How changes to the CA Labor Code (B 189 and AB 2883) may soon affect your work comp clients

Mid-term Reminder: To make any changes to entity type and/or managing members (LLC), officers or partners, brokers must advise Arrowhead of the date of changes in writing and provide signed waiver(s) for eligible officers, partners and/or managing members to be excluded. We cannot backdate any waiver(s) - any officer or entity change(s) will be effective on the date the waivers are signed and received by Arrowhead.

SB 189 has a fast-approaching milestone that many corporations need to meet. If you’re a workers’ compensation insurance producer, your clients may be counting on you to walk them through the upcoming July 1 changes. Here’s what you need to know.


Quick background on AB 2883 and SB 189

In a nutshell, Assembly Bill (AB) 2883 changed the California Labor Code as it relates to owner and/or officer exemptions for workers’ compensation policies, changing the requirements for owners or board members to except themselves from their company’s work comp policy. It went into effect Jan. 1, 2017. 

“It didn’t take long for legislators to recognize that there were problems with this statute,” said Paul McIntosh, Arrowhead’s Workers’ Compensation Program vice president of marketing. “So last fall, the California Legislature unanimously passed SB 189 to clean up problems caused by the earlier bill.”

Here’s a little more background: While California law has long allowed business owners to exempt themselves from workers’ comp, a growing concern that some corporations were exploiting the law to exempt large numbers of employees showed the need for additional regulation. AB 2883 narrowed the definition of an excluded employee as it applies to all workers’ compensation policies. Only officers and directors who own at least 15 percent of stock of the corporation (policies effective 6/30/18 and prior), or an individual who is a general partner of a partnership or managing member of a liability company, can be excluded from the work comp policy if they execute a waiver under penalty of perjury that they meet these qualifications.

SB 189, effective this July 1, changed the ownership threshold for corporations and expanded the definition which determines who is eligible to waive workers’ compensation insurance coverage. It also requires a signed affidavit of policyholders seeking exemption.

McIntosh listed the following changes from SB 189 and AB 2883 that will go into effect on new and renewal policies with inception dates on or after July 1, 2018: 

All Corporations – Officers or members of board of directors who own at least 10 percent of the issued and outstanding stock of the corporation can be excluded.

Family-Owned Corporations – Officers or members of the board of directors who own less than 10 percent of the issued and outstanding stock of the corporation are eligible for exclusion if they:

  1. own at least 1 percent of the issued and outstanding stock of the corporation; and
  2. are related (parent, grandparent, sibling, spouse, child) to someone who owns at least 10 percent of the issued and outstanding stock of the corporation; and
  3. are covered by a health insurance policy or health care service plan.

Professional Corporations – Owners of professional corporations (as defined by CA Corporation Code Section 13401) are eligible for exclusion if owners are:

  1. covered by a health insurance policy or a health care service plan; and
  2. are practitioners rendering the professional services for which the professional corporation was created.

Cooperative Corporations – Officers or members of board of directors of cooperative corporations organized under to the Cooperative Corporation Law, as set forth in Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code, are eligible for exclusion if they are covered by:

  1. a health insurance policy or a health care service plan; and
  2. a disability insurance policy that is comparable in scope and coverage, as determined by the California Insurance Commissioner, to a workers’ compensation policy.

Trusts – A person holding the power to revoke a trust with respect to shares of private corporation held in trust, or a general partnership or limited liability company interests held in trust, is eligible to execute a waiver under one of the conditions above.

Sole Shareholders of a private corporation – The statue clarifies that a sole shareholder of a corporation is not an employee and thus isn’t required to have work comp coverage.


What is required of affected policyholders?

The bill still requires those included in such organizations to sign a written waiver of rights including a statement that the individual is a qualifying partner, officer or director, or LLC member in order to be excluded from workers’ comp coverage.


Where should the waiver form(s) be sent?

Valid waiver form(s), including any applicable supporting documentation and percentage of each individual’s ownership, should be sent to your Arrowhead underwriter. We will notify the insured via mail (or email if provided). A copy of the completed endorsement will be available through the Daily Print and Policy Inquiry. 


Can I use any waiver form?

Waivers are specific to each carrier and cannot be interchanged.  It is important to identify the carrier on the policy and use the appropriate waiver form. Producers, you can provide the proper waiver form to your clients and encourage them to submit them promptly. Need help? Contact our customer service team for the updated, carrier-specific waivers. (Note: these are being sent to your insureds, but in case they miss them, we have them available as well.)


What if I already signed these waivers?

If the eligible officers, managing members, or partners already signed and submitted the waiver, no further action is needed.


How do I get more information on this law?

Visit https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB189        


Does each officer, partner, or member need a separate waiver? 

Yes. Only one person per waiver will be accepted. 


Can a company change the percentage of ownership to qualify for exclusion? 

Yes.  Proof of the change may be requested.  Examples include: minutes, certificate of stock, stock ledger, articles of organization, etc.


Will you backdate the exclusion(s)?

Waiver forms will be endorsed on the policy effective the date received.  The insurance carrier may elect to backdate the acceptance of the waiver up to 15 days prior to the receipt of the waiver.


How will the policyholder be charged if the waiver is received late? 

We are required to cover the individuals and bill on a prorated basis.  All billing will be rectified at time of final audit. 


Do non-profit corporations need to sign waivers? 

No. Volunteers of a non-profit corporation are not covered per CA Labor Code. Working officers of a non-profit must be covered at min/max.


Will carriers waive premiums due based on AB 2883?

No. Our program carriers intend to, and/or have directed us to, collect additional premiums because of the inclusion of coverage for additional employees based on AB 2883, at final audit.  


How does the WCIRB view Limited Liability Companies (LLC) and Partnerships percentage of ownership?

The WCIRB views each “member” and “partner” as owning an equal share.  For example, if there are four partners, they would each own 25 percent.  If there are 2 members, each would own 50 percent, and so on. 


Will you confirm receipt and acceptance of waiver form(s)?

Yes. We will notify the insured via mail (or email if provided).  A copy of the completed endorsement will be available through the Daily Print and Policy Inquiry.