California companies, including manufacturing firms, which currently exclude directors, officers, and partners from their Workers’ Compensation insurance program, need to be aware of a new rule that alters who is eligible for exclusion. As of January 1, 2017, with the passage of AB 2883, an officer can only be excluded from Workers’ comp coverage if he or she owns 15% or more of the company’s stock. This is a significant change from the current rules, which only required 1%+ ownership levels for officers and directors who wanted to claim the Workers’ Compensation exclusion. This new rule applies to new, renewal, and in-force policies.
Under the current law, officers and directors of a private corporation who are the sole shareholders of the corporation were not required to be covered under the business’ Workers’ Compensation policy unless they opted for coverage. This is also the case for working members of a partnership or limited liability company (LLC) who are general partners or managers. With the passage of the new law, however, only officers and directors who own at least 15% of their employer’s stock can be excluded from Workers’ Comp insurance coverage. With this 15% ownership requirement, there can never be more than six people excluded. In addition, all working members of a partnership or LLC receiving wages come under the new Workers’ Compensation provisions as well.
After January 1, 2017, the only way an eligible business owner can be excluded from Workers’ comp insurance is to sign a new waiver form (provided by your insurer) stating that he/she owns at least 15% of the company’s stock as well as his/her title as an officer of the company. The waiver is in force upon the date of receipt and acceptance by the insurer and will remain in effect until the insurer receives a written withdrawal of the waiver or the workers’ comp policy is moved to another insurer, thus requiring another signed waiver. If you don’t provide a signed waiver to be excluded from coverage, you will be considered an employee, and an automatic premium charge will result based on California payroll rules.
It is important, therefore, that any officers and directors who own 15% or more of company stock and want to elect the Workers’ Comp exclusion send a valid waiver to their insurer no later than January 1, 2017. If an insurer receives the waiver on February 1, the new officer exclusion will be applied at that time. You’ll end up paying a premium associated with that officer’s payroll for the month of January before the waiver was submitted and received.
If you are a business owner and currently excluded from your Workers’ Comp insurance, your insurer is required to send you the waiver form for signature. If you have not received your waiver form, please let us know immediately. All waivers should be returned to PMIS, or your WC Broker, by December 21, 2016, to give them time to process the forms before January 1, 2017.
About Precision Manufacturing Insurance Services
The professionals at Precision Manufacturing Insurance Services (PMIS) are available to discuss this new law and help you comply prior to January 1. PMIS provides a portfolio of manufacturing insurance products, including Workers’ Compensation, to manufacturers throughout California. We are available to discuss this important issue and any other insurance inquiry you may have. Just contact us at 855.910.5788.