Thirty-two-year-old Bob, an HVAC service technician employed by XYZ Heating & Cooling for the past six years, lumbers into the office of company owner John Doe. He is holding his back and grimacing in obvious pain.
"What happened to you?" John asks with concern.
"I had just finished up that Johnson repair and was loading my tools into the van when I slipped and wrenched my back. Damn, it hurts." Bob attempts to stretch sideways and gasps.
John tells Bob to go home and take it easy. Bob does just that. He subsequently sees a doctor, files a workers' compensation claim and "takes it easy" for over three months! One of his recent Facebook posts mentions he had been mountain biking one weekend.
Phony injuries on the job come in many varieties, the most stereotypical being the fake back injury. While workers' compensation insurance protects employees who are hurt on the job — paying their medical expenses, lost wages and other expenses while the worker recuperates — small business owners bear a huge financial onus for fraudulent injury claims, estimated to be 20-30 percent of all injuries on the job — or about one out of four. While combating this fraud is not cheap, allowing it to prevail can be even more expensive: they force premiums higher and can drain business profits.
As an employer, you must be vigilant in your efforts to protect your company from the few employees who do commit injury fraud. Otherwise, it will cost you in increased insurance premiums, increased workers' compensation premiums, legal fees, liability settlements and more.
So what can you do to protect yourself against injury fraud? And what should you do if you suspect an employee of faking an injury? Here are nine steps small business owners can take to protect themselves against fraudulent injury claims.
Preventing fraud starts with having a safety plan in place and enforcing that plan. When employees know there is a written process in place for reporting injuries, they are less likely to "try and pull a fast one."
Your company safety plan should include job descriptions, job duties and safety hazards. It should outline what steps to take in the event of an injury. It should be displayed in a common room, as well as in company vehicles, and should be signed-off on, every 3-6 months to ensure compliancy. And it should be enforced 100 percent of the time. You should work with your insurer or hire a professional insurance defense investigator to implement a safety-management program that can eliminate as many safety problems as possible.
A well-written safety plan can accomplish several things:
Building strong teamwork among your employees about injury fraud, and making sure they understand it won't be tolerated, goes a long way toward preventing fraudulent claims. Communicate that your company has zero tolerance for injury fraud and that violators will be prosecuted to the full extent of the law. Be sure to publicize your workers' compensation policy to all new hires, and current employees, and provide them with updates at least once each year. But don't go overboard or take too harsh of an approach: if you treat all injury claims with suspicion, you run the risk of alienating the majority of your workers, who are honest.
One of the easiest ways to prevent fraudulent injury claims is to provide a safe and comfortable workplace. Assure your employees that safety — and their well-being — are top priorities. If an employee expresses concerns about unsafe working conditions, address them immediately. Your company workplace stands a better chance of remaining injury-free if your employees feel appreciated and know you care about good working conditions and — more importantly — their health.
A good way to promote a safe work environment is to track and display the number of days that elapse without an incident. Celebrate milestones by putting on a company pizza party or taking employees out to lunch. Giving an incentive to be safe may seem like an unnecessary expense, but it is less expensive than the cost of a workplace injury. It can also dissuade employees from allowing co-workers to file fraudulent claims.
Another good way to combat fraud is through careful screening of all job applicants. Conduct background checks on all candidates prior to hiring. Carefully verify all references and background information. Be wary of criminal records and any individual with a history of injury claims. Being diligent early on in the hiring process ensures you have a more ethical workforce and can save you headaches down the road.
While the most common forms of injury fraud are those perpetrated by workers, employers can be guilty of fraud as well. Unscrupulous companies may underreport payroll or misclassify employees to reduce insurance premiums, deduct premium dollars from employees' wages and/or knowingly fail to have necessary workers' compensation coverage.
The workers' compensation system is administered on a state-by-state basis, and requirements for employers vary from state to state. The differences can be incredible; knowing what insurance requirements your state sets out for you is essential for protecting yourself as a small-business owner. Some states never require worker's compensation insurance, some always require it and, for some, whether it is required depends on the number of employees your business has. Additionally, even if your state does require you to carry worker's compensation insurance, states have many exemptions.
Make sure you understand your state requisites, have adequate coverage and are not violating your state's workers' compensation coverage requirements.
According to the Coalition Against Insurance Fraud, the most common forms of workers' compensation fraud by workers are:
Knowing the common warning signals of suspicious claims will help you identify workplace injury scams. For example, the most commonly faked injuries are ones to the muscles of the back and neck. Monday morning injuries are another common red flag. These are often an injury an employee sustained over the previous weekend and reported as work-related so it is covered by workers' compensation. Other common red flags include injuries with no witnesses, new employees reporting injuries and injuries reported by employees with poor attendance or a history of disciplinary action.
Even if a claim displays several "red flags" that does not prove fraud. However, if the claim raises more than one of these, the company owner should consider bringing in a fraud investigator to delve deeper into the claim. The more fraudulent claims you identify and deny, the lower your overall cost will be for workers compensation insurance.
You can obtain a list of fraud indicators from your workers comp insurer. (See list provided from the Workers Comp Resource Center.)
All injuries should be handled according to a company notification policy. When an injury occurs, supervisors and your HR department should be notified. Other best practices and procedures include:
A critical step in some states is the timing of the notification of an injury. Some states allow employers and insurance carriers only a few days or weeks to make a determination of liability — in other words: to accept or deny the claim.
At this point, the employer should assess their safety plan, then assess the injury and look for red flags. If red flags are present, it is a judgment call on the part of the employer whether or not to attempt to mitigate the claim by having an investigation conducted.
Even if you do not suspect fraud, it is important to keep the line of communication with an injured employee open. Afterall, you hired this person. They rely on you for their livelihood. Check on their status. Ask them how they are doing. Let them know you are thinking about them and that their job is available upon their return. Maintaining a solid employer/employee relationship is a psychological advantage you need to pursue.
The exception to this is if the injured party has retained an attorney and you receive a letter of representation requesting that all communication be directed through the attorney's office. In that case, you are legally prevented form contacting them directly.
Once an injury claim has been filed, whether or not you suspect fraud, you can — and should — take a proactive role in attempting to prevent fraud. In addition to everything else we've discussed, the following steps will dissuade an otherwise honest employee from the temptation of fraud.
Despite all the precautions he took, XYZ Heating & Cooling Owner John Doe suspects Bob may have filed a fraudulent claim for his back injury. At the very least, he believes Bob is "milking" his injury. Now what?
Uncovering injury fraud can be tricky due to the subjective nature of many claims. Injuries that have visible effects, such as contusions or lacerations, can't be faked. When employees do fake an injury, the most common ones are injuries to the muscles of the back and neck. These false claims often go undetected and are only uncovered when the employee is caught doing yard work, engaging in recreational activities or holding down a different job while collecting workers' comp benefits.
If you do suspect fraud, it is never a good practice to contact or confront the employee yourself. It is better to remain secretive, report the possible fraud to the proper authorities and then fight it legally.
When you suspect a fraudulent claim — and you have evidence or witnesses to back up your suspicion — the first step you should take is to immediately notify your insurance carrier. In most states, the insurance carrier has the right to dispute all claims and absorbs the costs of hiring legal representation and an insurance investigator, if deemed necessary. The investigator's primary function is to gather facts and report to the attorneys and insurance adjusters so they can decide whether or not to take further action.
The rising costs of insurance premiums due to fraudulent claims is the biggest reason employers are taking a hands-on approach to combating fraud. Having a risk management plan in place and having an expert help you develop that plan will reduce your exposure to risk and keep your operating costs down.
Greg Smith is the former editor of HVACR Business magazine. He has been involved in B2B publishing for more than 30 years as an editor and marketing specialist, with more than a decade of experience covering the mechanical systems market.
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