Recognizing and Avoiding Workers Compensation Fraud at Your Business

Workers compensation coverage is a necessity for businesses of all sizes. It provides an essential safety net for employees who sustain an illness or injury at their job by providing them with medical benefits and replacement wages. Like all types of insurance, however, workers compensation is susceptible to fraudulent claims by those looking to take advantage of the system. While workers comp fraud isn’t common, it does happen and it is important to recognize these situations to protect your business.

Here are a few examples of the most common types of workers compensation fraud committed by employees, employers, and healthcare providers and what you can do to prevent them.

Employee Workers’ Compensation Fraud

The simplest way an employee might commit workers compensation fraud is by faking an illness or injury. In these cases, an employee will report an injury they suffered on the job — for instance, while lifting some heavy boxes at work. They then file a workers compensation claim to receive benefits even though the injury never occurred. 

Similarly, exaggerating an illness or injury is also considered workers’ compensation fraud. In this case, an employee may be experiencing mild symptoms (such as arm soreness) that don’t prevent them from performing their regular job duties. However, the employee might exaggerate the severity of their symptoms and attempt to claim workers compensation. 

Another example of employee workers compensation fraud is when a worker suffers an injury in their personal lives and claims it as a work-related injury. This could occur when an employee sustains an injury playing sports with friends but claims that it happened during their working hours. Although the injury is legitimate and may prevent the employee from performing some or all of their job duties, this wouldn’t qualify for workers compensation since the injury didn’t happen while on the job.

Employer Workers Compensation Fraud

Employees aren’t the only ones who can commit workers compensation fraud. It is, in fact, possible for employers to use fraudulent methods to reduce the costs of premiums. 

One method is when employers inaccurately report their number of employees. A small business may start with only a few employees but grow over time to have dozens or even hundreds of workers. This growth needs to be reported and accurately reflected in the business’s workers compensation policy.

Employers can also misclassify their workers to avoid paying higher premiums. There are two common ways businesses might misclassify their employees: 

  1. Classifying employees as independent contractors to avoid paying for coverage, since independent contractors are not legally required to be covered by workers compensation. To learn more, read “Workers Compensation: Employee or Independent Contractor?”
  2. Misclassifying certain employees as being at a lower risk of injury to avoid paying higher premiums. Reporting a higher-risk job category (eg. a construction worker) as an office worker is an intentional misclassification. 

Similarly, employers could lie to their insurance provider about the safety of their work conditions or claim they have certain safety programs in place to secure lower premiums.

Another way employers might try to reduce the cost of premiums is by deducting that cost out of their employees’ pay. It is the obligation of the employer, not the employee, to purchase workers compensation insurance, so charging employees for coverage is considered fraudulent.

Lastly, employers may intentionally fail to obtain workers compensation insurance or even falsify a policy, both of which are considered fraud. Every state has different requirements for workers compensation, so it’s critical for business owners to know what’s required of them to remain compliant with the law.

Healthcare Provider Workers Compensation Fraud

There is a third-party that can be responsible for workers compensation fraud: healthcare providers. Like the others, the reasons providers might commit fraud is largely for financial gain. For instance, a healthcare provider may perform tests or treatments that are unnecessary with the hope that the insurance company will cover the costs. Alternatively, health providers may attempt to get insurance providers to cover the costs of treatments that were never performed. 

Healthcare providers may also attempt to “double-dip” the cost of treatment by billing both the workers compensation insurer and the employee’s health insurance provider for the services they perform. Any services performed for work-related illnesses or injuries need to be billed only to the workers compensation insurer, not an employee’s health insurance provider.   

How to Handle Cases of Workers Compensation Fraud

Employers need to take any claims of illness or injury on the job seriously and do their best to ensure their employees’ safety. While workers compensation fraud is infrequent, it does happen and the consequences are serious.

If you suspect someone is committing workers’ compensation fraud, whether it’s an employee, an employer or a healthcare provider, contact your state agency and provide as much information as you can to have the claim investigated. Committing workers compensation fraud is a serious offense and is subject to fines and even jail time. 

If you have questions about workers compensation or are looking to obtain coverage for your business, contact your local Society Insurance agent today.


As a mutual insurance company, we operate and exist for the benefit of our policyholders. For more than 100 years, Society has been helping businesses overcome the unexpected with comprehensive coverage packages and outstanding claims handling, underwriting and risk management.

Latest Articles

How to Overcome Imposter Syndrome at Work

What Is Imposter Syndrome? Imposter syndrome is defined as the persistent inability to believe...

How a Restaurant Closing Checklist Benefits Your Business

As a bar or restaurant owner, you know that your night isn’t over when the last customer leaves....

Creative Interview Questions for Finding the Right Candidate

Interview questions usually revolve around a candidate’s work history, experience and unique...


Have you ever caught yourself wondering why your business’ premium changes over time? Odds are you...

[Updated 2022] What Is Inflation Guard & Have There Been Recent Developments?

In 2021, we saw a unique economic environment. Supply chains were affected dramatically and a few...

 The Rise of the Streatery: What it Is and Why Is it Popular?

As demand for outdoor dining has grown quickly, cities everywhere have seen streets transformed by...

5 Ways to Inspire Employees

A recent report revealed that 21% of millennial employees have changed jobs within the past year....

Why Periodic Roof Inspections Are Essential

When thinking of how to keep your business running smoothly, the outside of your business matters...

Three Tips for Engaging Remote Employees

Remote work has become increasingly popular over the last decade as more people look for work-life...


The landscape of human resources is changing rapidly. With the explosion of social media and sites...

Stay up to date with industry updates by subscribing to the Society Insurance blog!