Employee Misclassification Fraud

Read examples of questionable ethics by employers and their high-paid lobbyists.

Moderator: Webmaster

Employee Misclassification Fraud

Postby Webmaster » February 25th, 2005, 7:29 am

It states below that the California Insurance Department "refers to employer fraud as one of the fastest-growing problems in workers’ compensation. Reports estimate that one in every four companies misclassifies their workers to illegally cut costs. Another form of employer fraud in this area is to under report the number of employees, paying under the table, or eliminating the insurance all together--by not buying coverage at all."

------------------------------------------------------------

Are You Next On The Audit List?
By Patricia A. Kotze-Ramos

A California company found what they thought was a unique and clever way to cope with and lower their rising cost of workers’ compensation…they lied. In fact, they totally misrepresented the identity of their workforce and their roles within the company. Instead of reporting the employees as laborers, drivers or construction workers, they characterized them as clerical or sales associates. As often happens with misrepresentation, the company’s owners were surprised with an audit from their workers’ compensation carrier and the misclassifications were discovered.

In cases of such fraud, company owners have been investigated and convicted of felony workers’ compensation fraud. Those found guilty have been sentenced to years of probation and ordered to pay fines well into the six figures. Keep in mind that when you lie about the number or role of your employees, you’re committing fraud against the Employment Development Department and the Franchise Tax Board.

As president of a workplace investigation company, I recently had the opportunity to do some research on Workers’ Compensation as it relates to the rising costs to employers, especially California based businesses. I came across some interesting information comparing fraudulent reports of employees vs. those of employers exploiting the system. Employer fraud is significantly on the rise. The estimate of premium fraud is in the millions, and the deceitful employer puts the honest ones at a competitive disadvantage.

The Insurance Department refers to employer fraud as one of the fastest-growing problems in workers’ compensation. Reports estimate that one in every four companies misclassifies their workers to illegally cut costs. Another form of employer fraud in this area is to under report the number of employees, paying under the table, or eliminating the insurance all together--by not buying coverage at all.

Putting an accurate number to this area of fraud is difficult because of the underground economy. California Employment Development Department estimates the underground economy to be between $60 – $140 billion annually. A joint enforcement strike force led by the EDD conducted over 1100 investigations in several different industries, and identified $245 million in unreported wages in 2002.

A recent investigation involved the Underground Economy Task Force, the Franchise Tax Board, EDD and a San Diego County-based construction company. State Fund actually was awarded $800,000 in the workers’ compensation insurance and tax evasion case. The owners of the fraudulent company, Covington and Huffman, were ordered to pay a total restitution of $1.2 million, and serve up to 5 years and 5 months jail time in state prison and 4 years probation. Formal sentencing is scheduled to take place in San Diego County Superior Court.

Fighting Workers' Compensation fraud is a team effort. Without the employer’s honest involvement, the overall campaign to stop Workers' Compensation fraud will not be successful. Premium fraud is only a portion of the problem but a growing and significant one: it’s not just the employee anymore…

http://www.complianceposter.com/articles/may2004.aspx

------------------------------------------------------------

The owners of three Palmdale, California janitorial firms were sentenced to prison and jail time in an "underground-economy" crackdown on employers who underpay workers and don't pay taxes, including workers' compensation premiums.
Webmaster
Site Admin
 
Posts: 133
Joined: February 23rd, 2005, 10:39 pm

Return to Ethics - Employers

Who is online

Users browsing this forum: No registered users and 1 guest

cron