Owner/Officer Inclusions and Exclusions

Workers’ compensation is an important system to make sure that employees injured while working receive payment and medical benefits while they are recovering.  California law has extensive regulations concerning workers’ compensation.  One of the most important regulations for business owners to be aware of is the requirement to carry workers’ compensation insurance.  There are very few exceptions to this rule.  Owners of a small business or officers of a corporation may sometimes qualify for inclusions or exclusions from this requirement, however, and it is important for you to understand when these may apply if you own a business.

Although the law in California used to state that officers and directors of corporations were automatically excluded in certain cases from the requirement for businesses to cover all of their employees, this is no longer the case.  The law now provides that if officers and directors are automatically included in the requirement that all employees must be covered by workers’ compensation insurance.  If, however, the corporation is completely owned by the officers and directors, they may opt-out of insurance coverage.  If they want to do this, they will have to sign a form specifically providing that they are opting out of the insurance coverage requirement.

Sole proprietors also need to understand workers’ compensation requirements.  A sole proprietor is not generally required to provide workers’ compensation for him or herself.  The exception to this is if the sole proprietor is running a roofing business.In that case, workers’ compensation insurance will need to cover the sole proprietor. Self-employed people are generally also exempt from the requirement.

Regardless of the structure of the business, the requirement that the business carries workers’ compensation extends only to employees.  If your company uses independent contractors, it is not necessary that your insurance cover those individuals.  That said, it is really important to ensure you are correctly classifying your workers.  Simply deciding that all of your workers are independent contractors is NOT dispositive of whether they actually are employees or independent contractors.  There are many relevant factors in determining whether a worker is an employee or an independent contractor, only one of which is classification.

We have experience assisting our clients understand their responsibilities in the context of the California labor code.  Contact us today for a consultation.

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