Intentional Misclassification of Employees, Workers Compensation Audits and Fraud

We were recently contacted by an insurance agent representing an employer who, upon completion of their workers compensation audit, was presented with a bill for an additional $55,000 in premium .  Actually, this is a pretty common reason we receive calls! It is certainly reasonable and should be expected that when an employer receives such a bill from their insurance company they would normally want some sort of verification that it’s correct before writing the check. So we were asked to review the audit and verify classification codes and assignment of payroll into those codes by the auditor.

Here’s a little background information.

The client, a medium-sized construction company, had experienced considerable growth over the past 5 years with a payroll nearing $2.5 million. No longer should this company be considered a small company nor should they continue to operate as one.  A physical audit was conducted at the employers business office where the auditor interviewed the employer’s office manager, the assigned contact for the business. Upon hearing the news of the large audit bill, the owner of the company asked to see the payroll records supplied to the auditor. Upon examination the owner determined that approximately $800,000 in payroll should be moved into the clerical class code 8810 and he wanted his agent to make the change happen.

We reviewed the audit and determined the auditor had done a good job at classifying the employees into the correct workers compensation codes. We discovered that the employer had received a similar large audit bill for the prior years audit at which time he asked the insurance carrier to not adjust his payroll levels providing a reasonable explanation for doing so. The employer was previously provided with written class code descriptions for proper payroll application and this was done by his staff. So all in all the audit was conducted properly and the resulting additional premium was reasonable.

The employers single goal was to reduce premium cost.  Of course, his agent was afraid of losing the account to another agent who would possibly help the employer misclassify those employees. Maybe I’m old-fashioned, but isn’t it an agents job to do the best he can for the client, to work with the client and to guide them in providing superior service by making sure things are done correctly and accurately? Shouldn’t it be team work between the employer and his agent? Most agents do a great job at this and should never be put in a position where they have to make this sort of decision. Truth be known, they have to do it every day!

The audit was correct. Current policy period payrolls were adjusted to the audit level. The agent still has the account.

But this employer was unreasonable in asking his insurance agent to commit a fraudulent act on his behalf.  He was called out for doing so! (Good for the agent!!) The act of intentional misclassification of employees with the sole purpose of committing premium fraud is a serious offense, never taken lightly by state regulators.  Take it serious!  

Thanks for reading. Hope this helps you out!