Know your PEO – Preventing Work Comp Fraud

Know your PEO – Preventing Work Comp Fraud

What business owners should know about PEO Workers’ Compensation Certifications

Over the last several years there have been several incidents where business owners have contracted with a PEO to provide workers compensation insurance for their business only to later learn that the PEO did not have a valid workers’ compensation policy in place.

These rare events unfortunately give the entire industry a bad rap. The vast majorities of PEOs provide a valued service and access to insurance products at a competitive price. However, as in all businesses there will be a few bad actors that may financially injure others or commit outright fraud. Remember, insurance is one of the few products people buy where they exchange cold hard cash and in turn receive nothing more than a promise. Each state recognizes that the nature of any insurance product is ripe for fraud and has implemented checks and regulations to ensure insurance companies have the financial ability to meet their obligations to their policy holders.

A recent case in Florida serves as an example:

“An investigation by the Department of Financial Services Division of Insurance Fraud revealed that Otto Biltres, owner of a temporary staffing agency called Preferred Staffing of America, Inc., knowingly misled consumers into believing that his company was a licensed professional employer organization (PEO) and could perform PEO services such as providing workers’ compensation insurance coverage to client companies. Biltres charged client companies more than $130,000 for services and workers’ compensation insurance that was never provided.”

Florida Department of Business and Professional Regulation News Release

Interestingly a search of the Florida Division of Worker’s Compensation shows that this staffing company did actually have a work comp policy at one time, but that it expired in October 2012. Per the press release from the Florida Department of Financial Services (DBPR), the players at Preferred Staffing of America, Inc decided to falsify work comp certifications all the while still charging their clients for the cost of the work comp coverage. This could mean that their clients may have been originally provided a staffing quote from Preferred Staffing of America, Inc. that actually did have creditable coverage at that time. It could be that however as time passed the staffing company lost their coverage and rather than lose the client (and the revenue) they decided to falsify the certifications. Of course this always gets exposed in the long run when legitimate work comp claims get denied and the claimant then turns to the state regulators.

Note that as of August 2013, in this Florida case these are only charges and no person named here has been convicted.

Some bad actors have not only sent out fraudulent certifications but have gone so far as to set up fake “hot-lines” for work comp claimants. Another case in San Antonio Texas was a large tax scam but also had a work comp fraud component:

PEO Fraud Conviction

“The scheme even involved setting up a telephone line that gave clients the illusion they were calling an agent for Hartford Underwriters Insurance Co., court documents state. In reality, callers were talking to a machine at the PEOs’ offices here and the PEOs gave clients fake Hartford certificates of liability insurance, the indictment states. Hartford had no knowledge of it.

San Antonio PEO Fraud Case

Do Some Research

So how do you make sure you are not a victim? As Ronald Reagan once said about the USSR when negotiating arms treaties… “Trust, but verify”.

  • Check the PEO Licensing Body in your State
    If your state has a regulatory board for Employee Leasing or Professional Employer Organizations, check to see if the PEO you are considering is licensed in your state.
    Get contacts for your state regulators

  • Confirm the PEO’s Work Comp Certification Status
    Most states have the ability to research the insurance status of a company. For example

    Florida business can check the validity of work comp coverage
    In addition, it is wise to note the expiration date of the policy and make a quick note on your calendar about that date. Checking your PEOs work comp policy information ensures that your work comp coverage through a PEO is legitimate and stays legitimate.
    More information about the work comp regulations for each state can be found here:

    State Work Comp Regulators
  • Google the PEOs Principal Players
    Personal integrity is key to establishing a relationship with a quality PEO. Find the names of the owners of your PEO and do some research on them. All states have a division of corporations that names the owners of any business and you can use this to investigate the people behind the PEO. While this is not guarantee, it may be informative about any past shenanigans.

Talk to others and get PEO References

The national PEO industry organization (NAPEO) has been promoting a base level of regulation in every state to ensure the value that PEOs provide to their business clients. As the industry grows and matures, a basic level of state oversight ensures that PEOs continue to be a solid partner for their clients. If you have questions about any PEO you are considering, contact StaffMarket to discuss your concerns.