A California security company owner has come under scrutiny for underreporting his payroll expenses in an attempt to lower workers compensation costs. Accused of cheating his insurer of $3.2 million, a San Jose business owner will face workers compensation insurance fraud charges.

His idea to operate two businesses as one entity for the sake of lowering insurance premium costs with their insurance carriers landed him in hot water. Noticeable reporting irregularities in the number of workplace injuries triggered an investigation. During an extensive investigation, it was found that workplace injuries were being underreported. Employees were being instructed to not report work-related injuries stemming from accidents occurring onsite.

The companies assumed two separate identities to perpetuate insurance law fraud. One company was created with a smaller number of employees. Wage misinformation was also reported to reduce the insurance premium costs. Although the two on paper were identified as two separate entities, operational activities showed them functioning as a single unit.

The owner of the security company and several others will face felony charges for their involvement. The group was charged with 18 felony counts of workers compensation premium fraud.

While employers can be motivated by the bottom line to cut costs wherever possible, it is unwise to do so at the risk of committing insurance fraud and acting in bad faith. It’s imperative that companies observe reporting standards when it comes to insurance law to avoid violations, penalties and possible jail time. All employers are held to a high standard where meeting insurance coverage requirements is concerned. Before a business owner decides to take steps to reduce insurance costs, an insurance lawyer may be consulted to fully understand the legal consequences.