New Law Reduces Ownership Requirement for Coverage Exemption

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A new law taking effect this year aims to ease the confusion caused by the implementation of new rules that define what constitutes an owner or officer who is exempt from having to carry workers’ comp coverage.

The new law, which was in the form of SB 189, last year once again changed the definition of employees and the permissible exclusions for workers’ comp purposes.

Current law excludes from the definition of employee:

  •  An officer or member of the board of directors of a quasi-public or private corporation who owns at least 15% of the issued and outstanding stock and executes 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, and
  •  An individual who is a general partner of a partnership or a managing member of a limited liability company who executes a written waiver of his or her rights under the laws governing workers’ compensation stating under the penalty of perjury that he or she is a qualifying general partner or managing member.

If one or more of your officers and owners are claiming an exemption, you should expect to receive correspondence from your insurance company notifying you of the changes.

The new law takes effect in two stages:
Effective January 1, 2018

The first part of the legislation addresses waivers executed by individuals prior to January 1, 2017, and accepted by the carrier before the end of 2017. It provides that these waivers will remain in effect until they are withdrawn by the named individual.

Effective July 1, 2018

The minimum ownership percentage is reduced from the current 15% to 10% for the purposes of qualifying for a workers’ comp waiver.

Under the new law, an officer or member of the board of directors may elect to waive coverage if either:

  1. He or she owns at least 10% of the issued and outstanding stock, or
  2. He or she owns at least 1% of the issued and outstanding stock of the corporation if his or her parent, grandparent, sibling, spouse or child owns at least 10% of the issued and outstanding stock and is covered by a health insurance policy or health care service plan.

Under the new law, the waiver must be signed by the person requesting to be excluded from workers’ comp coverage. The law specifically states that company representatives may not sign on behalf of the individual.

The waiver takes effect when the insurance company receives it, but it has the option to backdate it up to 15 days prior to receipt. The waiver shall remain in effect until the officer or member of the board of directors provides the insurer with a written withdrawal of the waiver.

Sole shareholders of a private corporation  Sole shareholders of private corporations and private professional corporations are excluded from the definition of employee as of July 1, 2018, but can elect to be covered by the policy.


General partners or managing members of an LLC  
A general partner of a partnership or a managing member of a limited liability company can execute a written waiver of coverage.


Professional corporations  
An owner of a professional corporation who is a practitioner rendering professional services for which the professional corporation is organized, may waive coverage.


Cooperative corporations  
Officers and board members of cooperative corporations are also addressed in the notice. They can opt out of coverage by signing a waiver under penalty of perjury.

However, in addition to having health care coverage, they must also have “a disability insurance policy that is comparable in scope and coverage to a workers’ compensation policy,” according to the Department of Insurance.

 

 

 


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