Opinion: Payroll fraud hurts taxpayers

Darrin Camilleri

I recently joined Attorney General Dana Nessel and my fellow legislators in announcing ways to crack down on a problem that is hurting workers and stealing money from Michigan taxpayers. That problem is called payroll and tax fraud.

This Feb. 13, 2019, file photo shows multiple forms printed from the Internal Revenue Service web page that are used for 2018 U.S. federal tax returns in Zelienople, Pa. IRS data released Thursday, April 25, shows that while the average refund fell, the tax filing season was largely unchanged by the massive tax overhaul.

Every year, shady businesses commit payroll fraud when they misclassify their employees as “1099 Independent Contractors,” keeping overtime wages, taxes and other financial obligations off the books. By keeping these crimes off the grid and in the dark, these shady businesses avoid paying taxes that the rest of us pay. Michigan workers are the first ones to be shortchanged.

According to a 2017 report from the nonprofit Economic Policy Institute, minimum-wage workers who fall victim to payroll fraud have on average 27 percent of their wages stolen by their employers. Meanwhile, more than 20 percent of those same workers cheated of full wages live in poverty, and more than 30 percent receive public assistance.

Minimum wage workers are victims of theft by their employers. Unscrupulous businesses steal about 27 percent of these employees’ earned wages.

They’re not paid their full wages. They’re not paid overtime they’ve earned when they work more than 40 hours a week. More than 20 percent of minimum wage workers and their families live in poverty, and over 30 percent receive public assistance, according to an EPI analysis.

As they struggle to make ends meet, many of them depend on food assistance and other programs.

Michigan working families are the backbone of our local economy. When they are exploited and harmed, as they are when their employers cheat them of their wages, all of us pay a price. Every year, tax fraud rips off Michigan taxpayers, stealing $107 million in revenue that we could use for schools, roads and clean drinking water.

Payroll fraud is not an isolated problem. Between 2013 and 2015, businesses cheated $429 million from Michigan workers in lost wages and lost overtime. More than 2.8 million men and women in Michigan were victims of payroll fraud. Across the nation, these companies steal $46.5 billion from taxpayers every year.

To put a stop to this crime — and payroll fraud is a crime — we will be introducing several proposals that will hit lawbreakers where it hurts: In their wallets. They include:

  • Requiring a company that violates wage laws to undergo a forensic audit, which they must pay for;
  • Requiring an employer that doesn’t pay payroll taxes or what they owe their employees in wages and overtime, to pay those wages and costs retroactively;
  • Requiring an employer that misclassifies an employee, by identifying the worker as an independent contractor, to pay all the back pay and benefits that the individual would otherwise be entitled to as an employee; and
  • Requiring an employer to pay medical costs and lost wages for an injured worker when that employer doesn’t pay workers’ compensation insurance.

These proposals are only fair. At a time when shady businesses put their greed and their profits ahead of people, we must do more to protect workers from exploitation.

We want to send a message that when greedy employers cheat people, especially their own workers, it’s going to cost them.

Darrin Camilleri, D-Brownstown Township, represents the 23rd House District.