Can Owners & Officers Be Excluded On Workers Comp In California? (2017 Edition)

This past May I wrote a blog on the conditions that allow officers and owners to be excluded on their workers comp policy.   It was a great article, very informative (yes, I’m congratulating myself), but it needs to be updated.  Why?  Because the rules have changed as of January 1, 2017 in regards to corporations.  Change is one constant thing you can expect in the insurance world.  So here’s the updated version, updating the change in rules for corporations.

The question is: can owners and officers in a corporation be excluded on a workers comp policy?

First, being “excluded” means that you’re not covered on a workers comp policy.  If you’re not covered, it means you don’t have to pay.  Naturally, business owners want to keep their costs as low as possible and generally would like to exclude everyone possible.  Being excluded is a good thing here.

The answer is: yes, most of the time owners and officers can be excluded. In a corporation, being able to exclude someone/anyone requires that all owners also be officers.  If there are owners who are not officers, then no one can be excluded.

Confusing enough?

First let’s break it down.  You have owners, and you have officers.

Owners: they own shares in the corporation.  They own a part, or all, of the company.

Officers: they have a leadership or management role in the company, which is noted by a title.  President, Vice President, Secretary, Treasurer, CEO, COO, CFO, CMO, CTO are all examples of titles given to officers.

It’s important to note that owners do not have to be officers and officers do not have to be owners.  These are independent categories.

The rule was, and still is: Corporate owners who are also officers can elect to be excluded IF there are no additional non-officer owners.  But the new change for 2017 adds in that owners that want to be excluded have to own at least 15% of the stock in the corporation.  For example: let’s say between the three of them, Art Vandelay, H.E Pennypacker, and Kel Varnsen (yes, I’m still using Seinfeld references) own 100% of the stock in a corporation.  If all three are officers and own at least 15% of the stock then all three can be excluded.  But if any one of them is NOT an officer, they must all be included.  And if any one of them own less than 15% of the stock,  that individual cannot be excluded (but the other owner/officers still can be excluded).

What payroll is used to determine how much it to charge these people?  The owner/officers that are included are subject to CA Min-Max payroll rules and the owner/non-officers are subject to their actual payroll.  Owner/non-officers that earn no wages or salary are neither covered nor excluded, nor is there any additional cost.

Here’s a chart to help explain:

Owner Ownership % Title Can Be Excluded? Payroll Basis
Art Vandelay 34 President Yes! n/a
H.E. Pennypacker 33 Secretary Yes! n/a
Kel Varnsen 33 Treasurer Yes! n/a

 

Owner Ownership % Title Can Be Excluded? Payroll Basis
Art Vandelay 43 President Yes! n/a
H.E. Pennypacker 43 Secretary Yes! n/a
Kel Varnsen 14 Treasurer No! Actual Pay or CA Min Max?  Don’t know yet!

 

Owner Ownership % Title Can Be Excluded? Payroll Basis
Art Vandelay 34 President No! CA Min-Max
H.E. Pennypacker 33 Sec / Treas No! CA Min-Max
Kel Varnsen 33 none No! Actual Pay

CA Min-Max means that the owner will pay workers comp based on his actual payroll with a minimum attributed payroll of $45,500 and a maximum of $117,000 (as of 2016 because the 2017 update is not out yet).  For example, If Vandelay pays himself anything lower than $45,500, his workers comp company will charge him based on $45,500.  If he pays himself anything over $117,000, his workers comp company will charge him based on $117,000.  If he pays himself anything between $45,500 and $117,000, his workers comp company will charge him based on the actual amount.

Here’s another chart to help explain this:

Vandelay’s Actual Payroll Vandelay’s Attributed Payroll
$25,000 $45,500
$75,000 $75,000
$100,000 $100,000
$150,000 $117,000

There you have it.  The 2017 updates.

The biggest change (there are a few minor changes I didn’t discuss) in all this is that corporations with officer/owners that have less than 15% ownership will now be including those officer/owners on their workers comp.  This could be a major unexpected price increase to the businesses with those numbers.  Adjust your corporate stock before your policy renews if you want your minority owners to remain excluded!

eli-cropped-concentrate

ELI GILLESPIE

I’m the Commercial Producer and Manager at Gillespie Insurance Services. If you have any questions about these CA  workers comp changes, call me at 909-793-6878 or email at eli@giscoverage.com.

Leave a Reply

Your email address will not be published. Required fields are marked *