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Industry Insights

CAAA: Employer Fraud Highlights Comp Challenge

  • State: California
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Employer insurance fraud in California’s workers' compensation system continues to be a significant issue, as evidenced by recent high-profile cases involving substantial payroll underreporting. 

It is estimated that workers' compensation employer fraud costs the state between $1 billion to $3 billion per year. These cases not only underscore the prevalence of such fraudulent activities by employers but also highlight the intricate schemes used by business owners to cheat workers, other employers and insurance companies.

The proprietors of a janitorial company in Fontana were recently charged with multiple felony counts of insurance fraud. An investigation by the California Department of Insurance revealed that the owners underreported more than $2.4 million in payroll. This underreporting was a calculated move to reduce the company's workers' compensation insurance premiums and evade payroll taxes.

In a similar case, the former owner of TKJ Trucking in Fresno is facing charges for underreporting more than $2 million in payroll. TKJ Trucking's fraudulent activities came to light following the death of an employee inside a company-owned truck. Although the death was from natural causes, it was discovered that the deceased, who had been a truck driver for 15 years, was misclassified as a salesperson — a role with significantly lower workers' compensation costs. 

Between December 2018 and December 2021, TKJ Trucking reported less than $1 million in payroll when the actual amount exceeded $3 million. This discrepancy was identified during an audit by the California Department of Insurance.

These cases are significant, as they illustrate the ongoing challenges within California’s workers' compensation system. Fraudulent activities by employers not only undermine the financial integrity of insurance systems but also place employees at risk by depriving them of necessary coverage. 

For CAAA, these cases serve as reminders of the importance of compliance and the severe repercussions of fraud. They underscore the need for businesses to maintain accurate payroll records and comply with all regulatory audits. Furthermore, these cases highlight the essential role of legal counsel in guiding businesses through the complexities of workers' compensation laws to avoid engaging in fraudulent practices.

This opinion by the California Applicants' Attorneys Association communications team is republished with permission from the CAAA website.

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