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A New York Supreme Court grand jury report found that in 2011 the construction industry alone cost New York State a staggering 500 million in unpaid workersrsquo compensation premiums based on worker misclassifications
<p>A New York Supreme Court grand jury report found that in 2011, the construction industry alone cost New York State a staggering $500 million in unpaid workers&rsquo; compensation premiums based on worker misclassifications.</p>

Will NY Crack Down on Workers’ Compensation Premium Fraud?

A grand jury recommends changes to the New York workers’ compensation system, saying the construction industry alone cost the state $500 million in unpaid workers’ compensation premiums.

Stories of employees who have committed workers’ compensation fraud often seem to surface in the media. Employers who have defrauded the system don’t seem to get as much press – although the problem is just as rife and the impact just as damaging.

A New York Supreme Court grand jury, empaneled at the request of Manhattan District Attorney Cyrus Vance Jr., released a report in late March finding that the construction industry alone cost New York State in 2011 a staggering $500 million in unpaid workers’ compensation premiums based on worker misclassifications. 

These findings led Vance to condemn the fraud and highlight the grand jury’s recommendation for changes to the New York workers’ compensation system.

“The widespread premium fraud detailed by this grand jury report is deeply troubling and underscores the critical need to reform the workers’ compensation system,” Vance said in a written statement. “My office’s Tax Fraud and Money Laundering Unit will continue to pursue those who cheat the system, but the best protection for New York’s workers is a system that is itself protected from fraud and abuse.”

Workers’ compensation fraud is a class E felony, punishable by fines and or prison time. Subsequent violations are a class D felony and carry harsher penalties.

How Employers Cheat the System

Employers typically commit insurance fraud by misclassifying their workers or even their entire business to avoid higher insurance premiums. Insurance premiums typically are calculated using a rate of $100 of the payroll for covered employees, but the rates vary depending upon each employee’s job classification. A rate for a relatively safe job may be as low as two cents for each $100 of payroll, whereas the rate for a more dangerous job could be as much as $35 for each $100 of payroll, according to Vance. 

Because the system involves self-reporting, employers easily can lie about the type of work an employee performs to get a lower premium. For example, an employer might classify an electrician (a relatively risky job) as a secretary (a fairly safe job), thus dramatically lowering their annual insurance premium. 

Employers might also defraud the system by misclassifying employees as independent contractors, thereby entirely skipping their obligation to include these workers as their employees who are required to be covered by workers’ compensation.

Grand Jury Recommendations for Change

To promote earlier detection of workers’ compensation premium fraud, boost compliance and enforcement efforts and deter cheating, the grand jury offered four recommendations:

Increase penalties to ensure that sentences are commensurate with the magnitude of the fraud. The grand jury points out that as of now, workers’ compensation fraud is a class E felony whether the amount of the fraud is $1,000 or $1 million. It recommends that relevant criminal statues, including both workers’ compensation law and penal law, be amended to include a gradated series of workers’ compensation fraud crimes based on monetary thresholds. 

Increase transparencies in the application process and audit procedures. The grand jury recommends creating a uniform insurance application process for employers that must be submitted electronically to the Workers’ Compensation Board. It also seeks to require insurance companies to conduct more rigorous audits of employers to ensure that the correct premiums are being paid. In addition, the grand jury proposes that employees receive a workers’ compensation insurance card to present when seeking treatment or medication for a job-related injury.

Broader data collection and collaboration. According to the grand jury, increased data collection and collaboration among state and local agencies will broaden the information disseminated among those investigating and prosecuting fraud. To achieve this, the grand jury advises creating an integrated database that would include all applications, audit exit reports and certificates of insurance. Further, a real-time database should be created that includes information from commercial check cashers available to the Workers’ Compensation Board.

Broader education of employees and the community at-large about the value of the workers’ compensation system. Greater understanding of the value and benefits of the workers’ compensation system can help discourage fraud, according the grand jury. Employers fully should understand their obligations under the workers’ compensation system, as well as the penalties for committing fraud. Employees should be made aware of their rights under the system and encouraged to invoke these rights.

These sweeping changes, if effectively implemented, certainly would go a long way to decreasing workers’ compensation premium fraud and boosting the state’s economy.  We will be following the New York Workers’ Compensation Board and state legislature closely to see if any action is taken on these recommendations.

About the Author: Paul Giannetti is an Albany, N.Y. workers’ compensation attorney with more than 15 years of experience. Giannetti has fought for the rights of injured and disabled workers seeking workers’ compensation, social security disability benefits and recovery for accidents and personal injuries. In addition to the New York Bar, he is a member of the Injured Workers Bar Association and Workers’ Compensation Alliance.

TAGS: Health Safety
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