Employers who fail to cover their workers for workers' compensation, or who mischaracterize their employees as "Independent Contractors" cheat the entire workers' compensation system. They cheat both the workers who remain uncovered and other employers who appropriately cover their workers.
An effective tool for combating this employer fraud has been used in North Carolina. The North Carolina Industrial Commission used computer data to collect nearly a million dollars in penalties from employers with no workers' compensation. The penalty revenue is used in North Carolina to maintain public schools.
The Commission's Compliance and Fraud Investigative Division staff used a new tool, the Non-Compliant Employer Targeting System (NETS) to identify employers who are required by law to maintain a valid workers' compensation insurance policy but have failed to do so. North Carolina Industrial Commission Chairman Andrew Heath noted "Unlawful employers that fail to provide workers' compensation insurance coverage are a drain on North Carolina's legitimate businesses, health care providers, and taxpayers." He noted "unethical and illegitimate business owners will find no safe harbor here in North Carolina."
States should focus on employer fraud, rather than spinning their wheels on virtually non-existent employee fraud. Much fanfare (primarily fueled by insurance carrier advertisements) accompanied the enactment 20 years ago of a fraudulent claims reporting provision in Wisconsin's Workers' Compensation Act. Since 1994 the Act requires insurers to report suspected employee fraud to the Department of Workforce Development on their own initiative. After reviewing the results of the insurer's investigation, the Department refers cases to local District Attorneys for prosecution if there is a reasonable basis to believe the case involves insurance fraud. The Department's published multi-year study of such claims concludes that the public perception of workers' compensation employee fraud is extremely exaggerated - less one in ten thousand injuries.
Efforts at uncovering and penalizing employer fraud should be undertaken in all states.