AG Nessel creates unit to target payroll, tax fraud

LANSING, Mich. (AP) — Michigan Attorney General Dana Nessel is establishing a special unit in her office to investigate payroll fraud and the misclassification of workers by “shady” businesses.

The Democrat, who announced the initiative Monday, says payroll and tax fraud have gone under the radar for far too long. She says her office will be “as aggressive as possible” cracking down on businesses that cheat workers of wages and dodge taxes.

”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. “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’s announcement was made in conjunction with Democratic lawmakers who plan to propose bills that would increase penalties for payroll theft, strengthen whistleblower protections and require companies to pay back wages if money is owed to workers.

Nessel’s office says wage theft occurs most often in industries such as construction, landscaping, janitorial services and child care. The office cited a Michigan State University study that found payroll fraud robs workers and Michigan taxpayers of hundreds of millions of dollars in lost wages, benefits and tax revenues every year.

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, according to a statement released Monday.

“Without enforcement and regulations that have real teeth, bad actors will continue to break the law, steal from their workers and shortchange Michigan taxpayers,” Nessel said. ”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; and

• Requiring companies that cheat workers to pay back-wages.

Nessel’s office said 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, Nessel said 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.

“Companies that cheat their workers and steal from taxpayers put communities, legitimate businesses and the local economy at risk,” said Jim Cowhy, president of Cowhy-Hayes Construction Inc. “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.”

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