Workers Compensation Changes Effective 7/1/2018 – What do Business Owners Need to Know?

Waiver of Workers Compensation Coverage New Changes Effective 7/1/2018 – What Business Owners Need to Know

If you have employees, then you are required to have Workers Compensation coverage in place.  Some business owners are able to exclude themselves from Workers Compensation coverage if they meet certain requirements.  General partners and managing members of Limited Liability Companies, officers and members of certain corporations, and owners of professional corporations are those that could be excluded if a set of requirements was met.

Effective on July 1, 2018, the requirements will be changing regarding Officer and Director exclusions for Workers Compensation.

Per California Labor Code (sections 351 and 3352), individuals who are eligible to exclude themselves from Workers Compensation coverage and the requirements they must meet include:

·         An officer or member of the board of directors of a quasi-public or private corporation who owns at least 10% of the issued and outstanding stock of the corporation, or at least 1% of the issued and outstanding stock of the corporation if that officer’s or member’s parent, grandparent, sibling, spouse, or child owns at least 10% of the issued and outstanding stock of the corporation and that officer or member is covered by a health insurance policy or a health care service plan;

·         An officer or member of the board of directors of a cooperative corporation organized pursuant to the Cooperative Corporation Law (California Corporations Code, §§12200, et seq.) who states that he or she is covered by both a health care service plan or health insurance policy, and a disability insurance policy that is comparable in scope and coverage, as determined by the Insurance Commissioner, to a workers’ compensation policy; 

·         An owner of a professional corporation, as defined in Section 13401 of the Corporations Code, who is a practitioner rendering the professional services for which the professional corporation is organized and who states that he or she is covered by a health insurance policy or a health care service plan; 

·         A general partner of a partnership who is a qualifying general partner;

·         A managing member of a limited liability company who is a qualifying managing member; and

·         A person who holds the power to revoke a trust with respect to shares of a private corporation held in trust or general partnership or limited liability company interests held in trust, to the extent he or she is considered an employee pursuant to the provisions defining as employees officers and members of boards of directors of quasi-public or private corporations or working members of a partnership or limited liability company, and otherwise meets the criteria for exclusion.

·         A sole shareholder who is an officer or director of a private corporation or a private cooperative corporation, or who is an owner of a private professional corporation, is excluded from the definition of “employee,” unless the officer, director, owner, private corporation, private cooperative corporation or private professional corporation, as applicable, has elected to be subject to liability for workers’ compensation pursuant to Labor Code Section 4151(a). 

For all policies that are effective on or after July 1, 2018, the above can be summarized as:

·         For Corporate Officers and Board Members, the stock ownership requirement has been lowered to 10%. They must own at least 10% of the outstanding stock of the corporation. However, certain members can still be excluded if they own at least 1% of the stock and their parent, grandparent, sibling, spouse or child owns at least 10% of outstanding stock.

o   An additional requirement that they must also have a health insurance policy or health care service plan in place in order to be excluded from coverage.

• Individuals holding power to revoke a trust of a private corporation/partnership/LLC are eligible for exclusion.
• Owners of professional corporations rendering professional services are eligible for exclusion.

·         A general partner of a partnership who is a qualifying general partner;

·         A managing member of a limited liability company who is a qualifying managing member

Since the stock ownership percentage requirement has been lowered to 10%. This means that some Corporate Officers and Members of the Board who were not previously eligible for exclusion from the workers compensation policy are not eligible, provided that they also have a health insurance policy or health care service plan.

For policies that are already in force, no action needs to be taken. Most carriers who have a Wavier of Workers Compensation on file for an existing policy will not be requiring a new Waiver when your policy renews or while in force. 

If a previously ineligible member who is now eligible wishes to be excluded from the policy, they can contact their agent to obtain the correct form for submitting to the carrier.

New policies effective after 7/1/2018 will require waivers for all eligible Officers, Members or Partners. If coverage is re-written, then a new waiver will be needed.  In force policies should not require any action and the same holds true for renewals.

The full text of SB189 can be found at the following link: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB189