There’s a crime wave in the United States that affects everyone from exotic dancers to cardiologists. Variations of this crime cost nearly 3 million Michiganders more than $400 million in just two years, while American workers overall lose $50 billion every year.
One form of this crime alone is perpetrated by 10 to 20% of American businesses. Individuals aren’t the only ones being ripped off: This crime costs our federal and state governments billions in lost revenue every year.
The crime is wage theft, and it comes in many forms. Some employees are misclassified as independent contractors. Others are told to clock out and then keep working, or to come in and get started minutes or hours before they’re allowed to punch in. Then there are the employers that refuse to pay overtime; or find ways around paying even the federal minimum wage; or make illegal deductions from their workers’ paychecks; or refuse to “top off” the weekly wages of servers whose tips haven’t added up to the federal or state minimum wage in a given week.
In April, Michigan Attorney General Dana Nessel announced the creation of a Payroll Fraud Enforcement Unit to tackle the problem of businesses that steal from their employees and their communities. Earlier this month, Nessel’s office announced that it was getting ready to launch “potential civil and criminal charges” against at least 10 Michigan businesses.
Those 10 businesses may be just the beginning. According to the release announcing the pending charges, in just two months Nessel’s Payroll Fraud Enforcement Unit received nearly 100 complaints—and “in some instances, (individual) complaints claim the number of workers affected by these practices surpass 300.”
While stunning, those complaints likely represent just a sliver of the scope of wage theft in Michigan.
According to a study by the Economic Policy Institute cited in Nessel’s announcement of the pending charges, “unscrupulous businesses stole an estimated $429 million in wages and overtime pay from Michigan workers between 2013 and 2015, impacting more than 2.8 million workers.” David Cooper, a senior economic analyst with the EPI, told Daily Kos in a recent interview, “We have estimated that wage theft, in its totality, costs workers something on the order of $50 billion a year” on a nationwide scale.
Unlike some sorts of theft, wage theft and payroll fraud can be complex, with one type of theft leading to others. For example, Cooper explained, employers who misclassify employees as independent contractors then refuse to pay mandated overtime. In other cases, employees lose out on overtime when they’re forced to work off the clock, or their pay for the combined (paid and unpaid) hours they’ve actually worked may fall far short of the minimum wage. The many forms of wage theft “can sort of blend into one another,” Cooper said.
According to a 2017 EPI report, minimum wage violations alone cost 2.4 million workers in the 10 states studied (including Michigan) $8 billion annually. In addition to workers losing an average of $3,300 a year to this form of wage theft, both state and federal governments are shorted the taxes those workers would otherwise have paid—and, according to the EPI report, “this form of wage theft causes many families to fall below the poverty line, and it increases workers’ reliance on public assistance, costing taxpayers money.”
While 17% of low-wage workers are being ripped off by their employers, they are far from alone. Detroit-area employment attorney Deborah Gordon is representing two cardiologists who were fired from their positions with the Detroit Medical Center after they alleged problems, including dirty medical instruments, unnecessary procedures being done on patients, and Medicare and Medicaid fraud.
However, since the cardiologists were misclassified as independent contractors, Gordon told Daily Kos, she has had to file a separate lawsuit just to try to get access to their personnel files. “[The Detroit Medical Center] actually take[s] the position that my clients are not entitled to their personnel records, that presumably contains the information used in the decision to fire them, because they're not employees.”
Independent contractors are exempt from virtually every law protecting employees. In addition to avoiding paying Social Security and unemployment insurance, Gordon explained, misclassifying employees also “gets the (employers) out of litigation.” Gordon added that misclassification “runs the gamut” of workers. “I did represent a group of women who were dancers at strip clubs” who had been misclassified as independent contractors, she said.
Misclassification isn’t the only form of wage theft experienced by workers in the healthcare industry. Last month, the U.S. Department of Labor ordered health centers affiliated with the Michigan-based Beaumont Hospital system to pay more than $915 million to almost 1,400 employees who were forced to work without pay both during their meal breaks and before and after their shifts.
While employees who are forced to work for free are at least aware of what’s going on, many misclassified workers don’t find out that they are supposedly independent contractors until something goes wrong—for example, when they receive a 1099 form instead of a W-2 and find out they have to pay the employers’ share of their Social Security taxes—or a dispute arises.
“I don't get as many direct calls saying ‘I've been misclassified,” Gordon said. “People call me because something bad has happened. Either they've tried to get their [personnel] file and they can't, or they've been fired and they want to know what their rights are. And then I get their documents and I see that they've been misclassified as independent contractors, and I'm the one that tells them.”
According to Cooper, employers in many states are easily able to cover up other kinds of wage theft. Federal law doesn’t require employers to provide their workers with a pay stub, and nine states in the U.S. allow employers to get away without providing any kind of pay summary to employees. (Michigan allows employers to provide electronic rather than paper stubs, and further requires that employees be able to access their pay records online.)
“And even those that do require some sort of documentation, a lot of them don't stipulate what needs to be on that pay stub,” Cooper said, making it possible for employers to make illegal deductions or engage in other forms of wage theft without employees’ knowledge.
Michigan law requires itemized pay stubs with information including hours worked and all deductions, but independent contractors are excluded from this protection.
Report payroll fraud and wage theft
If you suspect you have been a victim of payroll fraud in Michigan, contact the attorney general’s Payroll Fraud Enforcement Unit at 833-221-1099. Click here for more information.
Dawn Wolfe is a freelance writer and journalist based in Ann Arbor, Michigan. This post was written and reported through our Daily Kos freelance program.