Benefits and Compensation

Tips for Preventing Fraud in Workers’ Compensation Claims

Most employers understand the benefits of workers’ compensation insurance. If an employee is injured on the job, the insurance kicks in to pay for the medical bills and at least a portion of the lost wages while the employee recovers. The employee doesn’t have to fear losing his or her livelihood after reporting the injury, so there is less incentive to keep injuries quiet. The employer doesn’t usually have to fear negligence lawsuits (except in extreme cases) for simple work injuries. (In the past, these suits were the only way for an employee to get bills covered, so they were much more common—workers’ compensation is in place to reduce this issue.)

But even with all these benefits of a workers’ compensation program, there can still be drawbacks. One of the biggest concerns regarding the system is fraud.

Types of Workers’ Compensation Fraud

Fraudulent activity can occur at all stages of a workers’ compensation claim. Employers must be vigilant to ensure the system is being implemented and carried out consistently, taking care to not reduce benefits for legitimate claims while working to reduce or eliminate fraudulent claims or exaggerations.

Here are some of the main ways fraud can occur during the workers’ compensation process:

  • The severity of an injury can be exaggerated, even if the injury is real. For example, someone who is out on leave may claim they have not yet healed, when in fact they are already able to returni —this can be especially problematic if the individual is using the opportunity to get paid by workers’ compensation while conducting other work.ii
  • An “accident” can happen on purpose, which often may include injuries that are completely falsified.
  • Employees may claim workers’ compensation either for injuries that happened in the past or for injuries that happened recently but are completely unrelated to work.iii Some potential red flags that may indicate this include:
    • No witnesses to the injury
    • Injuries with medical details that don’t match up with the employee’s version of what caused the injury
    • Injuries that are reported on a Monday morning but don’t appear to be new
  • Medical providers can also be the ones conducting fraud. For example, they may bill for services that are fraudulent, such as tests or services that were never performed. (While we are focusing this article on employee fraud, it’s important to remember that fraud doesn’t always happen at the hands of employees.)

What Can Employers Do to Minimize Fraud?

The possibility of workers’ compensation fraud can be frustrating but, fortunately, there are a lot of actions employers can take to reduce the risk:

  • Have a clear policy regarding workers’ compensation. Employees should understand the benefits of the program, and they should also understand their obligations. The policy can clearly outline that suspicions of fraud will be investigated and legally pursued when warranted.
  • Ensure employees understand the need to immediately report any accidents or injuries and that you take their safety seriously. They should not be afraid to report such things and should not face negative consequences for doing so. Getting an injury treated quickly is often the key to helping the individual recover quickly—which will also minimize costs.
  • Conduct investigations related to claims to ensure they’re accurate and are being handled consistently within the law. When an injury occurs, investigating the details will have multiple benefits—not only will it reduce fraud, it could lead to procedural changes that reduce the likelihood of that injury happening to someone else. Always ask for witnesses to explain what happened. Look for inconsistencies or other red flags, such as:
    • Stories that contradict one another. This could happen when the injured individual tells different people different accounts of the situation. It could also occur when witnesses give versions that contradict each other or contradict the injured individual’s account.
    • Injuries that are not medically consistent with the other details of what happened.
    • No witnesses.
    • Injuries and claims that occur immediately before a major change, such as a seasonal layoff, a strike, or other situations in which the employee would lose pay.
  • Create a program to get injured or ill employees back to work as quickly as is feasible. For example, institute a light-duty option (if possible) that facilitates the transition back to the workforce sooner rather than later. This can help both the employee and employer.
  • Stay in contact with employees for the duration of the time off. Create a regular schedule of communication and monitor progress. Have a process in place that tests the worker’s abilities (when appropriate) to determine whether they’re able to return to work.
  • Be sure that HR and management/supervisors are trained to recognize fraud in workers’ compensation and what to do if it is suspected. They should know who to turn to. They should also know how to keep employees safe and follow medical restrictions to ensure employees are not re-injured.
  • Listen to other employees. While rumors are often unfounded, employee discussions can still be a valid source of information about injured employees. Naturally, you don’t want to jump to conclusions or act without evidence, but take comments from other employees seriously if they are implying fraud from co-workers. Consider providing a way for employees to anonymously report suspicions of fraud.
  • Consider using surveillance equipment on the worksite.
  • Consider having a drug testing policy that includes testing any time an accident occurs. This could improve your overall safety and reduce all workplace injuries, not just fraudulent ones.
  • Get to know your workers’ compensation insurance agent as well as individuals in the company who are involved in loss control. They can often assist in investigations and help to manage costs. They may be able to assist in determining which claims are likely to be fraudulent.
  • Have a designated workers’ compensation medical provider for your employees to use—and be sure to work closely with this provider. Work with the medical provider to ensure that the injuries are consistent with the explanation of the accident. Be sure they have a list of essential duties of the injured individual, so they are able to determine when that person may be able to return to work. Also, be sure they have a list of tasks involved in any light-duty program you might offer that would get the employee back to work sooner.
  • Be thorough in how you screen new hires. One oft-overlooked way to prevent fraud is to hire individuals who wouldn’t even consider it in the first place. Use background checks to look for red flags such as overly frequent job hopping or evidence of previous fraudulent activity. While you cannot disqualify someone merely for filing a workers’ compensation claim in the past, it could be a red flag if they’ve filed an inordinate number. Even if the claims are legitimate, it could mean this individual does not follow safety guidelines.

Have you dealt with workers’ compensation fraud in your organization? How did you handle it?


iNote that sometimes it can be difficult to bounce back after an injury. It also takes a mental toll. Don’t be too quick to assume an employee is “faking”—he or she could legitimately be struggling with inability to get back into daily activities even after it seems like enough time has passed for the injury to heal. This is a fine line and employees should be treated with respect.

iiRemember that conducting other work is not an indication of fraud in and of itself. It’s entirely possible that the other duties were within the individual’s physical restrictions but his or her full-time job is not.

iiiNote that some workers’ compensation laws allow for injuries that are exacerbated at work or because of work activities to qualify under workers’ compensation provisions, even if the original injury was old or unrelated. Be careful not to dismiss such a case without checking your local regulations, since workers’ compensation laws vary at the state level.


About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.

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