IMPORTANT CHANGE TO WORKERS COMPENSATION INSURANCE

Effective January 1, 2017 AB 2883 has changed the rules for who can be excluded from Workers Compensation insurance.

AB223 provides that effective January 1, 2017 all business worker’s comp insurance policies including in force policies, will be required to cover certain officer and directors of private corporations and working members of partnerships and limited liability companies that may have been previously excluded from coverage beginning on January 1, 2017. This will pose some big problems for some businesses as they may be hit with surprise charges for businesses due to the poorly written legislation.

Going forward officers, directors and partners are required to be covered under the employer’s workers’ comp policy unless they meet a narrower definition of excluded employee. Under this narrower definition, officers, directors, and partners can only opt out of coverage by signing a waiver under penalty of perjury and filing the waiver with their employer’s insurer. AB2883 revised the exemption language to permit only officers and directors that own at least 15% of the issued and outstanding stock of the company or an individual who is a general partner or a partnership or a managing member of a limited liability company can be exempt if the execute a waiver under penalty of perjury that they meet one of these qualifications.

Some businesses that currently have owners that own less than 15% of stock will now be required to be included in the Workers Compensation premiums and be subject to the additional premiums based upon their job duties.

The biggest issue with AB2883 is that it applies to all Workers Comp policies that will bein effect on or after January 1, 2017, including those policies in force any time after the beginning of the year.

In addition, corporations, partnerships and LLC’s that do not purchase workers comp – possibly because they consist of owners of the organization and have no employees under current law – will be legally uninsured on the first of the year unless the owners sign and file the appropriate waiver.

AB 2883 requires:

• That an officer or member of the board of directors own at least 15% of the stock of the corporation in order to opt out of workers’ compensation coverage.
• That the officer or member of the board of directors sign a waiver stating that the individual is a qualifying officer or member.
• That a general partner of a partnership or a managing member of a LLC execute a waiver to opt out of workers’ compensation coverage.
• That with this 15% ownership requirement, there can never be more than six people excluded.
• That the waiver will remain in effect until a written withdrawal is received by the insurance company, and waivers are not transferable to a new insurance company.
• That grantors of revocable trusts are no longer deemed to be shareholders and will not qualify for exclusion.

Contact your insurance agent or Insurance Incorporated today for more information or for a quote.