What Is Workers’ Compensation Fraud?

Accidents can happen in the workplace. When an employee gets a work-related injury or illness, your business could be on the line. Workers’ compensation insurance protects you by reimbursing employees when accidents take place. But, employees, employers, and even health care providers can take advantage of the system by committing workers’ compensation fraud.

Workers’ comp fraud can lead to higher insurance premiums and penalties, so it’s important to know how to protect your business and avoid costly mistakes.    

What is workers’ compensation?

Workers’ compensation is insurance that pays for medical expenses and wage replacement if an employee is injured or develops an illness on the job. However, the ailment cannot be self-inflicted or take place because the employee violated your business’s policies.

Employees might file a workers’ compensation claim if they fall off a ladder, suffer from hearing loss, or develop chronic back problems. If the employee is unable to work, workers’ compensation provides wage replacement while they are out. Benefits also cover payments for medical treatment.

Most states require you to purchase workers’ compensation insurance to reimburse employees if they have an accident. Depending on how many employees you have and where your business is located, your state might not require insurance. However, purchasing workers’ compensation insurance protects your business from lawsuits.

Employees do not have to accept workers’ compensation insurance. An employee might not accept the insurance if they intend on suing your business.

Workers’ compensation premiums are based on factors like how many employees you have, your business industry, and each employee’s job responsibilities.

What is workers’ compensation fraud?

Workmans’ comp fraud can come in many different forms. Workers’ compensation fraud is any lie or misrepresentation made by an employer, employee, or provider to benefit financially.

Workers’ comp insurance fraud can be when an employee lies about their injury or illness, when an employer misclassifies employees to avoid paying for workers’ compensation insurance, or when providers exaggerate an employee’s symptoms to get more money.

Here are some types of workers’ compensation fraud.

1. Employees and workers’ compensation fraud

Employees can commit workers’ compensation fraud in a few different ways.

Made up injury or illness

An employee might invent injuries or illnesses they don’t have to get time off and financial benefits from the insurance.

Example: An employee makes up hearing loss to receive workers’ compensation benefits.

Exaggerated injury or illness

You might also have employees who exaggerate their illnesses or injuries. The employee might be suffering from something slight, but it does not prevent them from working.

Example: Your employee has a slightly sore arm that still functions. They inflate their injury and pretend that they can’t use their arm so they can go home and receive benefits.

Non work-related injury or illness

An employee can also commit workers’ compensation fraud by pretending they got injured on the job when their injury came from elsewhere. Or, the employee might have an old injury that resurfaces, and they say they got it while at work.

Example: An employee has a skiing injury that messes up their back. They pretend they slipped on a wet floor at your business to receive workers’ compensation benefits.

2. Employers and workers’ compensation fraud

Employees aren’t the only ones who work the system when it comes to workers’ compensation. As an employer, you need to be careful with how you handle workers’ compensation insurance.

Lying about job safety

Some employers lie about the safety of the work environment in order to get reduced workers’ compensation premiums. Premiums are based on job responsibilities so insurers can understand the risk of injury or illness.

Misclassifying employees

Don’t try to reduce your workers’ compensation premium by not counting all your employees or by misclassifying employees.

You should not classify workers as independent contractors when they should really have an employee classification. Misclassification can result in high penalties that go beyond workers’ compensation fraud fines — you will also need to pay back taxes. And, you might need to pay overtime wages to the worker.

Not purchasing workers’ comp

In most cases, you are required to purchase workers’ compensation insurance when you have employees. Some business owners think they can get away with not purchasing insurance.

3. Providers and workers’ compensation fraud

In some cases, a health care provider can try to abuse the system. A dishonest health care provider might exaggerate your employee’s injury or illness so they can charge money to your workers’ compensation insurance.

A dishonest health care provider might tell your employee they need more treatments. Or, they could even make up an injury or illness.

Spotting fraudulent workers’ comp claims

It’s not always easy to tell whether an employee is lying about their injury or illness. Here are some ways you can tell if an employee is lying.

When an employee files a workers’ compensation claim, they need to provide an account of what happened. If their story changes or doesn’t add up, they might not be telling the truth.

If an employee is making up an injury, they won’t have witnesses. You can check security cameras to find out if what the worker says is true.

Keep an eye out for red flags and keep in contact with injured employees. When employees begin work at your business, explain the procedure for filing workers’ compensation claims.

Fighting workers’ compensation claims

You don’t want to accuse someone of lying about their injury or illness. Arguing with an employee about their claim can land you in hot water, especially if the employee is telling the truth. So, what do you do if you suspect workers’ compensation abuse?

Fighting workers’ compensation claims can vary from state to state, but there are some basic steps you can take.

If you suspect workers’ compensation fraud, you must report the person to your state. Include as much information as you can in your report, such as:

• The name and address of the person you are reporting
• Information about the incident and why you believe they are committing fraud
• Other related information (e.g., description of the individual)

Once you file a report with your state, you typically don’t need to do anything else. Your state will investigate the report and determine whether or not the person is committing workers’ compensation fraud.

Workers’ comp fraud penalties

If you, an employee, or a provider is convicted of workers’ comp fraud, there are penalties. Penalties include fines and jail time. Fines can range depending on the situation. Jail time can be up to one year or up to thirty years depending on the crime.

In some workers’ compensation fraud cases, the convicted individual is responsible for paying back the amount they received while falsifying a workers’ compensation claim.

For example, one couple who committed workers’ comp fraud and collected $774,000 were forced to pay all the money back instead of jail time.

As a business owner, you can’t control what your employees do. But, you can control who you hire, what actions you take, and how you react to suspicions of workers’ compensation fraud.

Need an easy, inexpensive way to run payroll? Patriot Software’s online payroll uses a three-step process so you can save time and money when you run payroll. Try it for free today!  

This article has been updated from its original publication date of November 8, 2017.

This is not intended as legal advice; for more information, please click here.