Why You Will Pay More for Work Comp in 2017 …Depending on the 15% Rule
Workers compensation can be a sensitive subject for business owners who have people to protect as well as bottom lines to look after. In the State of California, business owners as well as other managers and those with an interest in the business have been able to exempt themselves from paying a premium for their own workers compensation coverage – that is until 1/1/2017.
A Perspective on the Current Law
According to the California Department of Industrial Relations, some business owners can exclude themselves from a workers compensation policy, meaning there is no premium paid for their positions, despite potentially earning an income from the company (Answers to frequently asked questions about workers’ compensation for employers, 2016). Such owners often include presidents, vice presidents, managers and members of the boards of directors.
As of 1/1/2017, such aforementioned positions may be subject to paying workers compensation premium should one have less than 15% stake in the company.
Assembly Bill 2883
The official description of the law, provided by the Department of California Legislative Information says, “This bill would revise those exceptions from the definition of an employee to apply to an officer or member of the board of directors, as specified, if he or she owns at least 15% of the issued and outstanding stock of the corporation, or an individual who is a general partner of a partnership or a managing member of a limited liability company, and that person elects to be excluded by executing a written waiver of his or her rights under the laws governing workers’ compensation, stating under penalty of perjury that he or she is a qualifying officer or director, or a qualifying general partner or managing member, as applicable,” (Assembly Bill No. 2883 Chapter 205, 2016).
Whether your workers compensation policy is in force as of 1/1/2017 or not, Assembly Bill 2883 will still affect you. How so? You may be subject to paying more workers compensation premium if:
- You have less than 15% interest in the company
- You have an interest in multiple entities
- You are part of a Trust
How to Prevent Paying More Premium Related to Assembly Bill 2883
In short, you can sign a waiver under penalty of perjury stating you and applicable owners own 15% or more of the named company. This waiver is then filed with your workers compensation insurer directly or via your insurance broker.
Whether your policy is in force this year or coming up for renewal in 2017, it’s important you speak with your insurance as soon as possible as December 31st will arrive quicker than we know it. To better prepare for your conversation with your agent, consider gathering the following information:
- Articles of Organization
- Trust Agreement(s)
- Current payroll information
The Sooner the Better
The implementation of Assembly Bill 2883 is less than four weeks away and keep in mind several businesses (including insurance carriers) will be closed the last week of this month. Monday, December 5th, is the perfect time to contact your insurance agent if you haven’t already to discuss what’s needed to properly maintain and manage your workers compensation policy.
Answers to frequently asked questions about workers’ compensation for employers (2016) source:http://www.dir.ca.gov/dwc/faqs.html
Califronia Legistaltive Information (2016). Source: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160AB2883