Workers' Compensation Fraud: Don’t Get Caught Red-Handed

Workers’ compensation policy-related fraud is a serious crime that can be committed by the business owner or their employees.

In the case of policy-related fraud, these individuals intentionally misrepresent their business in an attempt to pay less workers’ compensation insurance premium than is rightfully owed. This type of fraud can negatively impact the workers’ compensation system in many ways, including higher insurance premiums for honest, law-abiding business owners; unfair business advantages for perpetrators due to their reduced operating costs; and inaccurate commissions for insurance agents.

Here are three important things business owners can do to help make sure they are in compliance and not committing policy-related fraud.

1.      Make sure all employees are correctly classified.  Studies indicate anywhere from 10 to 20 percent of American workers are improperly classified as independent contractors or 1099 workers. Independent contractors are exempt from the benefits and protections provided under the Fair Labor Standards Act (FLSA). Additionally, some employers may incorrectly classify employees by classifying a high-risk employee, such as a construction worker, as a low-risk office manager. Employers who misclassify employees avoid paying the appropriate workers’ compensation insurance premiums for the risk presented. They are also in direct violation of the FLSA and could be subject to fines, even if the misclassification was unintentional. If you have any questions about how to classify your workers, consult the U.S. Department of Labor or your insurance carrier. 

2.      Accurately report your payroll. Dishonestly reporting the number of workers on your payroll to pay lower insurance premiums is another form of policy-related fraud. It could result in a criminal investigation, fines and even jail time. It is important to keep up-to-date payroll records and make sure you are reporting accurately to your workers’ compensation insurance provider.

3.      Correctly identify your business’s operations and claims history. Make sure you accurately represent your business and its claims history to your insurance carrier when obtaining insurance coverage. Your claims history and payroll factor into the amount you pay for workers’ compensation insurance. Intentionally misrepresenting the nature of your business’s operations and claims history to pay lower insurance premiums is fraud.

All fraud, whether policy or claim-related, is unethical, illegal and costly. Your insurance carrier can provide helpful guidance and additional fraud prevention resources to help you stay in compliance.

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