Governor Whitmer Announces Steps to Fight Payroll Fraud and Prioritize Michigan Jobs in State Purchasing Decisions
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April 15, 2021

Contact: press@michigan.gov

Governor Whitmer Announces Steps to Fight Payroll Fraud and Prioritize Michigan Jobs in State Purchasing Decisions

LANSING, Mich. - Today, Governor Gretchen Whitmer announced changes to protocols for state contract bids to implement the Michigan Jobs First Executive Directive 2019-15. These new protections will level the playing field for companies that play by the rules, allowing companies to compete fairly while protecting workers' wages and health care. The new processes also account for the overall economic impact of a state contract on Michigan's economy.

"Michigan is home to the hardest working people and best businesses in the world, and our state should work to ensure that more of our Michigan tax dollars support Michigan workers and businesses at every opportunity," said Governor Gretchen Whitmer. "We want Michigan to be a home for opportunity for everyone, which begins with supporting businesses that provide fair wages and good benefits. Today's actions strengthen our commitment to these priorities and bring the greatest possible benefit to Michigan's businesses, workers, and families."

Under the new protocols, the Department of Technology, Management and Budget will have bidders complete a vendor questions worksheet, which includes disclosure of a bidder's labor and environmental compliance record, disclosure of information related to economic impact in Michigan, and a certification that the bidder has properly classified its employees. These disclosures and certifications protect workers against payroll fraud, which can happen when a business misclassifies its employees as "independent contractors," which can deprive employees of access to overtime pay, workers' compensation, health care, and other benefits. Payroll fraud undercuts businesses that play by the rules, treating their employees fairly and in accordance with Michigan's labor laws.

By taking these steps, the state will fully account for the overall economic impact of the potential supplier's bid on Michigan businesses and workers, the wages and benefits offered by the supplier to its workers, the supplier's track record of labor and environmental compliance, and the supplier's commitment to economically-disadvantaged zones. DTMB will be able to use the information obtained through the disclosures on the vendor questions worksheet to incorporate consideration of labor and environmental track records into the procurement process.

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As part of the implementation of Executive Directive 2019-15, DTMB also began a rulemaking process to allow for debarment of suppliers who demonstrate a lack of integrity.

"For companies that are doing the right thing, these anti-fraud measures are an important step forward that can promote fairness, competition, and greater workplace protections," said Tom Lutz, Executive Secretary-Treasurer of the Michigan Regional Council of Carpenters and Millwrights. "After a year of a devastating pandemic, small businesses and workers have made tremendous sacrifices, and the governor's actions will give them the support they need to compete on a level playing field. Tax fraud hurts businesses that are doing the right thing and leaves workers with lower wages and no health care when they get hurt on the job. Gov. Whitmer's leadership is critical to getting Michigan back to work."

According to Economic Policy Institute analysis, payroll fraud costs Michigan workers an estimated $429 million in wages and overtime pay between 2013 and 2015, impacting more than 2.8 million workers. Meanwhile, Michigan taxpayers are shortchanged $107 million a year in revenue through tax fraud when businesses misclassify workers by reporting employees as self-employed independent contractors or paying them off the books as a way to avoid paying their fair share of taxes, a Michigan State University study found.

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Governor Whitmer's announcement is the latest effort to fight tax and payroll fraud: In 2019, Michigan Attorney General Dana Nessel created a special task force to investigate and prosecute payroll fraud.

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Quotes from local business leaders below:

"When a company misclassifies employees as 1099 independent contractors, that's unfair and it hurts three groups of people - workers who get paid less than what they're owed, Michigan taxpayers who pay their share, and other businesses that play by the rules but just can't compete with artificially low costs," said John Marinelli, Director, Commercial Contracting Corp., based in Detroit. "The workers don't get a fair wage and the health care and benefits they're owed. Taxpayers don't get the revenue that goes to our communities for roads and schools. Our business follows the rules because we believe in doing our part for the community and the future of our state."

"As a family business, we applaud Gov. Gretchen Whitmer for standing up to criminals," said Jim Judd, Director of Master Craft Floors. "Businesses like ours have had to tighten our belts because of the pandemic. By working so companies like mine can compete on a level playing field, we are hopeful that our business and many others can rebound, grow and thrive in the months and years to come. We want the cheating to stop so we can keep our Michigan workers doing what they do best."

"Tax fraud is a crime that has gone unchecked for far too long, and the ones that suffer are the businesses that actually follow the rules," said Josh Barney, Vice President, J.J. Barney Construction. "All we ask for as a business is a fair opportunity to compete on a level playing field. For years, offenders have gamed the system with impunity. They have kept their labor costs artificially low by circumventing the law and cheating their employees. Now, we can hold them accountable and make Michigan a welcoming and fair place for all businesses."

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