California – New Workers’ Comp Law Changes Definitions of Excluded Owners/Officers and May Affect Existing Policyholders

LABOR CODE LAW 3352 AMENDED IN CALIFORNIA BY AB 2883

CA SB 2883: recent legislation approved with 1/1/2017 effective date identifies the ownership level required to be excluded from coverage.

For Corporations – Labor Code Section 3352(p) – Officers or Directors must now own a minimum 15% of the stock of a corporation to be excluded from their Corporation’s Workers’ Compensation Insurance Policy. Each qualifying Officer or Director must sign a Waiver of Coverage Form (see attached) stating, under the penalty of perjury, that they are eligible for exclusion.

The requirement that the officers and directors of the private corporation are the sole shareholders thereof is being removed from the code.

For Partnerships and Limited Liability Companies – Labor Code Section 3352(q) – General Partners or Managing Members of LLCs must sign and date a Waiver of Coverage Form (see attached) stating, under penalty of perjury, that they are eligible for exclusion under their Partnership’s or LLC’s Workers’ Compensation Insurance Policy.

For Revocable Trusts – Labor Code 3352 – Grantors of revocable trusts are no longer eligible for exclusion. Each Grantor must be covered under California’s workers’ compensation insurance law.

Why amendment AB 2883 to California’s Labor Code?

Under current law, Officers or Directors cannot be excluded in Open Corporations. The current exclusion of coverage mandates a minimum of 1% ownership in a Closed Corporation. For Partnerships or LLCs, active limited partners and LLC members cannot be excluded. Only General Partners and/or Managing Members of LLCs can be excluded.

State Legislators have concluded that amending the current labor code with Assembly Bill 2883 will eliminate coverage gaps caused by employers assigning minor stock positions to employees in order to avoid including the employee’s payroll amounts in premium determination. Such action meant that some employers were not paying premium due for workers’ compensation insurance coverage and that some affected employees were not securing coverage they qualified for under the state’s labor law therefore, the introduction of AB 2883 to the Labor Code.

The new law revises the percentage stock ownership requirement to minimum 15% for Corporations before Officers or Directors can be excluded and for Partnerships and LLC’s, General Partners or LLC Managing Members must personally elect to be excluded from workers’ compensation insurance by executing a written, signed and dated Waiver of his/her rights of coverage.

For more information or questions, please contact E-COMP’s Policy Services Team at 888-493-2667 or via email to policies@goecomp.com.

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