How Employers Can Reduce Workers Compensation Fraud

workers compensation fraud

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Workers compensation is an important facet of the modern workplace. It protects workers and it helps to encourage businesses to take better care of their employees. There are some, though, who would take advantage of this system for their own personal gain. When people commit fraud in the name of getting compensation, they hurt innocent workers and business owners alike. If you own a business, it’s vital that you do your part to deter workers compensation fraud by learning more about it – and how it might be prevented.

What is workers compensation fraud?


This is a type of fraud that typically revolves around the process of fraudulently gaining workers compensation benefits. Depending on the form, it may be done to either ensure that an individual will get a payout for a supposed injury or that a business owner will be able to collect on a payment that he or she is not owed. No matter what the case, it causes harm to the integrity of a workplace and can make the entire process of getting rightful compensation more difficult than it needs to be. This is a type of fraud that hurts workers as much as it hurts business owners.


Related: Payroll Fraud Prevention Guide


Types of workers compensation fraud

There are several different types of fraud that fall under this category. The goal, though, is always to get compensated as if a valid injury happens in the workplace. Workers compensation fraud can range from the outrageous to the subtle, but it always involves an element of deceit. If an employee or business owner attempts to defraud the company through these means, the employer must determine first the method by which the employee was attempting to defraud the company. Once this done, steps can be taken to ensure that future employees don’t try the same thing.


workers compensation fraud


Non-work related injury/illness

Workers compensation should be given when an employee is injured while on the job. When an employee is injured off the clock, though, he or she may try to defraud the company by claiming that it happened on company time. Doing so simply requires either reporting the injury as if it happened after the fact or setting up an incident to make it look like the employee was injured at work. It can be difficult to spot this type of fraud because the injury is real, even if the circumstances behind the injury were falsified.


Non-existent injury/illness

While you might think that workers compensation fraud is easy to catch, the truth is that it can easily escape the notice of an employee. In their haste to ensure that they aren’t held legally responsible for an employee’s injury, some employers will rush to compensate an employee before checking to make sure the injury actually happened as described. In these cases, the employee often sets up an ‘accident’ at work, and then uses a third to party to fabricate an illness or injury. This is fraud, plain and simple – and it should be treated as such.


Exaggerated injury/illness

Perhaps the most common type of fraud, this method of getting workers compensation tends to be the hardest to spot. Unlike other types of fraud, there is a real injury and it likely did occur during the course of the employee’s duties at work. The injury is not as bad as claimed, though, and it may not require the level of compensation insisted upon by the employee. This type of fraud is often assisted by an unscrupulous medical provider, who tends to profit significantly from the increased payments.


Workers compensation fraud as an employer

In most cases, an employer who commits workers compensation fraud is one that attempts to avoid payment. They might do this to protect the business’ bottom line or to avoid having insurance rates climb, but what they’re really doing is hurting someone who may very well deserve the support of his or her employer. The most common way this is done is through misclassification, generally claiming that a standard employer is a contractor. This is not only immoral, but it’s illegal – and when caught, the employer can face significant tax fines on top of the other legal punishments that may come his or her way due to the misclassification.


workers compensation fraud


Avoid employee misclassification

It’s imperative that you know the difference between an employee and a contractor. You have different duties to each, but it’s harder to tell them apart than you might think. While many businesses attempt to classify some employees as contractors to save money, you can still find yourself owing quite a bit of money in workers’ compensation payments if you’ve misclassified employees. Be honest when you’re looking at who is an employee and who can safely be classified as a contractor. Always treat employee misclassification as a mistake to be avoided.


Be honest about working conditions

A good place to start with your employees when workers compensation fraud is concerned is to be honest about the working conditions. If the job requires a great deal of physical effort, be honest. If something can be dangerous when proper safety protocols aren’t followed, tell the truth. Make sure your employees know exactly what they are getting into before they start working. If they do, they’ll be less likely to try to take advantage of the situations in which they might find themselves.


Purchase workers compensation insurance

Perhaps the most important thing you can do, though, is to purchase workers compensation insurance. This insurance will not only help you to protect against the losses that can come from having to pay compensation in the first place, but it will give you access to the resources of an insurance company when it comes to investigating the cases. It’s amazing to see how some of the individuals who might feel clever enough to defraud a business don’t feel quite as confident when they have to deal with an insurance company.


workers compensation fraud



Workers compensation fraud is real and it’s something against which all businesses must guard. Be aware of the type of fraud that can happen and what you can do to prevent each. If you can remain vigilant, educate your employees and deal with everyone fairly, you’ll have a much better chance of avoiding fraudulent suits. While it’s almost inevitable that someone will get hurt on your watch at some point, you should never have to deal with a fraudulent claim.

If you want to learn more about how to protect your business from fraud, make sure to take our Payroll Security Quiz today.



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