WHEN: Effective January 1, 2017
WHO: All new and existing workers’ comp policies with owner/officer exclusions.
WHAT: Under current law, to be eligible for a workers’ comp exclusion, you must meet the following three qualifications:
- Employee must be a corporate officer
- Employee must own some stock in the corporation
- The company must be a closed corporation (meaning that all corporate stock is owned by directors and officers and no one else)
New California Law AB 2883 requires that:
- Employee is an officer
- Employee owns at least 15% of corporate stock
- With 15% ownership requirement, there can never be more than 6 people excluded
- Employee must sign a waiver stating that they are a qualifying officer
- Waiver will remain in effect until a written withdrawal is received by the insurance company. Waivers are not transferable from one insurance carrier to the next
- For LLC’s – managing members must execute a waiver to opt out of worker’s’ comp coverage
- For partnerships, general partners must execute a waiver to opt out of worker’s’ comp coverage
- Grantors of revocable trusts are no longer deemed to be shareholders and will no longer qualify for exclusion
WHY: Current law is unclear on the process of opting out. There is very little regulatory guidance on the subject, so there are variations from insurance company to insurance company. This lack of clarity led to business practices that have fostered fraudulent activity and hurt injured workers. Some employers were making any employee a corporate officer (i.e. the janitor being made “Director of Janitorial Services”)
HOW (does it affect me): If you have any excluded owners or officers on your workers’ comp policy, at the very least, you will need to have each excluded individual sign a waiver to opt out of worker’s’ comp coverage. If corporate ownership is less than 15%, that individual’s payroll would be included as of 1/1/2017. AB 2883 applies to new AND existing business. Failure to sign waiver or include payroll for minority owners could mean a big audit surprise. When it comes to cash flow, no business owner likes surprises.
NEXT STEPS: You will be receiving notification directly from your Workers Compensation carrier regarding this change and what actions to take. If you have any questions please do not hesitate to contact your Account Manager at 805-781-6336.