31 Warning Signs of Workers’ Compensation Fraud (With Real Examples)

How Does Workers' Compensation Work?

Companies buy coverage for each employee from a private or state-run insurance company.

The monthly premiums for coverage vary based on the employee’s field of work (secretarial, labor) and conditions of their employment (contract, apprenticeship, full-time).

An employer can opt-out of the formal program and self-insure instead if they have the assets to cover prospective claims.

Learn more about the fine print regarding injury liability and independent contractors.

How Are Workers’ Comp Claims Made?

If covered by workers’ compensation insurance, employees file a claim explaining their injury or illness and how it was caused by their job role or by a harmful work environment.

Once a claim is submitted, the insurance company will review it and decide whether or not to begin compensating the injured individual for medical costs and lost wages.

In certain situations, an injury would not be eligible for workers’ compensation. An injured worker would probably not receive compensation if they were violating company policy at the time of the incident (i.e., intoxicated) or if the injury was self-inflicted.

What is Workers’ Compensation Fraud?

When a person commits workers’ compensation fraud they are simply taking advantage of the system for their own benefit.

The most evident example is the disgruntled employee who makes a false injury claim for extra money, but there are many types that range from small- to large-scale.

Employees, employers, and even health care providers or legal professionals can take part in these scams.

How Common is Workers' Comp Fraud and What Does It Cost?

According to the National Insurance Crime Bureau (NICB), workers’ compensation fraud is the fastest-growing type of insurance fraud, costing approximately $7.2 billion per year.

This type of fraud creates a domino effect and everyone foots the bill.

• The premiums that the employer pays go up.
• To be able to afford this new premium, the customers pay more at the cash register.
• Thanks to pay cuts, employees can lose out on bonuses and other benefits.
• Sometimes jobs are cut, too.

In the same report, The Travelers Companies Inc. briefly touch on a survey conducted by the Insurance Research Council (IRC). In it, 35% of respondents believe that it’s ok to pad an insurance claim.

Meaning, one-third have no problem with intentionally scamming a benefits program.

Who Commits Workers' Compensation Fraud?

There are three categories of workers’ compensation fraud:

• Claimant fraud (employee)
• Premium fraud (employer)
• Provider fraud (medical or legal).

Each form of fraud can cause varying degrees of damage, and each has a set of “warning signs”.

What Happens If You're Caught Committing Workers’ Comp Fraud?

Committing workers’ compensation fraud can have serious legal, financial, and professional consequences. Whether you're caught working while on workers' comp or exaggerating an injury, the penalties are often steep—and long-lasting.

1. Legal Consequences

Workers' comp fraud is a criminal offense in most jurisdictions. If caught, you may face:

• Misdemeanor or felony charges, depending on the severity of the fraud
• Fines and restitution to repay benefits received under false pretenses
• Jail or prison time, especially in cases involving large payouts or repeat offenses

2. Financial Consequences

In addition to repaying fraudulent claims, individuals may:

• Lose eligibility for future benefits
• Face wage garnishments
• Be sued by insurance companies for damages

3. Employment Consequences

If you're caught working while collecting benefits:

• Your employer may terminate your employment immediately
• You could be blacklisted within your industry or community
• It can severely damage your reputation and future job prospects

Workers’ comp fraud is not just a legal misstep—it’s a breach of trust. Insurers, employers, and investigators are trained to detect red flags, and many fraud cases are uncovered through surveillance, tips, or inconsistencies in medical records.

Claimant Fraud: Faking Injuries and Other Red Flags

Free money and vacation time are two of the motivating factors for employees who commit workers’ compensation fraud.

Some fraudsters, instead of tending to their “injury”, will choose to take up a second job or start a side business for extra income (on top of what they’re already receiving for their injury).

A claimant fraud scheme begins with a bogus claim using:

• A fake injury
• An inflated injury
• An injury that happened off the job
• An old injury that never fully healed

Never directly accuse an employee of fraud, but keep an eye out for these red flags if you think your employee is being less than honest.

If you end up discussing the incident with the employee, remember our detecting deception tips.

Warning Signs of Claimant Workers' Comp Fraud

1. There are no witnesses to the incident.
2. The injured employee is refusing treatment or receiving conflicting diagnoses
3. The injured employee waited to report the incident with no valid explanation for the delay.
4. The injured employee’s story is inconsistent or suspicious.
5. The injured employee has a history of making workers’ compensation claims.
6. The injured employee has a history of changing jobs or medical providers often.
7. The incident happened before or just after a weekend, strike, or holiday.
8. The incident happened just before an imminent termination or expiring contract.
9. There is evidence of the injured employee working a side job.
10. There is evidence of the employee doing activities that would be impossible with their claimed injury (e.g., mowing the lawn with a broken ankle).
11. The injured employee is hard to reach while on leave.
12. The injured employee hired an attorney right away or is pushing for a quick settlement.

What is Malingering in Workers’ Comp?

Malingering is a common practice in claimant fraud.

Mr. Jones has been off work for a while due to a back injury he got late last year. He has been receiving pretty hefty workers’ compensation benefits. He was supposed to return to work several weeks ago but insisted he was still injured and didn’t want to risk it.

Then, his manager ran into him lifting heavy boxes into his truck. Mr. Jones is a malingerer.

How to Handle an Employee Faking an Injury

Dealing with an employee suspected of faking a work-related injury requires discretion, documentation, and due process. Here’s how to respond effectively:

1. Investigate Discreetly

Avoid rushing to judgment. Begin with a confidential internal review. Examine the incident report, injury details, witness statements, and timelines.

2. Gather Supporting Evidence

If inconsistencies or red flags arise, collect additional evidence:

• Video surveillance from workplace cameras or public areas
• Social media activity that contradicts the injury claim
• Independent medical evaluations (IME) to assess the legitimacy of the injury
• Document all findings carefully and objectively.

3. Consult Legal Counsel and HR

Before taking action, involve your legal and human resources teams. This helps ensure that:

• Investigations are compliant with employment laws
• The employee’s rights are respected
• Any disciplinary actions are legally defensible

Depending on the outcome, your organization may report the fraud to your workers' compensation insurer or state fraud bureau.

Falsifying an injury claim is serious—but mishandling an investigation can also expose your organization to liability. Proceed with caution, and follow documented policies every step of the way.

Employer or Premium Fraud in Workers' Compensation

These schemes by company owners are large, complex, and well-hidden behind creative accounting or other coverups.

The end goal for these fraudsters is to reduce the amount they owe in workers’ compensation premiums.

Some of the red flags for premium workers' compensation fraud are rather obvious, such as strictly cash paychecks.

Other warning signs are more difficult to spot. For example, some employers might intentionally misclassify their laborers as administrative assistants. The latter is a less risky job, so the premiums are less expensive too, and so the employer saves money.

To reduce the damage caused by premium fraud, keep a watchful eye for some of these red flags.

Warning Signs of Employer or Premium Fraud

1. The employer pays workers in cash.
2. The employer simply refuses to purchase workers’ compensation insurance.
3. The employer denies valid claims by injured employees.
4. The employer has several businesses operating from the same address.
5. The employer uses a PO box as its main address.
6. The company name is inconsistent with the work being done (e.g. Jim’s Roofing delivers flowers).
7. The employer refuses to be audited.
8. The employer underreports the number of employees.
9. The employer misclassifies job types.
10. The employer misclassifies contract types.

Real Example: Mr. Campbell’s Premium Fraud Case

Mr. Campbell, the owner of drywall business E&E Acoustics, underreported payroll numbers and misclassified employees for a couple of years in the late 2000s. Then in 2015, Campbell was caught and ordered to pay back over $1 million in premiums and interest fees.

Healthcare Provider Fraud in Workers’ Compensation

The providers of workers’ compensation benefits can and do scam the system as well. In some cases, corrupt medical and legal professionals exploit the process through WCAB scams—fraudulent activities involving the Workers’ Compensation Appeals Board—to manipulate claims, delay hearings, or inflate settlements. These actions often point to large-scale, organized efforts to defraud the system.

Provider workers' compensation fraud is usually the sum of many scams, including:

• Inflated worker injuries or service prices
• Random and unnecessary billing
• Fake clinics
• Kickback schemes

The mere size of these schemes can cost millions of dollars and their warning signs are often complex and difficult to identify.

Signs of Workers' Comp Provider Fraud

1. The provider bills for services never received.
2. The provider bills for equipment never used.
3. The provider bills for the treatment of individuals who were never treated.
4. The provider is “duplicate billing” (billing multiple times for something that’s already been paid for).
5. The bills received for the injured employee are higher than usual for the type of injury.
6. The provider bills for services that don’t make sense for the reported injury.
7. There is a random increase in the frequency of visits.
8. The medical services are performed for a long time without any improvement in the injury.
9. The same medical provider and law teams are involved in questionable cases.

How to Report Workers’ Compensation Fraud

So, a few warning bells have gone off and you’ve decided it’s time to report the issue, what do you do now?

As an employee, if you have been denied benefits or you otherwise believe your employer is involved in a workers’ compensation scam, alert the local labor department.

As an employer, alert the workers’ compensation insurance carrier about the suspicious employee so that they can begin a formal investigation.

How to Prevent Workers’ Compensation Fraud at Work

According to the Coalition Against Insurance Fraud, 20% of small-business owners wouldn’t know how to identify a workers’ compensation insurance fraud scheme. Keep in mind that statistic doesn’t include the number of employers who believe they could detect a workers’ comp scam—but when actually faced with one, fail to recognize the warning signs.

If you’re looking to detect workers’ compensation fraud in your company, the best place to start is recognizing the warning signs. Thanks to the helpful tips above, that part is already done.

Injured employee living a lavish life all of a sudden? Wanting to investigate? Use this Lifestyle Audit Report Template to streamline your investigation.

Prevention begins at the hiring process. Conduct thorough background checks of all applicants and vet them properly. Reaching out to references might give you the inside scoop on any of the employee’s peculiar behaviors. You might even uncover a prospective employee’s prior claims.

In the workplace, installing surveillance cameras is a good precaution that one day might confirm or deny the validity of injury claims. In addition to cameras, you can:

• Introduce a zero-tolerance workplace policy for fraud.
• Foster an environment that encourages employees to report their suspicions.
• Launch an official whistleblower hotline and offer rewards for tips if necessary.
• Provide training for employees about workers’ comp fraud.

Being prepared can help you detect and respond to fraud faster and more effectively. Download our free fraud response plan template to get started.

Using Social Media to Detect Workers’ Comp Fraud

Thanks to the new, unwavering desire to share all aspects of your life, it’s more common than ever for a claimant to expose their own scheme.

Check out our cheat sheet with tips for finding, using, and preserving online evidence.

Keep an eye on social media. If you do come across an injured employee ratting themselves out online, you'll be able to stop the fraud in its tracks.

Jane Doe tagged in a photo of her riding a jet ski last week? You might want to check up on that “broken arm”.

Real-Life Workers' Compensation Fraud Examples

1. Real Example: Social Media Posts Contradict Injury Claim

A retail worker on workers' compensation for a wrist injury posted photos on Instagram showing her ziplining during a vacation. These public posts were used by the insurance provider as evidence contradicting her injury claim. Consequently, she lost her benefits and faced charges for insurance fraud.

2. Real Example: Mechanic's Fraud Uncovered Through Surveillance and Social Media

Richard James McGee, a mechanic from San Bernardino, California, misrepresented his injuries to receive over $30,000 in undeserved disability payments. An investigation by the Department of Insurance, utilizing surveillance and social media posts, led to his arraignment on two felony counts of workers' compensation insurance fraud.

3. Real Example: Cafeteria Slip-and-Fall Staged for Fraudulent Claim

Security cameras in a company cafeteria captured a man dumping a cup of ice onto the floor, disposing of the cup, and then lying down as though he had slipped. This staged incident was used to file a fraudulent workers' compensation claim. Prosecutors charged the man with insurance fraud and theft by deception.

4. Real Example: Former State Trooper's Fraudulent Claims

Kevin Douglas Moore, a former Connecticut state trooper, defrauded the state of $47,000 through fraudulent workers' compensation claims. Investigations revealed Moore exceeded physical limitations set by his healthcare provider and operated a side business while on disability leave. He received probation and was ordered to repay the remaining amount or face prison time.

These cases underscore the importance of thorough investigations and the use of surveillance and social media monitoring in uncovering workers' compensation fraud. Employers and insurers must remain vigilant to protect the integrity of the workers' compensation system.

FAQs About Workers’ Compensation Fraud

1. What is workers’ compensation fraud?

Workers’ compensation fraud occurs when an individual—such as an employee, employer, or healthcare provider—intentionally deceives the system for financial gain. This could include faking an injury, inflating medical bills, or misclassifying employees to lower insurance premiums.

2. What happens if you get caught working while on workers' comp?

If you're caught working while collecting workers’ comp benefits, you may face serious legal consequences including fines, loss of benefits, repayment of funds, and even criminal charges for fraud. Employers or insurers can also take civil action.

3. How do you report workers’ compensation fraud?

You can report workers’ comp fraud to your state’s fraud bureau, the insurance company, or your HR department. Many states also allow anonymous tips through fraud hotlines or online portals. Be sure to document all relevant evidence before reporting.

4. How can employers tell if an employee is faking an injury?

Signs may include inconsistent medical records, suspicious timing of the injury, lack of witnesses, and the employee being active on social media or in public. Employers should investigate discreetly, consult with HR and legal teams, and review surveillance footage if available.

5. Can employers commit workers’ compensation fraud too?

Yes. Employers may commit premium fraud by misclassifying employees, underreporting payroll, or failing to carry coverage. This type of fraud reduces costs illegally and is subject to audits, fines, and criminal prosecution.

6. What are common red flags of workers' compensation fraud?

Common warning signs include:

• Delayed injury reporting
• No witnesses to the incident
• Conflicting medical reports
• Inability to reach the employee
• Tips from coworkers or unusual behavior online

7. How long does a workers' comp fraud investigation take?

The duration of a workers’ comp fraud investigation can vary widely depending on the complexity of the case, the amount of evidence available, and the cooperation of involved parties. On average, investigations can take a few weeks to several months. More complex cases involving surveillance, multiple claims, or legal proceedings may extend beyond 6–12 months. Authorities aim to gather enough documentation and proof before pursuing legal or administrative action.