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Isn’t the only way to defraud the worker’s comp system.  The state of California District Attorney has assigned a task force to battle the rise in fraud since the economy took a downturn.  So if  you’re not faking an injury, how would one go about defrauding a worker’s comp carrier?  An employer can start paying his or her employees partially in cash.  Since cash payments can conveniently be left off of a payroll sheet, they won’t add to the overall payroll, which in turn drives the insurance premium down.  Works pretty well as long as the IRS doesn’t find out too.  Another way is to fudge the classification of your employees.  A worker who spends most of his time on the roof of residential structures will pay a heck of a lot more money in worker’s comp premium than a worker who spends his time working from ground level.  This post is by no means meant to be a tutorial on how to save money by defrauding insurance companies, but these are several of the ways that the CA task force have been successful in finding frauds and punishing them.

Hypothetically, let’s say that you as the unscrupulous employer, is successful at fleecing the insurance carrier you have your worker’s compensation insurance written with.  You have several employees that spend the majority of their day working in trenches.  On your insurance policy, they are classified as yard NOC.  Meaning they are supposed to be spending their days in your supply yard, not in 7 foot deep holes in the ground.  One day, since you are already proficient in cutting corners, you send your guys out into the field to do some excavation work but don’t bother setting up a trench box. Less time in the hole, more time to make money right? Wrong.  The trench collapses, and luckily no workers were killed, but several of your “yard workers” are severely injured.  You call your agent or broker to put the claim through.  They submit it to the carrier.  The carrier looks at it and wants to know why several yard workers were in a trench box installing a water line.  Claim denied.  OSHA fines you for not putting a trench box up.  The insurance fraud task force fines you $10,000 and you are still responsible for paying for your injured workers.  Out of pocket.  This is a pretty broad generalization of what could happen if everything went wrong.  Do a truthful job of classifying your employees and paying them over the table.  Do you really want to have to close up shop because an intentionally misclassified employee is injured on the job?  Just so you could save money on your insurance premium?  Might not be worth it.  For more info on the San Bernardino Fraud Task Force, click this LINK.

And in case you didn’t read the article, it also mentions that the task force shows up unannounced, the fine is a mandatory 10K, and you as the employer could face a year in jail on top of the fine.  That would be a pretty lousy ROI on a few thousand dollars savings on your insurance premiums.