LANSING – 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.

And, 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, according to an analysis by the Economic Policy Institute. The construction industry, in particular, has been a hotbed for such fraud for decades.

On July 2, Michigan Attorney General Dana Nessel said she is gearing up for potential criminal and civil charges as part of her office’s efforts to safeguard Michigan workers and combat the growing problem of payroll fraud in the state. Since launching her Payroll Fraud Enforcement Unit in April, Nessel’s office has received nearly 100 complaints of payroll fraud through its tip line and website.

“Payroll fraud affects all of us, especially the families who are robbed. When shady businesses exploit people by cheating them of the wages they are owed, families have less money in their pockets, zero benefits, and an uncertain future,” Nessel said. “No family should live in poverty because greedy businesses cheat the system and refuse to play by the rules. This has gone on for far too long and Michigan isn’t going to wait any longer to crack down on these crimes.”

Nessel said most complaints involve misclassification of workers, including failing to pay workers overtime and compensating them under the table to avoid paying taxes and benefits. In some instances, complaints claim the number of workers affected by these practices surpass 300. Nessel’s office saw consistencies in the tips, most of which came from the hospitality/restaurant, entertainment, construction, and trucking industries.

Often, such "1099 cheaters" misclassify workers as "independent contractors," allowing employers to avoid paying workers compensation, taxes, medical benefits and other costs, shifting the burden to the worker, and cheating local, state and federal governments out of taxes owed them.

By July 5, Nessel’s office said it will have sent letters demanding business records to at least 10 businesses operating in Michigan and plans to use subpoenas and warrants in other cases to obtain vital information from Michigan-based businesses allegedly operating fraudulent payroll schemes. The unit continues to follow up on each filed complaint, scour through all the evidence it is able to obtain, and work closely with the U.S. Department of Labor, the Internal Revenue Service, the Michigan Department of Treasury, and the state’s Wage and Hour Bureau and its Unemployment Insurance Agency.