Payroll fraud steals from employees and taxpayers

State lawmakers propose crackdown on payroll fraud and its potential impact on workers’ compensation claims.

Payroll

NPR is reporting on new legislation that would increase penalties on businesses that commit payroll fraud. Sponsors of the legislation claim the current system lets crooked companies steal millions of dollars owed in wages and overtime pay. It has the backing of democrats and labor unions but faces an uncertain future in the republican-controlled legislature.

House Bill No. 4868 would increase penalties for employers who intentionally defraud their employees of wages and/or fringe benefits. A second violation would now be classified as a felony. Penalties include imprisonment for not more than 2 years or a fine of not more than $10,000.00, or both.

Bill No. 4877 prohibits an employer from classifying, reporting, or treating an employee as an independent contractor and creates additional penalties.

House Bill No. 4876 would strengthen whistleblower protections and create financial incentives to turn in violators.

House Bill No. 4874 would prohibit noncompete agreements for certain low-wage employees.

Our 2 Cents

We are thrilled to see the Michigan Legislature take up these important issues. Payroll fraud robs employees and taxpayers of significant money. It also puts businesses who play by the rules at a competitive disadvantage. Employees who are misclassified as independent contractors get none of the protections guaranteed under the workers’ compensation law.

Employee misclassification is a big issue in our workers’ compensation cases, and we have blogged about this topic on several different occasions. Some businesses intentionally call employees independent contractors to avoid buying required insurance or paying workers’ compensation benefits. Employees are paid wages with a tax form 1099 instead of a W2 and no income withholding occurs. This is a very important legal distinction because independent contractors are not covered under workers’ compensation. If an independent contractor gets hurt on-the-job, he or she is on their own for lost wages and medical treatment.

Michigan workers’ compensation law has been confusing over the years regarding the distinction between independent contractors and employees. Starting January 1, 2013, services are considered “employment” when a worker meets the requirements of IRS revenue ruling 87-41. This 20-factor test looks at factors such as whether an individual has set-hours of work, must follow employer instructions, underwent training for the job, was paid by the hour, could be fired, was furnished tools and materials, and shared in profits/losses. Michigan courts have gone back and forth trying to make sense of the shifting legal standard.

Our experience shows that bad employers never keep their promises to pay workers’ compensation benefits under the table. Medical bills are not paid and end up in collections. Paychecks stop after a brief time. Ultimately, medical costs get passed on to government programs like Medicaid and Medicare. Group health insurance must also pay raising premiums for everyone. Individuals go into extreme financial distress and cannot pay rent or put food on the table.

Michigan Workers Comp Lawyers never charges a fee to evaluate a potential case. Our law firm has represented injured and disabled workers exclusively for more than 35 years. Call (844) 201-9497 for a free consultation today.

Related information:

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