House Democrats push payroll fraud bills after past unsuccessful bids

Beth LeBlanc
The Detroit News

Michigan House Democrats are again floating a package of bills meant to crack down on payroll fraud and unfair pay practices — bills that have gotten next to no movement in past sessions of the GOP-led Legislature. 

The bills would home in on the misclassification of workers as self-employed independent contractors — a practice that seeks to avoid paying overtime, benefits, workers compensation or payroll taxes. It also allows employers to avoid paying taxes for unemployment, Social Security or Medicare.

The package would make it a violation to misclassify employees as independent contractors, increase civil and criminal penalties for wage theft, expand whistleblower protections to include independent contractors and require the state Department of Treasury to notify independent contractors of the difference between an independent contract and employee.

Janitorial workers rally for a $15-an-hour minimum wage during a June 2018 protest. Michigan House Democrats and labor unions argue that some janitorial workers are misclassified as self-employed contractors by certain firms to avoid paying certain benefits and taxes.

The bills also would create an ombudsman for state employees to report fraud or waste, ban non-compete agreement for low-wage workers and require companies, upon request, to provide an employee wage information of a similarly situated employee.

"This is really an issue of looking out for all workers in the state," said House Democratic Leader Donna Lasinski, D-Scio Township. The issues addressed by the legislation create an uneven playing field where "one business, when they’re competing for a project, are not competing fairly with law-abiding businesses.” 

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

The misclassification of employees is more common in construction, landscape and janitorial jobs and is a focus of union groups such as the Michigan Regional Council of Carpenters and Millwrights, which partnered with House Democrats to develop the legislation. 

"They’re common sense bills that help stop dishonest companies from stealing from the rest of us," said Steven Purchase, a spokesman for the group. 

But some business and worker groups have voiced concern over the years about past measures to address the issue, noting that the lack of a clear or agreed upon definition for "independent contractors" makes it difficult to know where the line exists between an independent contractor and employee deserving of benefits.

"Do people abuse it? I bet they do. But I would dare venture to guess most people do not," said Jimmy Greene, president of the Associated Builders & Contractors of Michigan. 

"There are lines, but nobody can agree on the lines," he said of the difference between an independent contractor and employee. "What everyone can agree on is there shouldn’t be fraudulent payrolls.”

Greene said his group believes companies abusing employees by misclassifying them should be held accountable. But, in the past, legislation meant to address the issue has felt like an attempt by unions to force people out of independent contractor status and into union-paid roles, Greene said. 

"This is a manipulation, trying to classify or misclassify a normal part of the job process in order to increase union payrolls," he said. 

The legislation also would allocated an extra $5 million to Michigan Attorney General Dana Nessel's payroll fraud unit. 

The unit created in 2019 has received about 600 complaints over its more than three years of existence. Most of those complaints have been referred for administrative enforcement, said Lynsey Mukomel, a spokeswoman for Nessel's office. 

Nine have been referred for criminal charges and one resulted in a conviction.

Camron Gnass, who owned Traction Advertising Agency, pleaded guilty in May to withholding more than $52,000 from employees' paychecks for retirement contributions that were never deposited or matched. Gnasspleaded guilty to larceny by conversion.