Workers' compensation insurance can provide medical care and financial assistance to employees who are injured or incapacitated at work. However, this important benefit is also subject to fraud perpetrated by dishonest workers. The Coalition Against Insurance Fraud says that 16% of workers' comp claims are fraudulent, adding up to $9 billion in annual losses. Such losses hurt businesses, insurers and states. But you can help reduce the possibility that a scheme will be perpetrated in your organization.
Employees violate workers' comp rules if they file claims for injuries they didn't experience or injuries or illnesses they did experience, but not at work. Workers' comp fraudsters also might exaggerate the severity of their injuries or illnesses, or falsely state that they can't work in any capacity while receiving benefits. For example, an employee who breaks a finger with a hammer in his home workshop might file a workers' comp claim that says he broke the finger on his company's production line. Or he may claim that not just his finger, but his arm, too, is broken and that he can't work at all until his breaks heal — even though these are lies.
Employers are responsible for contributing to workers' compensation funds for all of their employees. And it's important to acknowledge that some employers engage in workers' comp fraud. They might, for instance, misclassify employees as independent contractors (for whom they don't have to pay insurance) or understate the number of people on their payrolls. Or they might "forget" to buy workers' comp insurance altogether. So, to protect employees and avoid serious legal trouble, make sure your business complies with all your state's labor rules and requirements.
As for preventing employee-perpetrated workers' comp fraud, you should craft comprehensive policies and procedures. Your employees need to know what to do if there's an accident. They also need to understand the difference between legitimate claims and fraud — and the ramifications of making false claims (such as termination or legal action).
Mitigating fraud threats starts before you hire workers. As part of the background check process, look for records that indicate prospective employees have committed workers' comp fraud at previous jobs. Then, during new employee training, explain your process for validating the authenticity of claims and disclose that your insurance company may assign its own investigators to scrutinize them.
If employees file workers' comp claims, trust that the paperwork is legitimate but verify the claims anyway. If possible, secure witness testimony from coworkers, customers and other witnesses, and gather any supporting evidence such as surveillance footage and timecards. Increasingly, workers' comp fraudsters get caught in lies based on their social media posts. So if an employee says she must rest in bed for six weeks but you see recent photos on her Facebook page of her partying with friends, be sure to collect the evidence.
Fraudulent workers' comp claims cost businesses, insurance companies and states billions of dollars every year. As with other types of fraud, preventing workers' comp fraud, including questioning employee claims, can be complicated. For this reason, you should consider engaging an attorney who specializes in labor issues. Your legal counsel can help prevent the inadvertent violation of workers' rights as you work to get to the bottom of suspicious claims. And contact us if you need help investigating potential occupational fraud.
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