Most people who think of worker’s compensation fraud picture an employee faking an injury to collect disability benefits. Some people might also picture an unscrupulous doctor “working the system.” In truth, however, the biggest single fraud in the worker’s compensation system is employers misclassifying their employees. A recent grand jury report in New York City concluded that in the construction industry alone, misclassifying employees (usually as independent contractors) costs the state $500 million annually in lost premiums, cost-shifting to group health insurance, and in lost tax revenue. This is a staggering figure when one considers that the annual cost of the entire worker’s compensation system in New York State is $6 billion.
The reason that fraudulently classifying employees does not spring to mind when one thinks of worker’s compensation fraud is that it seems boring and blasé. When you see a video of an employee who claims to be totally incapacitated splitting and stacking logs for 2 hours, it makes your blood boil. Naturally, we want to punish the offender and see justice done. On the other hand, fraudulent classification consists of merely of misrepresenting how many persons are on the payroll and what those persons do. It is a wholly digital fraud, conducted at a keyboard or in a conversation with an insurance agent. Everything about it seems nondescript and ordinary. Unfortunately, nothing could be further from the truth.
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