Insight: Cracking down on misclassification, payroll fraud


The year 2017 presents a rare opportunity for the Fraud Unit of the Office of Workers’ Compensation Administration and the Office of Unemployment Insurance, to work together in the pursuit of employer misclassification and payroll fraud.

These illegal business practices deprive Louisiana employees and taxpaying citizens of lawful rights and legal protections. They also afford unscrupulous employers a competitive advantage at the expense of businesses that play by the rules, while divesting the state and general public of millions of dollars of tax revenues.

Sheral Keller.

Taking many forms, employers misclassify employees as independent contractors, as well as pay their employees off the books or in cash to avoid paying unemployment taxes, payroll taxes and workers’ compensation insurance and making Medicare and Social Security contributions. This is in addition to employers misclassifying the character of their employees to avoid paying higher insurance premiums for high-risk occupations.

As it stands, the OWCA Fraud Unit focuses primarily on employee and employer fraud. If fraud is found, the Fraud Unit refers employers for civil prosecution in workers’ compensation court for failure to have compulsory workers’ compensation insurance. Simultaneously, the Fraud Unit conducts independent investigations of employer and employee deliberate misrepresentations, for the purpose of obtaining or defeating a benefit or for the purpose of diminishing or delaying a workers’ compensation insurance payment. These investigative reports are subsequently referred to the Attorney General’s Office for criminal prosecution.

In 2016, the Fraud Unit investigated 790 allegations of fraud, with 20 having been referred to the Attorney General’s Office. Successful criminal prosecutions resulted in restitution of $1,233,875 from nine employers and $391,018 from 11 employees. While these numbers are impressive, they represent only the tip of the iceberg of the fraud committed in our state, mostly by employer misclassification.

In 2015, audits of 1,068 companies by UI identified approximately 19,956 people misclassified as independent contractors rather than as employees (2016 numbers were not available at press time). Consequently, the agency billed $1,496,778 in unemployment insurance taxes that employers owed based on the underreporting of $100,818,591 in taxable wages.

Neither the existing personnel resources of UI nor those of OWCA alone are sufficient to audit and investigate the numbers of Louisiana employers that engage in illegal business practices. But working together, these units can create a singular group of investigators and auditors that can identify and pursue more employers than either one of the two units can do alone.

Only proactive efforts will reduce the number of recalcitrant employers who continually thwart federal and state laws with impunity. The collective work of UI and OWCA will be a visible deterrent in the business community in the year to come.

With the consolidation of resources, collaboration of efforts among relevant state and federal agencies, community outreach and employee training, the new and improved UI and OWCA units will effectively bolster enforcement initiatives without increasing the size of government or unduly burdening Louisiana businesses.

Sheral Kellar is the director of the Office of Workers’ Compensation Administration. She has served at the Louisiana Workforce Commission as a workers’ compensation judge since 1991 and as chief judge since May 1999.


Originally published in the first quarter 2017 edition of 10/12 Industry Report. Read more from this issue at 1012industryreport.com.

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