In premium fraud schemes, what action might an employer take to reduce costs?

In premium fraud schemes, an employer may choose to understate the payroll for higher-risk classifications to reduce costs associated with workers' compensation insurance premiums. Insurance premiums are often calculated based on the payroll amounts and the risk classifications assigned to various job roles. Higher-risk classifications typically carry higher premiums; by underreporting payroll in these areas, the employer effectively lowers their insurance costs.

For example, if an employer falsely reports that fewer employees are working in a hazardous area or falsely categorizes high-risk jobs as lower-risk ones, they can significantly decrease their financial liability associated with worker injuries and claims. This scheme is motivated by a desire to minimize expenses while maintaining the appearance of compliance with regulations.

The other actions pertain to different types of risk and fraud. Overstating the payroll for lower-risk classifications would increase costs rather than reduce them, increasing the insurance premiums paid. Reporting more injuries might seem beneficial to some but typically leads to higher costs due to claims. Ignoring filing requirements could also lead to penalties and fines rather than cost reduction, making it an unwise choice for cost management.