Whitmer to tighten state contracting policies to curb payroll fraud

Beth LeBlanc
The Detroit News

Gov. Gretchen Whitmer is tightening state contracting policy to prevent businesses that commit payroll fraud from earning Michigan contracts. 

Whitmer's plan would zero in on the misclassification of workers, which occurs when a contractor classifies an employee as an independent contractor in order to avoid paying health benefits, workers compensation, payroll taxes or overtime — an occurrence that some contractors say has increased since the Legislature repealed the state's prevailing wage law in 2018. 

Whitmer's new policy would require the state's contracting agency, the Department of Technology Management and Budget, to mandate bidders complete a vendor question worksheet. The worksheet will include disclosures of a bidder's environmental and labor compliance record and Michigan-specific economic impact as well as a certification that a business has properly classified its employees. 

The certification would rely on the word of the bidder. Bidders who misrepresent their business would risk future opportunities with the state.

"Our state should ensure that more of our tax dollars support our workers and businesses," Whitmer said during a Zoom press conference Thursday. "We all want Michigan to be a place that provides opportunity for all and that begins with supporting businesses that provide fair wages and good benefits.” 

Whitmer's announcement comes two years after Democratic Attorney General Dana Nessel created a new payroll fraud unit to crack down on employee misclassification, calling it a crime that "is committed with greater frequency than perhaps any other crime in Michigan.”

Whitmer's press conference Thursday included representatives from the Michigan Regional Council of Carpenters and Millwrights as well as businesses that said they've seen an increase in state jobs going to unscrupulous bidders since the Legislature repealed the prevailing wage law in 2018. 

The decades-old prevailing wage law required contractors to pay union wages and benefits on state-funded construction projects. The measure was sent to lawmakers through a petition drive designed to bypass a veto threat from GOP former Gov. Rick Snyder.

"Good jobs go away because good companies cannot compete when the rules are stacked against them," said Tom Lutz, president for the Michigan Regional Council of Carpenters and Millwrights. "Good employers can’t compete against employers who commit tax fraud."

Other businesses noted they're often underbid by out-of-state contractors who rely on misclassified workers or underestimate how costly the project will be in terms of materials and labor. 

"When you don’t pay good workers a fair wage, you don’t get a good product at the end of the day," said Ron Slaght, project manager for Diversified Construction Specialists in Rochester Hills. "We know this because quite often we get the phone call at the end of the project to come in and fix what that original company did or didn’t do.”