Workers' compensation fraud raises costs for every honest employer and worker in the system. Most claims are legitimate, and treating every injured employee as a suspect damages trust and can make claims more expensive. The goal is a system that pays valid claims quickly, makes false ones hard to file, and keeps your own reporting accurate. This guide covers the main types of fraud, what Washington law says, the practical controls that prevent it, how to respond to concerns, and where insurance and your broker fit.
The three kinds of workers' comp fraud
Washington's Department of Labor and Industries (L&I) groups fraud into three categories. All three matter to employers.
Employer (premium) fraud
Misclassifying workers, underreporting hours or payroll, operating without required coverage, or not paying premiums. Unregistered employers fall in this group.
Claimant fraud
Obtaining benefits a worker is not entitled to, such as claiming an injury that did not happen at work or working while collecting wage-replacement benefits.
Provider fraud
Medical and other providers billing for services not provided, misstating dates or locations of care, or overusing services.
In its fiscal year 2024 fraud report, L&I said about 2,800 employer leads led to more than 1,900 audits, and 75 percent of audited employers owed money. On the claimant side, more than 2,100 referrals led to more than 1,500 investigations, 52 willful misrepresentation orders totaling over $1.3 million, and 20 referrals for criminal prosecution. These are Washington figures for one year, but the pattern is a useful reminder: employer-side reporting errors are a significant part of the picture.
What Washington law says
Washington's industrial insurance statute addresses false statements by both employers and claimants:
| Who | Conduct | Consequence under RCW 51.48.020 |
|---|---|---|
| Employer | Knowingly misrepresenting payroll or employee hours to L&I | Civil liability of up to ten times the premium shortfall, plus audit and collection costs |
| Employer | Knowingly misrepresenting payroll or hours, or failing to secure coverage or report payroll, with intent to evade premiums | Class C felony; on conviction, payment of the premium owed plus a penalty equal to 100% of it, and interest |
| Claimant | Knowingly giving false information on a claim or application for benefits | Felony or gross misdemeanor under Washington's theft provisions |
Other states have their own statutes and reporting channels. If you operate in more than one state, ask your broker how claims and fraud referrals are handled under each policy. Our overview of state-specific workers' comp requirements is a starting point.
Keep your own house in order
The most controllable fraud risk for an employer is its own reporting. Many premium problems start as honest mistakes that look like fraud after the fact.
- Classify correctly. Assign each employee to the class that matches the work they actually do, and update it when duties change.
- Report accurate payroll and hours. Reconcile what you report against payroll records every period. See premium audit preparation for what auditors look for.
- Verify subcontractors. Confirm that subcontractors are registered and carry their own coverage, and keep certificates on file. Uninsured subcontractors can become your exposure. Our article on subcontractor insurance requirements covers this.
- Do not misclassify employees as contractors. Whether a worker is an employee depends on the facts of the relationship, not the label on the agreement.
Fix errors before an auditor finds them
If you discover that payroll was underreported or employees were placed in the wrong class, correct it promptly and keep a record of what you found and how you fixed it. A documented, voluntary correction reads very differently from an error uncovered in an audit. Your broker can help you work through the correction with your insurer or state fund.
Controls that prevent claimant and provider fraud
Good claim practices make fraud harder without treating injured workers as suspects:
- Hire carefully. Use consistent, lawful screening and document job requirements. Post-offer medical evaluations, where permitted and done properly, can establish baseline condition.
- Make reporting easy and immediate. Require same-day reporting of every injury, however minor, and make sure workers know how. Prompt reporting lets facts be gathered while they are fresh. See the critical first 24 hours.
- Investigate every claim the same way. Scene photos, witness statements and the worker's account, collected consistently, protect honest workers and expose inconsistencies. Our guide to claims investigation walks through it.
- Stay in contact. Regular, supportive contact with injured workers reduces the isolation that can lead to attorney involvement and prolonged claims.
- Offer modified duty. A meaningful transitional work program brings workers back within their restrictions and reduces the incentive to stay out longer than necessary.
- Review bills and benefits. Ask your claims administrator or insurer about provider billing review, and question treatment that does not match the reported injury.
Warning signs, and how to use them
Claims professionals look at patterns that can justify a closer look. None of these proves fraud, and many legitimate claims show one or more of them:
- An injury reported late, with no witnesses, or first reported after a weekend or a disciplinary meeting.
- Accounts of how the injury happened that change over time or conflict with witnesses or the physical evidence.
- A claim filed shortly before a layoff, termination, seasonal end or strike.
- Reports that a worker collecting wage-replacement benefits is working elsewhere.
- Treatment that seems out of proportion to the injury, or bills for visits that did not take place.
Do not investigate on your own
If you suspect fraud, document what you know and refer it to your insurer, claims administrator or, in Washington, L&I. Do not confront the worker, conduct surveillance yourself, or deny or delay benefits on your own authority. Retaliating against an employee for filing a claim can create separate legal exposure even if the claim is later questioned.
How to report suspected fraud in Washington
- Injured worker fraud: L&I's online reporting form, or 1-888-811-5974, option 3.
- Employer premium fraud: L&I's online employer fraud form.
- Provider billing fraud: L&I's Health Care Provider Fraud form (F262-289-000), emailed to ProviderFraud@Lni.wa.gov, or 1-888-811-5974, option 4.
Links to each form are on L&I's fraud page. If your coverage is through a private insurer or a self-insured program, follow the reporting process your insurer or administrator provides. Our article on recognizing and investigating workers' comp fraud covers investigation in more depth.
Where insurance and your broker fit
Workers' compensation pays medical care and wage replacement for work-related injuries, and claim costs feed future pricing through experience rating. Fraudulent or inflated claims raise those costs; so do premium audit findings when classifications or payroll were reported incorrectly. Our page on workers' compensation explains coverage, and understanding your experience modification rate explains how claims affect pricing.
Employers liability coverage and employment practices liability insurance can come into play when a claim turns into a lawsuit or a retaliation allegation. Forms, exclusions and availability vary by state and carrier.
Call your broker when a claim looks questionable, when an audit produces a large adjustment, or when you want a review of classifications and claim handling before renewal. As a broker, we compare options across the market and help clients set up claim reporting and review practices that fit their operation.