LANSING – Michigan legislators introduced a sweeping series of bipartisan proposals today designed to crack down on payroll fraud, focusing on companies that cheat workers in order to avoid paying full wages, overtime, and taxes. Current gaps in the system allow crooked companies to rob workers and taxpayers of hundreds of millions of dollars each year, and offenders often escape accountability and punishment.

“When crooked companies refuse to pay their fair share it hurts us all,” said Michigan House Democratic Leader Christine Greig. “Payroll fraud is theft, plain and simple. They’re stealing from hardworking Michiganders and costing tax payers millions in revenue that could be used to rebuild our roads and invest in our schools. The people of Michigan deserve better, and we’re fighting for it.”

The bipartisan legislation introduced today includes:

  • Strengthening whistleblower protections to shield employees who report wrongdoing, and provide rewards when they do;
  • Toughening penalties against payroll fraud to make Michigan a leader in protecting workers; and
  • Reimbursing back-wages and benefits to cheated workers

“For too long, bad actors have brazenly broken the law to give themselves an unfair advantage over businesses that play by the rules,” said Senate Minority Leader Jim Ananich (D-Flint). “Companies that refuse to pay their workers their full wages and overtime, and dodge taxes that the rest of us pay, should not be allowed to undercut legitimate businesses and their employees. Our bipartisan proposal will level the playing field, protect workers and crack down on shady companies that cheat.”

Companies use crooked labor brokers,  subcontractors, and shell companies to avoid paying workers full wages, overtime, and benefits while dodging federal, state, and local taxes. By violating simple labor and employment tax laws, these companies illegally give themselves a competitive advantage over companies that pay their employees overtime and benefits, as well as all payroll taxes.

“I’m grateful to the lawmakers who are leading the fight on the legislative front, from both sides,” said Michigan Attorney General Dana Nessel, who established a special unit designed to enforce laws against payroll fraud.   “When I became Attorney General, I vowed to protect our workers, but I cannot do that without the proper tools for enforcement. While our Payroll Fraud Enforcement Unit continues follow up on the hundreds of complaints we receive through our website and tip line, the legislation lawmakers are introducing today provide additional tools for enforcement and badly needed protections for workers, their families and all Michiganders.”

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, payroll fraud costs Michigan taxpayers $107 million a year in tax revenue when businesses misclassify workers as independent contractors or pay 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.

Meanwhile, more than 30 percent of minimum wage workers cheated of their full wages live in poverty, the EPI reports.

The legislation follows the establishment of a special payroll fraud enforcement unit within the Attorney General’s office to investigate and prosecute cases of payroll fraud. When Nessel announced the new unit in April, local Michigan businesses, workers and unions joined legislators in applauding the effort.