New Law Reduces Ownership Requirement for Coverage Exemption

A NEW STATE law (SB 189) introduces amendments to an existing law (AB 2883) that defines what constitutes an owner or officer who is exempt from having to carry workers’ comp coverage.

The legislation amends the current law (AB 2883) that became effective on January 1, 2017, which limits the ownership percentage of individuals in an organization who could claim an exemption from workers’ comp coverage, including:

• 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 who waives their rights under workers’ comp laws, and
• An individual who is a general partner of a partnership or a managing member of a limited liability company who waives their rights under workers’ comp laws.

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 during 2018:

Effective Jan. 1, 2018

The first part of the new law (SB 189) addresses waivers executed by officers and/or directors prior to Jan. 1, 2017 and accepted by the carrier before the end of 2017.

Prior to the amendment SB 189 these waivers, which allows officers and/or directors to claim an exemption from workers’ comp coverage, would be accepted effective the date received by the carrier.

The amendment SB 189 allows the carriers to backdate any waiver that was received prior to December 31st, 2017, making the exclusions effective January 1st, 2017.

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 coverage.

Sole shareholders of a private corporation 

Sole shareholders of private corporations can waive coverage.

General partners or LLC managing members 

A general partner of a partnership or a managing member of a limited liability company can waive 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 can opt out of coverage by signing a waiver. They must have health care coverage and a disability insurance policy.