backed the effort, Nessel said, but she planned to reach out to them to gather support. She said the initiative should not be partisan.

“I’m a little disappointed that we don’t have any Republicans here today, and its not for lack of us trying to reach out,” said Nessel, a Democrat. “They should care just as deeply about this issue as the Democrats who are here in this room.”

Neither Chatfield nor Senate Majority Leader Mike Shirkey were invited to participate in the press conference, their spokespeople said.

Nessel's office later clarified through a spokesman that the outreach to Republican lawmakers had occurred through "those leading this policy work." Further questions were directed to the Michigan Regional Council of Carpenters, which said it had contacted a "handful" of GOP lawmakers about sponsoring some legislation, "not about participating" in the press conference. 

Joined at the podium by construction workers and contractors, Nessel announced a multi-pronged approach to addressing the issue including increases in education, reporting, investigation, and judgments against bad actors. The majority of Michigan companies play by the rules, Nessel said, but the ones that don’t cost the state millions.

Between 2013 and 2015, bad actor businesses stole an estimated $429 million in wages and overtime pay, Nessel said, citing research from the labor union-backed Economic Policy Institute.

Additionally, the U.S. Treasury reports $45.6 billion in annual losses due to payroll fraud, according to Nessel’s statement.

Employees who suspect payroll fraud at their businesses are encouraged to report it to the new enforcement unit at Michigan.gov/payrollfraud or by calling (833) 221-1099.

The Michigan Regional Council of Carpenters and Millwrights on Monday asked lawmakers to act swiftly to strengthen state laws surround payroll fraud and applauded Nessel’s efforts to curb shady payroll practices.

“Their greedy actions hurt workers and unfairly disadvantage legitimate businesses that play by the rules,” said Council President Tom Lutz. “Tough action is the best way to stop this unscrupulous behavior, and we urge our elected officials in Lansing to act on behalf of Michigan workers without delay.”

The National Federation of Independent Businesses is not taking a position on the effort, in large part because membership is split on the issue, Owens said.

The federation surveyed members when similar legislation was introduced last year by Democrats and found roughly 50% of members felt the laws in place were sufficient. 32% supported changes and 18% were undecided, he said.

eleblanc@detroitnews.com

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