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Excluded employees under California’s new workers’ comp law

Effective January 1, 2017, California’s law changed with respect to who can and cannot be considered an excluded employee for purposes of workers’ compensation coverage. The major change has to do with executive officers. Cavignac.com defines executive officers as follows:

  • President
  • Any vice president
  • Secretary
  • Assistant Secretary
  • Treasurer
  • Assistant Treasurer

In addition, executive officers include those so designated by the operating agreement of a limited liability company or by the charter or by-laws of a corporation and elected and empowered by the directors. Since there often are numerous vice presidents in a company, not all of whom are empowered by the charter, corporations should be aware that most insurance underwriters consider only those specifically referenced in corporate documents to be excludable from either workers’ compensation or the maximum payroll cap.

The new workers’ compensation law specifies that in addition to being a qualifying executive officer, any such person wishing to be excluded from coverage must own at least 15 percent of the issued and outstanding stock of the corporation. They also must sign a written document stating that they wish to opt out of workers’ compensation and waive their rights under the Labor Code.

A managing member of an LLC and a general partner of a partnership also can elect exclusion. The 15 percent ownership rule does not apply to such people.

In the case of a married sole proprietor, Gillespie Insurance Services explains that insurance companies usually consider the spouse a co-owner and therefore excludable. This is because California is a joint property state where all property, including a business, is jointly owned by the two spouses unless they have elected to own property in their own name only. However, for partnerships, LLCs and corporations, spouses are not excludable simply by virtue of being a spouse. Other family members likewise are not excludable from workers’ compensation unless they are a partner in a partnership, a member of an LLC or qualify as a titled officer and shareholder of a corporation.

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