I am not in the habit of reading California Assembly Bills as part of my recreational reading. However, when a trusted advisor brings to my attention something that will affect my clients, my ears perk up. Such was the case recently. A trusted Insurance Broker told me that AB 2883 that was signed into law by Governor Brown on August 26th could potentially affect my clients. This new assembly bill changes the way that Worker’s Compensation affects exclusions for certain types of business owners.
Who can be excluded from Worker’s Compensation?
This bill could significantly change the way small business owners classify the owners of their company. For a corporation, Officers/Shareholders must have 15% ownership in order to be eligible for exclusion. For a partnership or LLC only a person that is designated as a “managing partner” or “managing member” can be excluded from coverage. As long as all of the owners of a business meet the criteria above, they can be excluded from additional Worker’s Compensation premiums.
Why is the potential cost?
If an owner is currently less than a 15% owner in a corporation and works out in the field. Or, they are not a “managing partner” or “managing member” this could be a problem. Under the new regulations, these owners could be subject to worker’s compensation premiums. If you assume $7.50 worth of premium for every $100 of payroll you can calculate the impact. Let’s assume the owner is paid $100,000 per year. That is equal to $100,000/$100 = 1,000 X $7.50 = $7,500 in annual premiums. Can you imagine your Worker’s Compensation premiums going up by $7,500 each year? Most small business owners can’t afford that kind of additional expense.
Your insurance company is required to send notification of the new law and it’s requirements to you by November 15th, 2016. Now, you have a head start, you can talk to your insurance broker about ways to mitigate the impact to your small business. Preparation is always the key when looking at strategic planning for your small business