What is workers’ compensation fraud?
Workers’ comp fraud is an attempt by someone to benefit financially from a workers’ comp policy by falsifying information. There are two main types:
- Claims-based workers’ comp fraud – an employee files a false claim to receive workers’ compensation benefits.
- Policy-based workers’ comp fraud – an employer misclassifies employees or falsifies data in their payroll system to reduce premium payments.
Workers’ comp fraud examples
Though healthcare providers sometimes commit workers’ comp fraud, the most common examples involve employees and employers.
Employees who commit workers’ comp fraud usually do so for personal financial gain. They may desire to receive disability payments without a legitimate injury or want the policy to cover ineligible medical expenses. Whatever the ultimate reason, employees may be guilty of a violation if they:
- File a claim for an injury that never occurred
- File a claim for an injury or illness that is not work-related
- Exaggerate the extent of an injury or illness
- Misrepresent that they are unable to work while receiving temporary disability benefits
Workers’ comp premiums are primarily based on the number of people employed by a business and its history of workplace accidents, i.e., experience modification. As such, employers may be guilty of workers’ comp fraud if they seek to lower their payments by:
- Misclassifying employees as independent contractors
- Submitting erroneous payroll data to the insurance carrier
- Lying about the existence of a workplace or office safety program
- Failing to purchase workers’ compensation insurance when it’s required
How to help prevent workers’ comp fraud
Workers’ comp fraud is an expense most employers can’t afford. The more claims filed, the more premiums may increase, so it’s important to ensure every claim is valid. In addition, employers who commit workers’ comp violations, even those due to unintentional error, may be fined.
To help prevent such costly consequences, employers may want to:
- Create strict disciplinary policies for employees who commit fraud.
- Ensure injured workers know when and how to file a workers’ comp claim.
- Keep payroll records up-to-date with the latest number of employees.
- Seek legal counsel when an employee’s classification status is unclear.
- Look for previous convictions of fraud in new hire background checks.
- Encourage employees to report suspected cases of workers’ comp fraud.
Workers’ compensation insurance fraud red flags
Employers need to be proactive with workers’ comp fraud. Waiting for an audit to spot fraudulent activity only increases the risk of fines, penalties or policy cancellation. Here are some red flags to look for:
- An employee’s explanation of the incident is inconsistent or doesn’t seem plausible.
- Security footage, if available, doesn’t corroborate the workers’ comp report.
- The work-related injury or illness cannot be validated by witness testimony.
Frequently asked questions about workers’ comp fraud
Why do people commit workers’ compensation fraud?
People usually commit workers’ comp fraud for personal financial gain. For example, an employee may want to stay home and receive partial wage replacement without suffering a work-related injury. In other instances, workers’ comp fraud results from an honest mistake, such as when an employer accidentally reports inaccurate payroll data to the insurance carrier.
Who pays for workers’ compensation fraud?
Penalties for workers’ comp fraud can include fines, policy cancellation, and jail time. The person who committed the infraction may also have to pay back the misappropriated funds.
As an example, in California, the penalty for an employer not carrying workers’ compensation insurance on their employees can vary depending on the specific circumstances.
The penalties can include:
- Civil Penalties: The California Labor Code empowers the Division of Labor Standards Enforcement (DLSE) to issue penalties for non-compliance with workers’ compensation insurance requirements. The penalties can range from $1,500 to $100,000 or more, depending on factors such as the number of employees and the duration of non-compliance.
- Criminal Charges: Failure to provide workers’ compensation insurance coverage can result in criminal charges. Under California law, willfully failing to secure workers’ compensation insurance is a misdemeanor offense. Convictions can lead to fines of up to $10,000 or imprisonment for up to one year, or both.
- Personal Liability: In addition to civil and criminal penalties, employers who fail to carry workers’ compensation insurance may also face personal liability for any workplace injuries or illnesses suffered by their employees. Without insurance coverage, employers may be responsible for compensating injured employees for medical expenses, lost wages, and other damages.