Michigan UIA Employer Audit IC Misclassification Protest

The situation

Kevin, 47, owns K&M Framing LLC, a Grand Rapids residential framing subcontractor (licensed GC, 22 framing crews). Kevin's business model: he signs frame-only subcontracts with custom home builders, then engages individual framing crews under written "Subcontractor Agreement" as 1099 independent contractors. Each crew leader files his own taxes, carries his own general liability insurance, and provides his own hand tools (nail guns, compressors).

In January 2026 Kevin received a Michigan UIA Determination and Assessment: "Unemployment Insurance Contributions Due: $87,400 (plus $13,110 penalty + $5,244 interest = $105,754 total), audit period: January 2023 – December 2025."

The UIA auditor reclassified all 22 of Kevin's framing crew leaders as Michigan employees, citing: (1) the work (framing) is the same type as K&M's primary business (framing); (2) the crews work exclusively for Kevin and have no other clients; (3) the working relationship is continuous/ongoing (same crews, same work, year after year).

(a) The "same type of work" factor is the UIA's strongest argument but is not automatically fatal. Michigan courts distinguish between a general contractor whose primary business is supervision/coordination (IC relationship with specialty trades is more defensible) and a specialty contractor who does the same work as its subcontractors (IC relationship harder to defend). Kevin's business is framing, the same as his subcontractors, which weakens his position on this factor.

(b) The "exclusivity" finding may be factually wrong for some crews. The UIA auditor may have examined Kevin's 1099 records without independently verifying whether some crew leaders had other clients during the audit period. If even 6-8 of Kevin's 22 crew leaders did other framing work for other GCs (even occasional work), those crew leaders have a stronger IC argument on the "multiple clients" factor.

(c) Five of Kevin's crew leaders have separately registered business entities (LLCs), business checking accounts, and separate business liability insurance policies. These five pass the "genuine independent business" factor more strongly, they have indicia of business independence that pure individual contractors lack.

(d) Kevin can segment his protest. He should concede the 11 crew leaders who work exclusively for K&M year-round with no other clients and no separate business entity. For the 11 with either multiple clients or separate entities, he has a defensible IC argument and should contest those reclassifications, potentially reducing his $87,400 assessment by approximately 50%.

(e) A Michigan employment attorney quoted Kevin $8,500 for protest preparation. The Michigan multi-factor IC test scoring, which crew categories are defensible on which factors, is a structured analytical task that Kevin can largely build himself with the right Michigan-specific framework and a documentation request to each crew leader about their other clients and business registrations.

Second portrait: Diana, 43, owns Great Lakes Home Health LLC (Ann Arbor, 38 home health aides). Diana's aides are engaged as 1099 contractors, each sets her own schedule, accepts or declines client assignments, carries her own liability insurance, and may (theoretically) work for other home health agencies. The UIA issued Diana a Determination reclassifying all 38 aides as Michigan employees: $61,200 assessment + $9,180 penalty + $3,672 interest = $74,052 total.

What Diana knows but misreads: Home health aide misclassification is one of the UIA's priority enforcement targets in Michigan, the UIA has guidance specifically addressing home care workers. The key Michigan IC factor for home health aides is whether each aide independently contracts with clients (operates her own client base, invoices clients directly) or whether the business controls the client assignment process and the aide just shows up where told. Diana assigns aides to clients (client-agency matching process), this weighs toward employment. However, Diana's aides can (and several do) take assignments from other agencies simultaneously, that "multiple clients" pattern is documented in her records and gives her a partial defense for the aides with multi-agency work history.

Who receives this

Michigan employers receiving UIA Determinations reclassifying independent contractor workers as employees. Primary segments: (1) Michigan residential and commercial construction, framing, electrical, HVAC, plumbing subcontractors that engage trade crews on 1099; (2) Michigan home health, home care, and in-home personal care agencies using 1099 aide arrangements; (3) Michigan technology staffing firms placing 1099 contract developers and engineers; (4) Michigan gig economy platforms (delivery, logistics, ride-share operators) with Michigan-based drivers. Scale: 2,579 audits in 2025 = approximately 50+ per week statewide.

Why the agency will not advise you

The UIA cannot advise audit respondents on how to contest its own Determinations. MiWAM provides protest submission without strategy. As of July 17, 2026, MOAHR handles appeals as a genuinely independent body, giving the protest/appeal process real credibility beyond just a DOR-internal review. Michigan's multi-factor IC test (NOT the ABC test) means the outcome is fact-dependent per worker category, the "score each worker category against each factor" product structure is the key value. The construction and home health sectors have established professional services markets (employment attorneys at $4,000–$15,000) with no self-serve alternative.

Key facts, with sources

• Michigan Unemployment Insurance Agency (UIA) audit enforcement is expanding. In 2025, the UIA conducted 2,579 employer audits, identifying 12,139 misclassified workers and $3+ billion in wages subject to UI contribution reclassification. When a UIA audit concludes and determines workers were misclassified as independent contractors, the UIA issues a Determination and Assessment requiring payment of unpaid UI contributions plus 15% penalty plus interest from the date contributions were due. The employer has 30 days from the date of the Determination to file Form UIA-1733 (Protest of a Determination), the form can be filed via MiWAM (Michigan Web Account Manager, the UIA's employer portal) or by mail/fax to the UIA's Office of Employer Ombudsman. If the protest is denied, the employer may appeal to an Administrative Law Judge within 30 days. As of July 17, 2026, UIA appeals go to MOAHR (Michigan Office of Administrative Hearings and Rules), an independent quasi-judicial agency established under Executive Order 2019-6, separate from both the UIA and Michigan Department of Labor and Economic Opportunity. Source: Employer Audit and IC Misclassification — Michigan UIA · Michigan Unemployment Insurance Agency 2025 Annual Report · Michigan Office of Administrative Hearings and Rules (MOAHR)
• Michigan does NOT use the ABC test for unemployment insurance worker classification. Michigan applies a multi-factor common law agency test derived from the Michigan Employment Security Act (MCL 421.42(5)) and the Michigan Supreme Court's interpretation in cases including Paragon Family Restaurant v. Bartolini. The Michigan UIA factors include: (1) right to control, does the employer have the right to direct not just the result but HOW work is done? A written contract saying 'independent contractor' is not determinative; actual practice controls; (2) nature of work, is the work the same type as the employer's regular business? Electricians working for a general contractor might be IC if the GC's primary business is general contracting (not electrical); (3) individual business, does the worker operate a genuine independent business (separate business name, insurance, equipment, multiple clients, business investment)? (4) permanency, ongoing relationship with no end date suggests employment; project-by-project engagement suggests IC. The UIA's primary audit target sectors in Michigan are: (1) construction (framing, electrical, HVAC subcontractors reclassified); (2) home health and home care (aides classified by agencies as 1099 contractors); (3) technology staffing (1099 developers placed with clients through staffing intermediaries); (4) gig and delivery platforms operating in Michigan. Source: Independent Contractor vs. Employee — Michigan UIA · MiWAM Employer Portal — Michigan UIA · Michigan Workers Comp and UI Audit Defense — Michigan Employment Law Firm

When to bring in a professional

Self-serve responses fit routine cases: clear facts, amounts a business can absorb, and a deadline still ahead of you. Bring in a licensed professional when the amount at stake is large relative to their fee, the facts are genuinely disputed, criminal exposure is possible, or the deadline has already passed. A short paid consultation to sanity-check your plan is often worth it even when you handle the filing yourself.

All sources for this guide

1. Employer Audit and IC Misclassification — Michigan UIA
2. Michigan Unemployment Insurance Agency 2025 Annual Report
3. Michigan Office of Administrative Hearings and Rules (MOAHR)
4. Independent Contractor vs. Employee — Michigan UIA
5. MiWAM Employer Portal — Michigan UIA
6. Michigan Workers Comp and UI Audit Defense — Michigan Employment Law Firm