{"id":2491,"date":"2016-05-18T08:58:19","date_gmt":"2016-05-18T08:58:19","guid":{"rendered":"https:\/\/gillespieinsuranceservices.com\/?p=2491"},"modified":"2025-04-17T12:51:59","modified_gmt":"2025-04-17T12:51:59","slug":"can-owners-officers-excluded-workers-comp-california","status":"publish","type":"post","link":"https:\/\/finfrockweb.com\/gis\/business-insurance\/can-owners-officers-excluded-workers-comp-california\/","title":{"rendered":"Can Owners & Officers Be Excluded On Workers Comp In California?"},"content":{"rendered":"

Note: if you want to read the updated version for 2017, click here<\/a>.<\/em><\/h4>\n

<\/h4>\n

I frequently get asked the question about who can be excluded on a Workers Comp policy. \u00a0Once we get past the lies, myths, and rumors that are addressed in this post<\/a>, we’re left with the\u00a0owners and officers. \u00a0It’s assumed that they can always be excluded, but I’m here to tell you that sometimes they can’t. \u00a0Yes, it’s true. \u00a0I’ll explain….<\/h4>\n

<\/p>\n

“You’ve got to be kidding me, Gillespie, can’t owners and officers always be excluded?”<\/p>\n

First let’s break it down. \u00a0You have owners, and you have officers.<\/p>\n

Owners:<\/strong> they own shares in the corporation, they are members of the LLC, they are partners in the partnership and they are the sole proprietor in the sole proprietorship. \u00a0They own the company.<\/p>\n

Officers:<\/strong> they have a leadership or management role in the company, which is noted by a title. \u00a0President, Vice President, Secretary, Treasurer, CEO, COO, CFO, CMO, CTO are all examples of titles given to officers.<\/p>\n

It’s important to note that\u00a0owners do not have to be officers\u00a0and officers do not have to be owners. \u00a0These are independent categories.When it comes to workers comp, it’s generally assumed that owners and officers can be excluded. \u00a0But you have to look at the type of legal entity the business is before really knowing.<\/p>\n

In a sole proprietorship, the owner and the owner’s spouse are the only ones that can be excluded. \u00a0In fact, they are by default excluded and you have to elect to<\/p>\n

If you’re excluded from workers comp, it means you’re not covered, which means you’re not paying a workers comp premium for yourself, which means a lower cost to the company. \u00a0You can\u00a0see why business owners often want to exclude as many people as possible.<\/p>\n

include them. \u00a0Being an officer does nothing for you in this case.<\/p>\n

A partnership and LLC work almost the same way as a sole proprietorship. \u00a0If you’re a member of the LLC or a partner in the partnership, you’re an owner and can elect to be\u00a0excluded. \u00a0Being an officer here does nothing for you.<\/p>\n

It’s in the corporation situation where things get a little more complicated. \u00a0 Corporate owners who are also officers can elect to be excluded IF there are no additional non-officer owners.<\/strong>\u00a0 For example: let’s say Art Vandelay, H.E Pennypacker, and Kel Varnsen (yes, these are Seinfeld references<\/a>) own 100% of the stock in a corporation. \u00a0If all three are officers, then all three can be excluded. \u00a0But if any one of them is NOT an officer, they must all be included. \u00a0The officers are subject to CA Min-Max payroll rules and the non-officer owner is subject to his actual payroll. \u00a0If the non-officer owner earns no wages or salary, he’s neither covered nor excluded, nor is there any additional cost.<\/p>\n

Here’s\u00a0a\u00a0chart to help explain the example:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n
Owner<\/td>\nOwnership %<\/td>\nTitle<\/td>\nCan Be Excluded?<\/td>\nPayroll Basis<\/td>\n<\/tr>\n
Art Vandelay<\/td>\n34<\/td>\nPresident<\/td>\nYes!<\/td>\nn\/a<\/td>\n<\/tr>\n
H.E. Pennypacker<\/td>\n33<\/td>\nSecretary<\/td>\nYes!<\/td>\nn\/a<\/td>\n<\/tr>\n
Kel Varnsen<\/td>\n33<\/td>\nTreasurer<\/td>\nYes!<\/td>\nn\/a<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
Owner<\/td>\nOwnership %<\/td>\nTitle<\/td>\nCan Be Excluded?<\/td>\nPayroll Basis<\/td>\n<\/tr>\n
Art Vandelay<\/td>\n34<\/td>\nPresident<\/td>\nNo!<\/td>\nCA Min-Max<\/td>\n<\/tr>\n
H.E. Pennypacker<\/td>\n33<\/td>\nSec \/ Treas<\/td>\nNo!<\/td>\nCA Min-Max<\/td>\n<\/tr>\n
Kel Varnsen<\/td>\n33<\/td>\nnone<\/td>\nNo!<\/td>\nActual Payroll<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

CA Min-Max means that the owner will pay workers comp based on his actual payroll with a minimum attributed payroll of $45,500 and a maximum of $117,000 (as of 2016). \u00a0For example, If Vandelay pays himself anything lower than $45,500, his workers comp company will charge him based on $45,500. \u00a0If he pays himself anything over $117,000, his workers comp company will charge him based on $117,000. \u00a0If he pays himself anything between $45,500 and $117,000, his workers comp company will charge him based on the actual amount.<\/p>\n

Here’s another chart to help explain this:<\/p>\n\n\n\n\n\n\n\n
Vandelay’s Actual Payroll<\/td>\nVandelay’s Attributed Payroll<\/td>\n<\/tr>\n
$25,000<\/td>\n$45,500<\/td>\n<\/tr>\n
$75,000<\/td>\n$75,000<\/td>\n<\/tr>\n
$100,000<\/td>\n$100,000<\/td>\n<\/tr>\n
$150,000<\/td>\n$117,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

As you can see, there are situations where a small corporation that has a single outside non-officer owner – such as an investor or family member – can get \u00a0a serious increase on their workers comp.<\/p>\n

Imagine a small roofing company that sells some of its shares to an investor who does not get a corporate title. \u00a0The owner will now have to pay about a 40% rate for himself based on a\u00a0minimum of\u00a0$45,500, which would result in\u00a0an additional minimum premium of $18,200 a year. \u00a0Yikes!<\/p>\n

I doubt sticking it to small business was the intention of those who created these rules, but that is sometimes\u00a0the result.<\/p>\n

You can also see that there is never a situation where being an officer without ownership allows anyone to be excluded from workers comp. \u00a0That is a myth that persists and I’ve seen business owners give all their employees titles \u00a0– “VP of This” “VP of That” – because they think it will allow the employees to be excluded. \u00a0They find out soon enough it doesn’t work that way.<\/p>\n

To sum up: owners almost always\u00a0can be excluded except in some corporate situations, and officers can never be excluded without also having ownership.<\/p>\n

Why write about this? \u00a0I want to inform small business owners of the surprise costs that result with\u00a0some of the moves they make. \u00a0The rules of workers comp are obscure and most people don’t know them. \u00a0Business owners often find out when it’s too late, and too often I have to be the one that delivers that bad news of a doubling or tripling of premium. \u00a0I would much rather be a bearer of good news. \u00a0Help me be the deliverer of good news and know the rules of the game!<\/p>\n

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Note: if you want to read the updated version […]<\/p>\n","protected":false},"author":3,"featured_media":3216,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,7,13],"tags":[2,18,14],"class_list":["post-2491","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-insurance","category-liability-insurance","category-workers-compensation","tag-business-insurance","tag-liability-insurance","tag-workers-compensation"],"_links":{"self":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2491","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/comments?post=2491"}],"version-history":[{"count":1,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2491\/revisions"}],"predecessor-version":[{"id":44649,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/posts\/2491\/revisions\/44649"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/media\/3216"}],"wp:attachment":[{"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/media?parent=2491"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/categories?post=2491"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finfrockweb.com\/gis\/wp-json\/wp\/v2\/tags?post=2491"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}