Temp Agency Payroll Fraud Is Your EMR's Problem
A Massachusetts temp agency hid $6.1 million in payroll from its workers' comp carrier. The contractors whose workers got hurt on those jobs will feel it in their mods for years.
When a temp agency hides payroll to lower its workers' comp premium, the exposure base shrinks but the claims don't. A lost-time injury against artificially low reported payroll produces a loss ratio the carrier can't ignore. Once the carrier audits and corrects the figures, as happened with $6.1 million in hidden wages at HL Temporary Services (DOJ, May 2026), the recalculated exposure flows into the contractors' experience modification rate, inflating the mod for years.
A Lowell, Massachusetts temp agency owner pleaded guilty last week to hiding $6.1 million in payroll from his workers' comp carrier (DOJ, May 2026). He paid workers in cash, cashed client checks at storefronts, and reported a fraction of actual wages to his insurer. The carrier priced his policy on the numbers it saw. Those numbers were fiction.
If you're a contractor who used a staffing agency like that, the fraud doesn't stay on the agency's books. It follows the claims. And the claims land on your experience modification rate (EMR, also called the mod).
How temp agency payroll fraud distorts workers' comp ratings
Workers' comp premiums start with payroll. Rate times payroll times mod equals premium. When a temp agency carries the policy, it reports the payroll and pays the premium. But the claims its workers generate on your job sites feed into the same experience rating system that prices your renewal.
The formula assumes payroll and losses move together. More payroll means more exposure, which means higher expected losses. When a temp agency hides 40% or more of its actual payroll, it tells the carrier to expect fewer and smaller claims than the work actually produces. The expected loss side of the equation shrinks. The actual losses don't.
Henry Lam ran HL Temporary Services out of Lowell from 2016 to 2023 (DOJ, May 2026). He cashed his clients' checks at check-cashing businesses across Massachusetts and paid his temp workers in cash. The $6.1 million he hid wasn't a rounding error. It was the gap between what his insurer modeled and what his workforce actually earned. His workers' comp premiums were built on payroll figures that bore no resemblance to reality.
The carrier didn't know. Until a claim forced the question.
A Southeast framing contractor, hypothetical
Take a framing contractor in Georgia or the Carolinas who sources 30% of its labor through a temp agency. The agency hides 40% of payroll. On paper, the contractor's jobs show $400,000 in reported temp exposure. The real figure is closer to $670,000.
Now a worker tears a rotator cuff. The lost-time claim comes in at $85,000 incurred. Against $400,000 in reported payroll, that claim looks catastrophic relative to the expected losses for NCCI (National Council on Compensation Insurance) class code 5403 (carpentry). The expected loss rate assumes a certain volume of payroll to absorb claims of that size. When payroll runs 40% light, the math produces a loss ratio that can push the contractor's mod up 8 to 15 points.
That's $12,000 to $22,000 in additional annual premium on a $150,000 base, compounding across the three-year experience period.
The contractor didn't hide the payroll. Didn't know about it. But NCCI's formula doesn't ask who committed the fraud. It asks what the losses were relative to what the payroll predicted. When the carrier eventually audits the temp agency and corrects the exposure, the recalculated figures hit the contractor's worksheet in the next rating period. By then, the inflated mod has already priced two or three renewals.
Fake certificates in Georgia: the other side of the same coin
Two weeks before Lam's guilty plea, Georgia authorities arrested Lucy Suarez of Dalton on five counts of insurance fraud and one count of forgery (Georgia SBWC, May 2026). Suarez ran EliteOne Solutions, where she collected workers' comp premiums from small contractors and never placed the coverage. She issued fabricated certificates of insurance instead.
The contractors who trusted those certificates had no policy at all. If a worker got hurt on one of those jobs, the claim wouldn't route through a carrier. It would hit the state's uninsured employers fund, and the contractor would face penalties, back premiums, and a claim history that starts their experience rating with a deficit.
Lam hid payroll from a real carrier. Suarez fabricated the carrier entirely. Different crimes, same result for the contractor: a mod built on distorted or nonexistent data, and years of premium consequences for someone else's fraud.
What an audit would check
An audit examines whether the payroll your temp agency reported to its carrier matches the exposure your jobs actually generated. It checks whether claims on your NCCI worksheet trace back to correctly reported classification codes and whether the premium basis reflects actual wages, not understated ones. In our reviews of Southeast contractor worksheets, temp agency exposure mismatches are among the most common findings.
If you've used temp labor on job sites in the past three experience years, send us your worksheet and we'll tell you whether the exposure math holds up.