Accuchex Blog

New California Workers’ Comp Law And Excluded Employees

Posted by Tristan Ruhland on Nov 30, 2016 8:00:00 AM

A new California labor law promises headaches for the state's workers' comp insurance providers. And the deadline is looming.


California Insurance Commissioner Dave Jones recently notified all workers’ comp insurers writing policies in the state about changes to procedures related to excluded employees created by a new law.

The new rules were created with the passage and signing of Assembly Bill 2883.

Problems With the Current Law 

The election process to opt out of coverage is not very clear under current law.  Beyond one limited statutory reference and very little regulatory guidance, insurers and LLCs are left with ambiguous guidelines. The Association of California Insurance Companies, one of the supporters of the bill contended that this lack of clarity led to abuses that have hurt injured workers and driven fraudulent activity.

For example, there have been cases of businesses naming a janitor the “vice president of janitorial services” in order to avoid paying for their workers’ comp coverage.

Requirements of the New Law

AB 2883 provides that all business workers’ comp insurance policies, including in-force policies, will be required to cover certain officers and directors of private corporations and working members of partnerships and limited liability companies that may have been previously excluded from coverage beginning on January 1, 2017.

The provisions of this change are applicable to all in-force policies. They specifically apply to officers and members of boards of directors receiving wages while rendering actual service for the corporation for pay and working members of a partnership, or limited liability company. The wages received are irrespective of profits from the partnership, or limited liability company.

What This Means for Insurers

“AB 2883 is going to cause significant disruption for workers’ compensation insurers and employers,” Insurance Commissioner Jones said in a statement issued October 17th.

“We have issued a notice today to workers’ compensation insurers so that they know what the new law requires of them and we directed insurers to provide notice to employers so they are made aware of the new law. Unfortunately, AB 2883 did not include any language exempting in-force policies or delaying its effective date so as not to impact in-force policies.”

Currently, officers, directors and working partners are not required to be covered under the business’s workers’ comp policy unless they opted to be covered and are not listed on a limiting and restricting endorsement.

On January 1st, officers, directors and partners are required to be covered under the employer’s workers’ comp policy unless they meet a narrower definition of excluded employee. Under this narrower definition, officers, directors, and partners can only opt out of coverage by signing a waiver under penalty of perjury and filing the waiver with their employer’s insurer.

The bill would revise allowable exemptions from the definition of an employee to only apply to an officer or member of the board of directors, and requires:

  • That an officer or member of the board of directors own at least 15% of the stock of the corporation in order to opt out of workers’ compensation coverage.
  • That the officer or member of the board of directors sign a waiver stating that the individual is a qualifying officer or member.
  • That a general partner of a partnership or a managing member of a LLC execute a waiver to opt out of workers’ compensation coverage.
  • That with this 15% ownership requirement, there can never be more than six people excluded.
  • That the waiver will remain in effect until a written withdrawal is received by the insurance company, and waivers are not transferable to a new insurance company.
  • That grantors of revocable trusts are no longer deemed to be shareholders and will not qualify for exclusion.

Problems With the New Law

Insurance companies are required to identify and provide notice to each employer that may have employees that were previously excluded from coverage and are affected by the new law. In addition, they are required to report the premium and loss experience associated of those who have not chosen to opt of the coverage.

Unfortunately, AB 2883 presents implementation problems for insurers, according to John Norwood, of the lobbying firm Norwood & Associates. He also warned that it presents an errors and omissions issue for insurance agents and brokers, especially with those entities that would not normally purchase a workers’ comp policy because only the owners are involved in the business.

In a recent article at, Norwood said, “Literally everybody in the industry responsible for legislative issues missed the application issue relative to this bill, yours truly included in that list, and the same with all legislative and committee staff until after the governor signed the bill into law,”

So now, corporations, partnerships and LLCs that do not purchase workers’ comp – possibly because they consist of the owners of the organization and have no employees under current law – will be illegally uninsured on the first of the year unless the owners sign and file the appropriate waiver.

Getting Expert Help

An updated compliance strategy will help your organization meet its obligations, while providing accuracy and timeliness. So take time to understand the laws, prioritize employee and manager changes, and maintain accurate record keeping. 

Another key step in maintaining HR compliance and increasing your company's cost-effectiveness is to consider outsourcing. A professional payroll management and workforce solutions provider such as Accuchex can offer much-needed help with Human Resources needs and questions.

Accuchex is a full spectrum Payroll Management Services provider offering expertise in Time Management, Insurance and Retirement issues, as well.

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Topics: ca labor laws, california labor laws, labor law compliance, worker's comp, insurance, exempt employees

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