California Assembly Bill 2883 Raises Workers’ Compensation Exemption Requirements

Earlier this year, California’s state legislature passed Assembly Bill 2883 (AB 2883), which drastically changed the legal requirements that allow an employer to exclude its corporate officers and the members of its board of directors from its workers’ compensation policy. AB 2883 is scheduled to come into force on Jan. 1, 2017.

Under California law, unless an exemption applies, employers must provide workers’ compensation coverage to all employees. However, under the law (before AB 2883), an employer’s coverage requirements extend to officers and members of the board of directors only if these individuals elect to be covered by the employer’s workers’ compensation policy.

AB 2883 effectively spins the current opt-in coverage option for corporate officers and board of directors’ members into an opt-out provision. What this means, is that once AB 2883 becomes effective, a quasi-public or private employer will have to extend coverage to its corporate officers and the members of its board of directors if they:

  • Actually receive compensation for the services they perform for the corporation; or
  • Fail to opt-out of workers’ compensation coverage.

Who’s Exempt?

AB 2883 makes it more difficult for individuals to exclude themselves from workers’ compensation coverage.

Under the bill, only the following employees may exempt themselves from workers’ compensation policies:

  • Directors or officers who own at least 15% of their business’s outstanding stock;
  • General partners; and
  • Managing members of limited liability companies (LLCs).

Additionally, directors, officers and partners can only opt out of workers’ compensation coverage by signing a waiver under penalty of perjury, and then submitting the waiver to their employer’s insurance carrier.

Potential Impact

The changes introduced by AB 2883 are expected to have the largest impact on small and mid-sized businesses, which are often run solely by their owners or only have a few employees.

When the bill goes into effect, many businesses will be forced to purchase workers’ compensation coverage for individuals that were previously exempt. This will consequently lead to a drastic increase in overhead costs.

To comply with implementation requirements, employers will need to ensure that they have adequate coverage for all eligible employees and that all appropriate waivers are filed before Jan. 1, 2017.

Call the experts at 360 Risk Partners for help getting your business in compliance with AB 2883. We can examine your current policy to see which of your employees are exempt and work with your insurance carrier to examine how the bill will impact your business’s bottom line.

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