15 ways to identify and deal with false workers compensation claim

Updated: Mar 12

Before we start talking about False Workers’ Compensation Claim, we need to fully understand what a Workers’ Compensation is.



Table of Contents

  1. What is Workers’ Compensation?

  2. What is Workers’ Compensation Insurance?

  3. What is False Workers’ Compensation Claim?

  4. Workers’ Compensation Fraud by employees.

  5. Workers’ Compensation Fraud by Employers.

  6. Workers’ Compensation Fraud by Health Care Providers.

  7. Identifying false Workers’ Compensation Claims.

  8. Dealing with False Workers’ Compensation Claims.

  9. Penalties for filing a false Workers’ Compensation Claim.

  10. FAQs


What is Workers’ Compensation?


If the name itself doesn’t give it away, it is basically the monetary compensation that a workplace employee gets, in case he sustains a work-related injury or ailment that renders him/her ineffective for that workplace and makes him/her unable to work anymore.

What that means is that the employee will keep getting paid even when he is not working because he is physically unable to work. Workers’ Compensation does not cover any disability sustained off-duty.

Let’s say, a worker is involved in an accident while he is driving home from work or driving to work from home, and he is unable to show up to work the next day. In that case he will not be compensated under Workers’ Compensation.

The workers get this compensation for being unable to work, as a result of any disability sustained, while being on duty.


What is Workers’ Compensation Insurance?



Fraud workers compensation claims identification and dealing
Detecting Fraud workers comp claims


An employer has a legal obligation to look after his/her employees. As a result, the employer has to get Workers' Compensation Insurance to cover up for his/her employees' afflictions. These afflictions include:

  • replacement wages for the workers while he is unable to work

  • the expenses for medical treatments that the employee receives.

  • and in some cases it gives the employer immunity from any lawsuits from their workers.

Employers tend to purchase a Workers’ Compensation Insurance so that they can reimburse their employees. Employees may or may not accept this insurance.


What is a False Workers’ Compensation Claim?



What is False Workers’ Compensation Claim?
What is False Workers’ Compensation Claim?

More commonly known as the Workers’ Compensation Fraud, this term is used to refer to an event where an employer or an employee has lied, misrepresented, faked or exaggerated an injury, ailment or illness in order to gain compensation from their insurers.

In other words, False Workers' Compensation claim is basically lying about getting injured in order to get money out of insurers. There have been incidents in the past that are testament to the fact that both the employers and the employee can commit this fraud.


False Workers' Compensation Claim by Employees.


There are several ways in which employees can easily commit Workers’ Compensation Fraud and file for a False Workers’ Compensation Claim.

  • Lying about the extent of injury or illness: The worker can claim to be suffering from a physical discomfort that can be categorized as an injury but he/she is still capable of showing up and doing his/her job.

  • Coming up with a fake injury or illness: The workers can conjure a fictional story about how he got sick or injured and is unable to work now.

  • Exhibiting a non-work related injury as a work-related injury: There have been instances in the past where the workers have claimed to be injured while working when apparently they were injured off-duty.

  • Prolonging the extent of their compensation period: Some workers have prolonged the extent of their compensation period by pretending to be injured even when a significant time has passed after their recovery.


False Workers' Compensation Claim by Employers


There are also ways by which employers, as well, can commit the Workers’ Compensation Fraud and dupe their insurers.

  • Misclassifying employees or hiding their actual count: Some employers can classify their workers as individual contractors and not employees on their own payroll so that they can reduce their Workers’ Compensation premium. Providing insurance providers with a smaller count of employees is also a common practice of a false workers compensation claim by employers.

  • Falsely demonstrating the work environment safety: The Workers’ Compensation premium depends vastly on the work environment and its working conditions. Employers can lie about it to have reduced premium expenses on their budget. The roles and responsibilities of workers at the workspace help the insurers determine the cost of premium that the employer will pay. The insurers need to get an insight on the risk of injury or illness in order to determine the Workers’ Compensation premium.

  • Under-reporting payroll: Some employers, in order to reduce their Workers’ Compensation premium, under-report their payroll to the insurance authorities.

  • Getting away with not buying Workers’ Compensation Insurance: Some employers, straight up, do not bother to buy a Workers’ Compensation Insurance just so that they can reduce their expenses and ease on their budget. Though this is not exactly fraud, in some states, certain types of employers are legally mandated to get a Workers’ Compensation Insurance for their workers. It can be categorized as illegal practice and fraud if they fail to do so.

False Workers' Compensation Claims by Health Care Providers


Even the health care providers like hospitals and doctors have committed Workers’ Compensation Fraud in the past.

  • Issuing overpriced medical bills: There was an incident in California where medical professionals and marketers committed a fraud of over 200 million dollars and duped the workers’ compensation system by hiring migrants who would file false Workers’ Compensation Claims against their employers.

  • Conducting a medical business without a licensee: Some individuals in the medicine sector have been known to practice medicine for commercial purposes without possessing a license to practice or conduct medical evaluations.

  • Creating fake contracts for medical work that was never performed: An incident in 2013 revealed that a group of 5 healthcare professionals defrauded the workers’ compensation system of 580 million dollars for over 8 years by billing their insurers for surgeries that were never performed and inflating the cost of medical implants used in those surgeries. This scam was uncovered by the FBI which was later dubbed as Operation Spinal Cap.

Identifying a False Workers’ Compensation Claim



Identifying False Workers’ Compensation Claim.
Identifying False Workers’ Compensation Claim.


Unfortunately when it comes to spotting false Workers’ Compensation Claims, there is not one textbook, protocol or standard set of rules out there. It largely depends on the event and as an insurer or an employer, it boils down to one’s own common sense and deductive abilities.

Before taking legal action against someone, who you think might be filing a false Workers’ Compensation claim, there are a few things that can be done and should be done, because if you wrongly accuse someone of falsifying their Workers’ Compensation Claim, you can easily find yourself in hot waters.


Here are 15 things that you could do to Identify a false Workers’ Compensation Claim:


1. Newly hired employee

  • It’s a crimson red flag if an employee who has been hired quite recently files for a Workers’ Compensation Claim. There are chances that this is not his/her first job or his/her first time filing a Workers’ Compensation Claim or simply that he/she has discovered a loophole in the system.

2. Late filing of the Workers’ Compensation Claim

  • Warning signs should immediately go off if a Workers’ Compensation Claim has been filed late, like a week or so. It’s only natural that a worker should think of his/her well being not long after he/she is unable to work. Filing late claims is a sign that the story might be fictional.

3. No witnesses

  • It’s as good as a fraud if there is no one to corroborate with the claimants story. If the injury never took place or it was not at the workplace then it is obvious that there will be no witnesses to that incident. The other way around is not that obvious but it should raise eyebrows.

4. Refusal to undergo diagnosis

  • If the claimant is refusing to undergo diagnosis at a medical facility like an X-Ray or an MRI scan or any diagnosis relevant to his/her injury, then you have a good reason to be suspicious of the claimants description of the injury.

5. Inconsistent description of the accident

  • Pay close attention to the details in the claimants story. See if they add up with the details provided by the insurers and the health care providers. If the story is made up, then the dots will not connect and you have a cause for concern.


6. The grapevine

  • Always go to the scene of the injury and see for yourself. Talk to other workers present there and in particular to those that were present at the time of the accident, as stated by the claimant. There is always gossip about such accidents for which a Workers’ Compensation has been claimed.

7. Recent past of the claimant

  • Check the recent past of the worker as an employee. Did he make a request for a vacation that was denied? Was he dissatisfied as a worker? Was he also working a side job? If the answer to any of these questions is ‘’YES’’, then there’s a chance that a false workers’ compensation claim was being filed.

8. Background of the claimant

  • Conduct a background check of the worker. Was he Financially troubled? Does he/she have a consistent record of switching jobs? Does he have a history of filing Workers’ compensation Claims at his/her previous jobs(In some states, this record is public.)? Again, if any of these questions answer “YES”, then there is a chance of a fraudulent Workers’ Compensation claim being filed.


9. Evidence of doing something that would have been impossible with the claimed injury.

  • Look out for any activities that the employee has done in between the time when he /she claimed to get injured and when he filed the claim. If his/her story is made-up then you might come across something that will be a testament to this suspicion.

10. Reported after a holiday

  • If the claim has been reported on a Monday, or after a strike or a holiday, then there is an equally likely chance that the claim is fraudulent. This is because it is possible that the claimant injured themselves during this hiatus period and they are looking to get the medical expenses out of the insurer's budget.

11. An attorney has been hired

  • If there is evidence that the claimant has hired an attorney at any time close to the timing of filing the Workers’ Compensation Claim, then that evidence is a warning shot.

12. Pushing for a quick settlement

  • If the claimant is pushing for a quick settlement of the compensation and seems impatient, then it’s safe to assume that something might be fishy.

13. Hard to reach the employee while he is on leave

  • If the employee is difficult to reach while on a leave due to his/her injury, and he/she has filed for a Workers’ Compensation Claim or is already receiving one, then there is a good chance that his/her claim was fraudulent.

14. Reported just before a layoff or a termination or expiring contract

  • You might want to look into the matter and conduct an investigation if a worker has filed for a Workers’ Compensation Claim just before a layoff that he/she knows about a termination of his/her job, or an expiration of his/her contract.

15. Trust your instincts

  • And then there is always your own gut feeling. Trust it. No one knows your employees better than you do, and if you have a feeling that something might be wrong, don’t hesitate to conduct an investigation.

Dealing with False Workers’ Compensation Claim


When it comes to dealing with a false Workers’ Compensation Claim, you can only take preventive measures. But once they have been committed and identified, then nothing to do except take the required legal action.


Here is a list of 7 things that you can do to prevent a false workers compensation claim:

  1. Avoid underpaying your employees.

  2. Maintain a healthy work environment for your workers.

  3. Always perform a thorough background check of your employees.

  4. Be quick to conduct investigations.

  5. Report any workplace injuries immediately.

  6. Hire a supervisor who oversees workplace injuries.

  7. Establish a ‘Zero-Tolerance for Fraud’-esque policy and make sure your employees understand what a Workers’ Compensation Insurance is.


Penalties For Filing False Claims For Workers' Compensation



Penalties for filing a False Workers’ Compensation Claim
Penalties for filing a False Workers’ Compensation Claim

A Workers’ Compensation fraud is a felony. 1% to 2% of Workers’ Compensation Claims are fraudulent. There are heavy penalties for convicts of this fraud. The penalties include fines and jail time. They depend totally on the scale of the fraud, the amount of money defrauded and the time for which the fraud was being committed.

Jail time may range from a year to 10 years, depending on the part of the country one is in, and fines can start from 10,000$ and go all the way up to 100,000$ - besides being forced to pay the money that was defrauded.



FAQs about False Workers' Compensation Claims


What is a Workers’ Compensation Ghost Policy?

  • It is basically a Workers’ Compensation Policy exclusively for businesses with no employees besides the owners themselves. It is used as proof for Workers’ Compensation Coverage even when a business does not have any workers.

Does Workers’ Compensation Claims show up on background checks?

  • No. It is public only to your current and previous employer and to the court.

What does a Workers’ Compensation Claims examiner do?

  • Verifies the documentation, cross checks compensation amount, reviews the claimants claims and in general oversees that the Workers’ Compensations guidelines are being followed

Can a worker sue for damages other than Workers’ Compensation?

  • Yes. For damages not included in Workers’ Compensation like sexual harassment and emotional distress.

What does a Workers’ Compensation Policy cover?

  • Rehabilitation, medical coverage, disability benefits, death benefits.

What happens if I don’t carry a Workers’ Compensation?

  • You are at risk of committing an illegal act if your state requires you to carry one.

How can you data help prevent false Workers’ Compensation Claims?

  • Your public data of your employees shows up in background checks. Background checks play a vital role in identifying false Workers’ Compensation Claims.


Final Word:


When it comes to matters involving money, people tend to get morally flexible and it is especially true for people on a payroll. Conditioned by their need to make money and the dissatisfaction from their seemingly uninteresting jobs, workers look for an easy way out and tend to commit such acts that they may or may not know are felonies.


Also read: 19 ways to reduce workers' compensation costs