4 Ways to Combat Workers’ Compensation Fraud

Workers’ compensation fraud costs American business owners, employees and customers billions of dollars each year. Workers’ compensation fraud is a criminal offense and can result in jail time for perpetrators. Fraud can be categorized in two ways:

  1. Claim-related fraud occurs when an employee falsely claims a work-related injury or illness, or exaggerates an existing injury or illness, to gain a workers' compensation insurance benefit. It can be perpetrated by dishonest employees, medical providers, vendors, attorneys or policyholders.
  2. Policy-related fraud can be committed when a policyholder and/or insurance agent under-reports a business’ payroll or misclassifies employees to obtain a workers' compensation insurance policy at a lesser cost.

Fraud, whether claim-related or policy-related, can adversely affect the small business owner. Small business owners may experience higher insurance premiums as a result of the claim-related fraud or policy-related fraud. Future claims filed by employees with previous links to workers’ compensation fraud cases may also face additional scrutiny, as every open claim is subject to an Insurance Services Office (ISO) search, which provides detailed information about prior claims including the injured employee and policyholder.

Here are four things business owners and their employees can do to combat workers’ compensation fraud.

  1. Establish a zero-tolerance policy on fraud. Fraudulent activity can impact the perpetrator’s job as well as the business. It also has the potential to increase premiums, raising the cost of doing business. Employers should establish a zero-tolerance policy on workers’ compensation fraud. To help reduce the potential for false claims, employers should clearly communicate the business’ expectations and provide employees with written anti-fraud policies.
  2. Maintain accurate business records. Employers may inadvertently misclassify workers as independent contractors. Some employers also may incorrectly classify employees with high-risk jobs, such as dock workers, as an employee with a low-risk job, such as an administrative assistant. Business owners who misclassify employees avoid paying the appropriate workers’ compensation insurance premiums and could be subject to fines, even if the error was unintentional.

    It is also important to maintain accurate payroll information. Workers’ compensation premiums are calculated based on the size of a business’ payroll.
  3. Work with trustworthy people.  Business owners rely on many outside partners to help protect their business. Before hiring an insurance agent or other consultant, employers should ask for references and make sure they have a history of operating lawfully.

    Additionally, when hiring new employees, employers always should check their work history and references.  
  4. Give employees multiple ways to report fraudulent activity. Employers should create an environment where employees do not fear retaliation for reporting potential workers’ compensation fraud. This can be accomplished by establishing safe and potentially anonymous ways for employees to report suspicious activity.

Workers’ compensation fraud is a serious problem that can have a real impact on business owners and their employees. By demonstrating a zero-tolerance policy on fraud and reinforcing policies and expectations, business owners can help reduce the likelihood of fraud in the workplace. For more information on workers’ compensation fraud prevention, including training materials and signage, contact EMPLOYERS.

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