Updated: Jan 14, 2019
As a business owner, there is always a wealth of moving parts to keep in mind and keep your business running smoothly. Costs like workers’ compensation insurance may not be something you review on a daily basis, but it can be a large expense depending on the type and size of your company. All California employers must provide workers’ compensation benefits to their employees under California Labor Code Section 3700.
Legal changes regarding workers’ compensation in CA Bill SB-189 took effect on January 1st of this year while further legislation will take affect on July 1st, 2018. The following are changes to be aware of:
The minimum ownership percentage is 10% for the purpose of qualifying for a workers’ compensation waiver. This would include if the employee owns a minimum of 10% of stock or if this individual owns a minimum of 1% of the stock and his/ her immediate family member owns a minimum of 10% of the stock and is covered by a health insurance plan.
The waiver must be personally signed by the employee requesting to be excluded from the company’s coverage.
It is important to know that sole proprietors are not included in the definition of an employee valid July 1, 2018; however, he/she can elect to be covered by the policy.
Cooperative corporations’ officers and board members can choose to be excluded from the coverage permissible by signing the waiver. These individuals must have health care coverage and a disability insurance policy that matches a typical workers’ compensation policy.
An employer is obligated to pay for its employees medical, disability, rehabilitation and death benefits for both job-related injuries and diseases, which coverage helps to do. Below, we will discuss the major benefits of these options, how a company may be affected by this change, and what the risks are associated with each.
The biggest factor to consider is that excluding officers and owners from the coverage reduces the monthly or annual cost of workers’ compensation insurance. Depending on the number of total employees and how many of those are in the executive suite this can be largely cost saving. Since the insurance company will not cover a claim for an excluded individual, there is minimal risk and therefore there is less charge for a premium.
At a labor-intensive job, typically the owners or executives are not the ones doing tasks that can put them in danger of getting injured. In reality, they are supervising or sitting behind a desk at an office. If there was a situation, an owner does not often file a workers’ compensation claim against their own company and he/ she pays for the injury using their own personal health insurance policy or even out-of-pocket. These are also the highest paid employees of the company, which gives them more financial flexibility in times of need. With that being said, why spend unnecessary money or pay for a larger workers’ compensation coverage when it will never be used?
If reducing ownership in the workers’ compensation coverage, then there are risks to consider and weigh depending on your business’ policy, assets and personal opinions of the owners and executives.
Business owners and executives are capable of getting hurt. Accidents do happen, and injuries and illnesses are subject to everyone. It is not unheard of for an executive to take a task upon themself or to help out the employees, making them more susceptible to workplace injury.
Although a business owner or executive may have all intent and purpose to use their own personal health insurance policy to pay for an injury sustained on the job, it is important to note that some policies exclude coverage for work-related injuries as typically that is what workers’ compensation is for and will pay for medical expenses, rehab, and disability. We recommend having all owners and executives check their personal health insurance policy before making any permanent decision.
Workers’ compensation insurance covers the payment of a death benefit to beneficiaries in a work-related accident; therefore, it may be necessary for owners and executives to carry an extra layer of protection if opting out of coverage.
When making the decision in reducing ownership for the workers’ compensation coverage, it is necessary to weigh the benefits and risks. Each company is different and what works for one, may not work for other depending on the amount of risk they want to carry. Please make the decision with the assistance of an insurance agent or with professional legal help. For more information, you’re welcome to contact our office today at firstname.lastname@example.org or (530) 217-3520.
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