Employee compensation (EC) insurance is mandatory to purchase when a business has employees. The insurance is designed to keep employees safe and assist employers with certain mandatory compensations. As an Employer, you have liability if one of your staff suffers an injury or contracts illness in the course of their duties.
Due to the legal requirements, employers must pay 80% of salary during injury recovery – Unfortunately, it may happen that some employees take advantage of this situation. This case study will explain how a business was a victim of employee compensation fraud and how employee compensation insurance covered loss.
Background of Situation
The business hired a truck driver to deliver goods from one place to another. Drivers could suffer serious injuries during their duties and are known as risky jobs by insurers. Therefore, the company is responsible for any injury during driving, unloading and loading the truck.
Employee compensation insurance will cover wages and salaries during recovery, medical costs, and permanent disability compensation. An employer who fails to comply with the Employee Compensation Ordinance (ECO) to secure an insurance cover is liable to prosecution and, a maximum fine of $100,000 and imprisonment for two years.
The Beginning Of Employee Compensation Fraud
The employee (driver) had suffered from a work injury where he slipped and broke his arm while unloading the truck. The employee was instantly sent for medical care, and the doctor advised him to take two months off. The business then informed the labour department within the14 days of the injury. Additionally, The employer obeyed their duty by paying for medical expenses and paid 80% of his two-month salary.
After two months-the employer was ready to have their driver back. Although, the employee submitted another medical certificate that he needed another month to recover. Following and respecting the law, the employer complied and paid another month of salary as he recovered. The employer was losing money by paying the injured employer and a temporary replacement too. Even though they have employee compensation insurance, the insurance will only reimburse the costs after the case is over and the employee is back at work.
The business felt concerned when this went on for another four months, and it was becoming more apparent that this was a case of employee compensation abuse. So the employer started to investigate further, and after talking to other employees, the manager was informed that they had spotted the so-call injured employee working for another company.
How Did EC Insurance Deal With Employee Compensation Fraud?
This situation puts the employer in a challenging position as they need to obey the employee compensation law. At the same time, they do not have the right to fire the employee during their recovery period. This situation is why they informed the insurance company and the labour department. Then needed proof to take employee compensation fraud case further.
The employer contacted the other company that the employee was also working for while being ‘injured’. The company confirmed that he worked for them for the past five months. The proof was given in writing to us, which allowed us to investigate the case further.
The next step was taken by the insurance company who hired a medical advisor to set up a private medical check-up. Eventually, the private clinic informed the labour department that the bone was fully healed and is capable of work.
Due to this written proof and more research, the case was taken to court and handled by the Commercial Crime Bureau-CCB.
Fortunately, the case being solved allowed the insurance to reimburse the business the total amount of payments they provided in the employee compensation fraud case (in the past seven months).
The insurance eventually reimbursed the following amounts:
- Medical costs– HKD 600 (for cast and Xray- 2 visits)
- 80% of salary for seven months– HKD 56,000 (Average HKD 10,000 monthly salary)
Total costs of around: HKD 56,600
It is crucial to protect your employee and provide them as much as one can during a work injury as an employer. Therefore, it is important for a business to understand the employee compensation law and know employer rights.
Employers are liable to make legal payments to employees within 21 days of the injury and cannot take action themselves, even if they suspect employee compensation fraud. Employee compensation insurance has saved the business a large sum of financial loss. Additionally, it has helped the company connect with the labour department and solve the case together.
To learn more about Employee Compensation Insurance and protect your employees and your business, contact Red Asia Insurance.