Great Lakes Wire

Senate Democrats have reintroduced legislation aimed at penalizing businesses for misclassifying employees as independent contractors. The proposed bills seek to impose fines and charges on companies that fail to pay wages and benefits properly.

Senator Kevin Hertel, representing St. Clair Shores, sponsors Senate Bill 6 (SB 6). He emphasized the need to address payroll fraud by some Michigan businesses that exploit worker classifications to bypass labor requirements. "The vast majority of business owners are good actors here in the state of Michigan, but there are bad actors who basically use loopholes within the law to take advantage of workers," Hertel stated. He stressed the importance of a respectful relationship between employees and employers.

The legislation, which includes Senate Bill 7 (SB 7) by Senator Darrin Camilleri from Trenton, requires employers to respond within 30 days to requests for wage information from workers concerning "similarly situated employees" over a three-year period.

Under the new definition, an independent contractor is someone free from the payer's "control and direction" regarding work performance. Additionally, they must perform work outside the payer's usual business course and be "customarily engaged" in their trade or occupation.

Misclassification with "the intent to defraud" could lead to a $1,000 fine and a one-year misdemeanor for first-time offenders. Repeat violations could result in a $10,000 fine and a two-year felony charge. The most severe penalties include a 10-year felony for failing to pay wages worth $20,000-$49,999 and a 15-year felony for amounts between $50,000-$99,999.

A report by the Association of Certified Fraud Examiners highlights that payroll fraud constitutes 15% of occupational fraud schemes in North America. Detection methods include management reviews (16%), internal reviews (15%), accidents (8%), law enforcement notices (2%), and confessions (2%).

In April 2021, an executive order required state contract bidders to certify proper employee classification after reports indicated $429 million in unpaid earned wages annually.

Previous similar legislation by former Representative Jim Haadsma did not advance during the Democratic trifecta term of 2023-24.

David Worthams from the Michigan Manufacturers Association expressed concerns about punishing honest mistakes: “Anyone who runs a scam should get the full punishment of the law."

The National Federation of Independent Business opposes these bills due to similarities with California's employment status law using an "ABC test." Amanda Fisher from NFIB noted its impact on various entrepreneurs: “Unfortunately, the ultimate goal I see is to get rid of independent contractors altogether."

Fisher criticized severe penalties: “The penalties...making those felonies on par with causing death...is really quite awful.”

The Senate Democratic caucus included SB 6 and SB 7 alongside reforms on tipped credit, minimum wage, and earned sick time following Michigan Supreme Court rulings.

Hertel connected these efforts: “I think it’s all part of...fair wages...worker protections...rights that workers have here in the state.”