Workers’ compensation insurance is essential for protecting both employees and employers in the construction industry. However, some contractors engage in fraudulent practices to lower their insurance costs, putting their businesses at serious financial and legal risk. Insurance carriers and regulators are cracking down on contractor workers’ compensation fraud, and getting caught can result in heavy fines, policy cancellations, and even criminal charges. If you’re a contractor in New York, New Jersey, or Connecticut, it’s crucial to recognize the warning signs of fraud and ensure you’re following the law.
Below are 10 signs of employer workers’ compensation fraud in the construction industry.
1. Misclassifying Employees as Independent Contractors
One of the most common forms of workers’ compensation fraud is classifying workers as independent contractors instead of employees. Some employers do this to avoid paying workers’ compensation premiums, payroll taxes, and benefits. However, if a worker is under your control—meaning you set their hours, provide their tools, and determine how they complete tasks—then they are legally an employee, not an independent contractor. Misclassification can lead to serious penalties, including back payments, fines, and even legal action from injured workers.
2. Underreporting Payroll to Lower Premiums
Workers’ compensation insurance premiums are calculated based on payroll. Some dishonest contractors attempt to lower their premiums by underreporting their payroll, either by paying workers off the books or falsifying records. Insurance companies conduct routine audits, and if discrepancies are found, you could face policy cancellation, hefty fines, and potential lawsuits.
3. Using Ghost Policies to Avoid Proper Coverage
A ghost policy is a fraudulent practice where a business owner purchases a workers’ compensation policy that covers only themselves, while still employing workers under the table. This tactic is common among small contractors looking to bid on jobs that require proof of workers’ compensation coverage. However, when an employee gets injured, the company is left exposed, facing legal and financial consequences. Insurance carriers and regulators are actively targeting ghost policies, and getting caught can lead to severe repercussions.
4. Misclassifying High-Risk Workers as Low-Risk Employees
Another deceptive practice involves reporting high-risk construction workers under low-risk job classifications, such as clerical or administrative staff, to reduce insurance premiums. For example, a contractor might list roofers or demolition workers as office staff. If an insurer or state agency audits your records and finds discrepancies, you could be charged with workers’ compensation fraud and face significant penalties.
5. Failing to Carry Workers’ Compensation Insurance
Some contractors simply operate without workers’ compensation insurance, hoping to avoid costs altogether. This is illegal in New York, New Jersey, and Connecticut and can result in massive fines, stop-work orders, and lawsuits. If an employee gets injured on the job and the employer lacks coverage, they may be personally liable for medical expenses and lost wages. Regulators are cracking down on uninsured employers, making this a high-risk gamble.
6. Forcing Employees to Pay for Their Own Workers’ Comp Coverage
Workers’ compensation insurance is the employer’s responsibility. However, some unscrupulous contractors force employees to contribute toward their own coverage or deduct insurance costs from their paychecks. This is illegal and can result in lawsuits, penalties, and criminal charges. Employees who realize they are being exploited may report the fraud to state labor departments or insurance carriers, triggering investigations.
7. Hiding Injuries to Avoid Claims
Some contractors discourage workers from reporting workplace injuries or even threaten retaliation if they file a claim. Others may pressure injured employees to use their personal health insurance instead of filing a workers’ compensation claim. This practice is illegal and can lead to lawsuits, increased penalties, and even criminal charges if discovered by state regulators or insurance investigators.
8. Using Multiple Shell Companies to Dodge Insurance Costs
Some construction firms set up multiple shell companies to divide their workforce and manipulate workers’ compensation rates. This tactic is often used to qualify for lower-risk classifications or to make payroll reporting more difficult to track. However, insurance carriers and state agencies have become more sophisticated in detecting these schemes, and those caught engaging in this type of fraud can face major financial and legal consequences.
9. Doctoring Payroll and Employment Records
Altering payroll records, time sheets, or employment documents to reduce insurance premiums is a serious form of workers’ compensation fraud. Auditors regularly check these records, and if fraud is detected, employers can face premium adjustments, fines, policy cancellations, and even legal action. Insurance companies and regulators work closely together to identify inconsistencies, so fraudulent payroll reporting is becoming increasingly difficult to get away with.
10. Deliberately Misrepresenting Business Operations
Some contractors misrepresent their entire business to secure lower workers’ compensation rates. For example, a contractor might claim to operate solely as a general contractor when, in reality, they perform high-risk trades like roofing or demolition. Insurers conduct on-site inspections and audits to verify business operations, and getting caught can lead to severe consequences, including loss of coverage and potential legal action.
How BGES Group Can Help
If you’re a contractor operating in New York, New Jersey, or Connecticut, it’s critical to stay compliant with workers’ compensation laws. Insurance carriers are becoming more aggressive in auditing businesses, and getting caught committing fraud can be devastating. Even if you’re not committing fraud, workers’ compensation insurance is complex, and many contractors are unknowingly underinsured or paying more than necessary.
That’s where BGES Group comes in. We specialize in construction workers’ compensation insurance and help contractors secure affordable, high-quality coverage while ensuring compliance with state laws. Whether you need a new policy, a policy review, or assistance navigating audits, our team can provide expert guidance.
We offer specialized programs tailored to contractors, roofing companies, demolition businesses, and other high-risk industries, ensuring you get the best coverage at the best price. Many contractors overpay for their workers’ compensation policies or don’t realize they have gaps in coverage that could leave them financially exposed. Let BGES Group help you find the right coverage and avoid costly mistakes.
Contact BGES Group Today
If you need workers’ compensation insurance for contractors or have concerns about your current coverage, contact BGES Group today. We work with contractors throughout New York, New Jersey, and Connecticut, offering personalized service, competitive pricing, and expert advice.
• Phone: Gary Wallach at 914-806-5853
• Email: bgesgroup@gmail.com
• Website: www.bgesgroup.com
Don’t wait until an audit or a workplace injury exposes gaps in your workers’ compensation coverage. Call BGES Group today and let us help you secure the best workers’ comp insurance for your business!