How to Avoid Workers’ Compensation Fraud: Examples and Penalties

Workers’ compensation fraud may be committed by employees or business owners. See how to avoid accusations of fraud and possible criminal penalties.

Workers’ comp fraud is a lie or misrepresentation made by either an employee or an employer to receive some financial gain.

For example, workers are guilty of fraud if they fake an injury to try and receive workers’ compensation benefits. Employers are guilty if they misclassify employees to receive lower insurance premiums.

To help avoid fraud, workers and employers should become familiar with their state’s workers’ compensation laws. Workers need to know how to avoid accidentally creating the appearance of fraud, and how to recognize illegal employer practices.

Insurers often investigate employers and workers for suspected fraudulent acts. Typical investigative practices include reviewing a worker’s social media accounts and medical records. An adjuster may also research how a company conducts its business.

Instances of workers’ compensation fraud can lead to criminal charges, jail time, fines, and restitution.

Common Examples of Workers’ Compensation Fraud

Employees commit workers’ comp fraud when they make a false statement or withhold information to receive workers’ comp benefits.

Employers commit the act when they do the same to receive a financial gain or prevent a worker from receiving benefits.

Examples of employee fraud include:

  • Faking a workplace injury
  • Exaggerating an injury or symptoms
  • Claiming that a non-work injury was suffered at work
  • Working another job while collecting disability benefits for a work injury

Examples of employer fraud include:

  • Lying about workplace safety to receive lower workers’ comp insurance premiums
  • Underreporting payroll for lower premiums
  • Misclassifying employees for lower premiums (e.g. as an independent contractor)
  • Deducting workers’ comp premiums from an employee’s pay
  • Failing to have workers’ compensation insurance
  • Telling employees to use their health insurance to cover a work-related injury

How to Avoid Fraud – Workers and Employers

Some business owners and employees intentionally try to beat the system and knowingly engage in fraudulent activities.

More often, a worker or employer accidentally commits workers’ compensation fraud.

For example, state laws say that most employers must carry workers’ comp insurance. While a business owner may technically commit fraud for not having a policy in place, they may not realize the state’s labor laws apply to them.

How Injured Employees Can Avoid Workers’ Comp Fraud

Always get prompt medical treatment for workplace injuries. Your health should be your most important concern after an injury.

Promptly report your injury to your employer, and try to avoid mistakes when filing the paperwork for your worker’s compensation claim. Fill out all appropriate forms in a timely matter.

Once a claim is filed with the insurance company, clearly and honestly communicate with the insurance adjuster. Provide the insurer with legitimate evidence of a workplace injury from your medical providers.

Give a fact-based and accurate account of your workplace accident and provide statements from anyone who witnessed the accident.

Red flags for employee workers’ comp fraud include:

  • Your injury had no witnesses
  • You delayed reporting your job injury for a week or more
  • Your injury occurred in a work area where you usually don’t work
  • Your injury is inconsistent with your job duties
  • Your employer or a co-worker saw you doing something inconsistent with your injury
  • Evidence showing you’re working elsewhere while receiving workers’ comp benefits

How Business Owners Can Avoid Workers’ Comp Fraud

Employers can avoid fraud claims by informing workers on how to correctly file a complete workers’ compensation claim.

Employers should comply with reporting requirements imposed by their insurance contract. Questions regarding payroll issues and the number of workers they employ must be answered accurately.

An employer must be familiar with the basics of workers’ comp laws for the state they do business in. If an employer operates in multiple states, it should review the rules of each state.

Red flags for employer workers’ comp fraud include:

  • An employer uses classification codes for employees that are inconsistent with the employer’s type of business
  • The employer misrepresents payroll information
  • A large employer shows their insurer evidence of a relatively small payroll
  • The employer frequently makes changes to its workers’ compensation policy

Workers’ Comp Fraud Investigations

An employee or employer suspected of workers’ compensation insurance fraud will be the subject of an investigation.

The employer’s insurance company typically initiates the investigation. Sometimes, an adjuster performs the investigation, or they may hire private investigators.

Some states like Florida also have a Bureau of Workers’ Compensation Fraud that investigates suspected criminal violations of that state’s workers’ comp laws.

There is no set time frame on how long an investigation can take. The length of time depends on the facts of the case and the complexity of the suspected fraud. While some investigations are resolved in a few days, others can take over a year to complete.

Workers’ Comp Investigative Tactics

Investigators use different tactics to uncover suspected fraud.

Electronic surveillance involves monitoring an injured worker’s social media accounts. They’re looking for pictures or comments suggesting a work injury never occurred or is less severe than reported.

Let’s say you filed a claim for carpal tunnel syndrome. If you then start posting videos of your guitar playing, an adjuster may suspect you filed a false claim.

Work-issued devices are fair game. If you’re taking time off work for your injury but are using a work-issued cell phone or tablet, your company can monitor your activity on the device.

Other investigative practices include:

  • Reviewing jobsite video surveillance of a work injury
  • Hiring a private investigator to video the worker’s activities
  • Conducting background checks on a hurt worker
  • Reviewing a claimant’s medical records
  • Interviewing the employee’s co-workers, family members, and friends

When it comes to employers, investigators typically look into the nature of the company’s operations.

Investigations into a business owner can include:

  • Complaints made by injured employees
  • Job ads posted by the company and how the employer classifies its employees
  • The number of employee injury claims being filed
  • Past insurance policies it held and the number of changes made to those policies
  • Measures the employer took to help promote workplace safety

Penalties for Fraudulent Claims

Depending on the complexity of the fraud, and the state where the fraud took place, penalties can include fines and jail time. Guilty parties may also have to pay back any money they received because of the scam.

Under California law, for example, the state can charge an employee with either a misdemeanor or a felony for workers’ compensation fraud.

A misdemeanor offense is punishable by:

  • Up to one year in county jail
  • A fine of up to $150,000 or double the amount of the fraud (whichever is greater)
  • Restitution to any parties that were a victim of the fraud

A felony offense is punishable by:

  • Up to five years in county jail
  • A fine of up to $150,000 or double the amount of the fraud (whichever is greater)
  • Restitution to any parties that were a victim of the fraud

A common form of insurance fraud committed by employers is intentionally refusing to carry workers’ comp insurance.

In New Jersey, this failure is a criminal offense punishable by possible imprisonment and a fine of up to $5,000 for the first ten days. The fine increases by up to $5,000 for each additional ten-day period of failure to insure after that.

Under Pennsylvania law, willfully failing to carry workers’ comp insurance is a felony punishable by up to seven years in jail and up to a $15,000 fine.

Legal Help for Suspected Fraud

If you believe you are a victim of workers’ comp fraud, or may be under investigation for suspected fraud, contact an experienced workers’ compensation lawyer for help.

A skilled attorney can help you gather evidence that supports your claim, including statements from witnesses and surveillance video. A lawyer can also speak with investigators on your behalf.

Most workers’ comp lawyers provide free consultations. You can get your immediate questions answered free of charge.

Dustin Reichard, Esq. is an experienced attorney with 20 years of work in the legal field. He’s admitted to the Illinois State Bar and the Washington State Bar. Dustin has worked in the areas of medical malpractice, wrongful death, product liability, slip and falls, and general liability. Dustin began his legal career as a JAG... Read More >>