Changes In The Worker Compensation Law

If you operate as a Corporation, a Partnership or an LLC, this is a MUST read. There have been some changes in the California Labor Code which have resulted in the passage of Assembly Bill No. 2883. This bill clarifies who may be excluded from coverage and the method by which an individual may be excluded. Effective January 1st, 2017, this change is applicable to all in force, new and renewal policies.

First, it is important to know the changes. Please see below.

CORPORATIONS: Officers and directors must own at least 15% of the outstanding stock of the corporation to be excluded from coverage. In addition, each must sign a waiver of Worker’s Compensation benefits verifying under the penalty of perjury that he or she is a qualifying officer or director. Prior to this law passing, an officer or director could own as little as 1% of the stock in order to be excluded. THIS is a big change

PARTNERSHIPS/LLCs: Only general partners or managing members may exclude themselves from Worker’s Compensation coverage if the entity is a partnership or limited liability company. Each general partner or managing member must sign a waiver of coverage stating he / she is eligible for exclusion.

For Corporations, Partnerships, LLCs, each excluded person MUST sign the waiver themselves. The insurance companies will not accept an insurance agent’s signature.

To make this more complicated, this change takes effect January 1st, 2017. For new business and renewals, the transition will be less cumbersome. However, it is the current in force policies that will be affected immediately on January 1st, 2017. All insurance companies that write Worker’s Compensation coverage will be contacting their insureds and forwarding a letter with the necessary waivers to be signed. You should have received a notification from your insurance company by now. If you have not, contact your insurance agent to determine how the insurance company will be communicating with you. These waivers must be returned to the insurance companies prior to January 1st, 2017.

Otherwise, individuals currently EXCLUDED from coverage will be added to the Worker’s Compensation coverage which may result in additional premium owed at the time of premium audit. I want to add that this person will also be subject to a specified minimum payroll once added to the policy. It is critical that you re-turn these waivers. Failure to return the forms will render the exclusions invalid on the current policy by law.

The insurance companies will be reporting the premium and loss experience to the Worker’s Compensation Insurance Rating Bureau (WCIRB) for individuals who have not executed the required waiver since they now will be considered employees.

This information applies only to Corporations, Partnerships and LLCs. I still see so many business owners not purchasing Worker’s Compensation coverage. Even if you have one part-time employee, you must carry this coverage. The Labor Board does do periodic inspections and the fines are hefty if they catch you ($1000 per day per employee) You are doing your employees a disservice and leaving yourself open to lawsuits in the event an employee is injured on the job.

The Holidays are fast approaching and I would like to wish you a safe, healthy and happy sea-son!