Most states require businesses to offer workers’ compensation insurance to employees. Worker’s compensation coverage offers wage replacement along with medical benefits to employees who are injured on the job. This helps to protect both the employee as well as the company he/she works for by preventing the employee from being able to effectively sue his employer for negligence. Workers’ compensation fraud is a big deal and it happens more often than you think.
It even happens with big companies – like FedEx. In 2015, FedEx forked out $228 million in response to 2,300 accusations of fraudulent activity by employees who were labeled by FedEx as independent contractors. Many companies do this in order to pinch a penny but end up having to pay for it in the end. Chances are, as an honest business owner, however, you are more than likely to run into worker’s compensation fraud on the other end of the spectrum.
Whether you handle insurance matters in your business or are simply a business owner, it is important to know the facts about workers’ compensation insurance and how people mishandle it.
Types of Workers’ Compensation Fraud
Workers’ compensation fraud can occur on both ends of a business. Business owners and employees have been convicted of felony charges in the past relating to falsifying information.
Three primary types of workers’ compensation insurance fraud exist on the business owner end, including misclassification of employees, underreporting payroll and experience modification evasion.
Misclassification of employees occurs when a high risk employee, like an electrical or construction worker, is classified in the books as working a lower risk job, like a secretarial position. Workers’ compensation premiums cost less for employees with low risk roles.
Underreporting payroll is a problem that occurs when the work staff’s earnings are inaccurately reported to the insurance company. If employees are paid as subcontractors or independent contractors, workers’ compensation insurance is not required. This is another way companies attempt to scam insurance companies.
Experience modification evasion is another major problem among businesses and insurance companies. Some companies will close and attempt to re-open so as to look like a new company on paper. This is done in order to receive a lower experience modification factor without actually changing the business. This is dishonest and illegal.
Individuals who work for companies also are liable to perform workers’ compensation fraud in order to try to make extra money through compensations.
Common Warning Signs of Workers’ Compensation Premium Fraud
Things happen. And insurance brokers and agents understand this. But when instances like the following begin to occur on a more regular basis, suspicion should be raised and an investigation should take place.
Suspicious providers. If an employee lists medical providers that have a history of working with questionable claims, consider investigating.
Lack of witnesses for an incident.
Conflicting descriptions from that of the injury report or medical history.
An accident that occurs immediately following a change of employment (layoff, strike, end of a project and so on).
Treatment is refused by the claimant.
Frequently changing information by the claimant. This can be addresses, medical providers or jobs.
Difficulty in reaching claimant.
The claimant has a high history of suspicious claims.