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Wednesday, October 17, 2012

How Does The Ownership Of Your Business Affect Your Workers' Compensation Insurance Premium?

When you decided to go into business and considered all of the options and benefits associated with the different types of ownership, it probably never crossed your mind that your choice may in fact affect the amount in premium that you pay for Workers' Compensation Insurance coverage. Not only does your type of operation and number of employees affect your premium, business ownership also has a financial impact.
Whether or not you as the business owner will be included, excluded, or not eligible for coverage will depend primarily on the type of legal structure that you are currently operating under. Here is a quick overview of whether your earnings as an owner may be included for premium purposes based on some common entity types:
Individual: Individually owned 100% by proprietor. Not eligible/excluded from coverage under the Ca Workers' Compensation Insurance system, therefore earnings will not be included for premium purposes. May elect however to be included for coverage.
Partnership: Each general partner is assumed to own equal shares. General Partners can choose to be excluded from coverage under the CA Workers' Compensation Insurance System. The earnings of all General Partners who choose to be included for coverage will be picked up at the Partner minimum, not to exceed the Partner maximum, as set annually by the Workers Compensation Insurance Rating Bureau (WCIRB). The minimum/maximums for 2012 are $ 40,300.00 and $ 104,000.00 respectfully. Partners that are non-working and not paid are not eligible for coverage.

Limited Liability Company: Each member is assumed to own equal shares. Managing members may choose to be included for coverage under the CA Workers' Compensation Insurance System. The earnings of all managing-members who choose to be included for coverage will be picked up at the Officer minimum/maximum. All working and paid members will be picked up at their actual compensation rates. Managing members that are non working and not paid are not eligible for coverage.
Corporation: Voting shares determine percentage of ownership. All officers and Board of Director Members while providing services for pay for a quasi-public or private corporation shall be included for coverage and such earnings will be limited to the Officer Minimum/Maximum, however when the officers and directors hold all shares in a private corporation, they may elect to be excluded from coverage. All working and paid corporate officers that do not hold stock will be picked up at the officer minimum/maximum. Any officers that are non working and not paid are not eligible for coverage.
The rules concerning ownership are very complex and can have a very large financial impact on your business. Knowing which questions to ask you Insurance Broker may save you thousands of dollars in additional premium resulting from changes in ownership not disclosed to your Carrier due to outdated information contained in your Brokers files or because you failed to notify your broker or Carrier of any subsequent changes in ownership.
Arm yourself with useful information and save yourself thousands of dollars in premium! Additional information can be found in the Experience Rating Plan, which is part of the California Code of Regulations or contact your Insurance Broker. Also, consider a separate disability insurance policy for income protection for business owners; it may save you hundreds or thousands of dollars in Workers' Compensation premium annually.
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