Workers comp fraud: what employers should know

Fraud comes from all sides

The Insurance Information Institute estimates that workers' comp fraud costs insurers and employers about $30 billion a year. It falls into three main groups: fraud by workers, fraud by employers, and fraud by medical providers. Most claims are honest, so treat every injured worker with respect while you watch for real warning signs.

Employer premium fraud

Employers commit fraud when they lie to lower their premiums. Common examples:

• Reporting less payroll than they really paid.
• Putting workers in a cheaper class code than their real job.
• Calling employees independent contractors to keep them off the policy.
• Opening a new company name to hide a poor claims history or unpaid premium.

It is a crime

State fraud units actively look for premium fraud, and the penalties can include large back premiums, fines, and prison. The California Department of Insurance, for example, says deliberately underreporting payroll is insurance fraud that can be prosecuted. If your payroll or work changes, tell your insurer.

Warning signs on a claim

These signs do not prove fraud, but they are worth sharing with your adjuster:

• No witnesses, and the story changes over time.
• The injury is reported long after it happened, or right after a firing or layoff.
• The worker is seen doing heavy work elsewhere while off work.
• The worker refuses tests or treatment that would help them recover.

What to do if you suspect fraud

Report your concerns to your insurer's claims adjuster or special investigations unit. Most states also have a fraud unit that takes tips. Do not confront, threaten, or retaliate against the worker yourself. Punishing a worker for filing a claim is illegal, even if you have doubts.