by Les Boden

Today, The New York Times reports on an important study that shows us the tip of the iceberg of employer workers’ compensation fraud.

The Fiscal Policy Institute compared payroll dollars reported to the New York State Workers’ Compensation Board with payroll reported to the unemployment insurance (UI) system. They found that employers report 20% lower payroll to workers’ comp than they do to UI. Workers’ comp premiums are based on reported payroll, so this underreporting is a way of cheating on these premiums.

This is only part of the story, because the Fiscal Policy Institute study also documents that employers have been working diligently to avoid paying UI premiums – not to mention Social Security taxes, health insurance, retirement benefits, and so on – by claiming that their employees are “really” independent contractors. So workers’ comp payroll is 20% below UI payroll, but UI payroll is probably 5-10% below true payroll, for employers who report. And let us not forget the cash economy, where wages go completely unreported, there is no workers’ comp coverage, and benefits aren’t even an issue.

The employer fraud story doesn’t end there. Workers’ comp premiums are based not only on payroll but on occupation. So classifying a construction worker as a clerk can have a very salutary effect on workers’ comp costs.

Finally, employers can pressure injured workers not to file claims, can deny claims that are filed, and can underpay benefits for accepted claims. They can, and they frequently do. State of California audits (see p. 73) found underpayments in well over 10% of workers’ comp claims, with an average underpayment of $1,252 in 2005.

For those of you who don’t yet know how much you’ll miss Confined Space, you may want to read – or re-read – Jordan Barab’s series on “Cooking the Books”.

Les Boden, PhD, is Professor and Associate Chair of the Department of Environmental Health, Boston University School of Public Health. Dr. Boden is a member of the National Academy of Social Insurance and has been an active member of Federal advisory committees for both the Centers for Disease Control and the Department of Energy.

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