Michigan AG plans crackdown on payroll fraud

Michigan Attorney General Dana Nessel

From Retailers Insurance Company

Employers should be aware that the state is starting to crack down on worker misclassification and payroll fraud.

Michigan Attorney General Dana Nessel announced April 22 that she’s establishing a Payroll Fraud Enforcement Unit to investigate businesses that misclassify full-time workers as independent contractors, underpay workers, refuse to pay overtime and commit other violations of state wage and hour laws.

Businesses committing payroll fraud contribute less to Medicare, unemployment and social security systems and circumvent workers compensation requirements.

Retailers Insurance Company (RIC) conducts annual payroll audits of policyholders to ensure that all employees on their payroll are properly covered by workers’ compensation insurance. That means companies must provide additional information if they have independent contractors working for them. The additional information required would be either a certificate of insurance showing the contractor has their own workers’ compensation coverage, a state-filed exemption form BWC-337 or a completed RIC independent contractor worksheet.

“If an independent contractor does not have their own workers’ compensation or an exemption form filed with the state, they would need to complete our independent contractor worksheet showing that they do work for other businesses and not just one employer,” said Laura Schilling, Director of Underwriting.

Nessel claims the most frequent offenders of payroll fraud are construction, landscaping, janitorial, child care, beauty/personal care, retail, food, car wash and home health care services.

Michigan Department of Licensing and Regulatory Affairs said non-payment of wages may mean an employer is improperly deducting from workers’ wages, not paying employees regularly or with gift cards, failing to pay overtime and skimming tips. The Wage and Hour Division, which is part of LARA’s Bureau of Employment Relations, takes complaints on such practices and will pass them on to the AG’s new unit if necessary.

Penalties can be tough: Unscrupulous employers may face paying back pay and fringe benefits like paid time off or bonuses, penalties, an audit, civil fines and attorney fees. According to LARA, the Wage and Hour Division “accepted approximately 3,400 constituent-filed complaints, resolved 80 percent of cases informally, and collected close to $2 million on behalf of Michigan workers.”