The Changing Definition of Employee: What you need to know about SB 189

Author, Yvonne Gallagher, Landscape Division Account Manager, Rancho Mesa Insurance Services, Inc.

  California State Capital Building.

California State Capital Building.

State Bill 189 (SB 189) (Bradford) was recently enacted by the California State Legislature. It is intended to correct issues resulting from the passage of Assembly Bill 2883 (AB 2883) (Daly et. al) in 2017, which changed the requirements for business owners to exclude themselves from workers' compensation coverage.

SB 189 is written to expand:

The scope of the exception from the definition of an employee to apply to an officer or member of the board of directors of a quasi-public or private corporation, except as specified, who owns at least 10% of the issued and outstanding stock, or 1% of the issued and outstanding stock of the corporation if that officer’s or member’s parent, grandparent, sibling, spouse, or child owns at least 10% of the issued and outstanding stock of the corporation and that officer or member is covered by a health care service plan or a health insurance policy, and executes a written waiver, as described above. The bill would expand the scope of the exception to apply to an owner of a professional corporation, as defined, who is a practitioner rendering the professional services for which the professional corporation is organized, and who executes a document, in writing and under penalty of perjury, both waiving his or her rights under the laws governing workers’ compensation, and stating that he or she is covered by a health insurance policy or a health care service plan. The bill would expand the scope of the exception to include an officer or member of the board of directors of a cooperative corporation, as specified. The bill would also expand the definition of an employee to specifically include a person who holds the power to revoke a trust, with respect to shares of a private corporation held in trust or general partnership or limited liability company interests held in trust, and would authorize that person to also elect to be excluded from the requirement to obtain workers’ compensation coverage, as specified. The bill would provide that an insurance carrier, insurance agent, or insurance broker is not required to investigate, verify, or confirm the accuracy of the facts contained in the waiver. (Legislative Counsel, 2018)

Once a waiver is signed and on file with the insurance carrier it will remain in effect until there is a written withdrawal. When changing insurance carriers a new waiver must be signed with the new carrier.

Effective 1/1/18

  • Carriers were able to accept waivers up until 12/31/17 for policies issued in 2017 that weren't turned in on time and the officer exclusion is being honored from the inception of the policy and is being applied at final audit.

Effective 7/1/18

  • Trusts will be eligible for officer exclusion.
  • To be excluded, the required ownership percentage will change from 15% to 10%.
  • An officer with 1%-9% ownership that is related to an excluded officer that owns 10% or more may also be excluded as long as they have health insurance.
  • Waivers currently are required at the policy effective date. SB 189 provides a 15-day grace period from the effective date to turn in the waiver. The waiver may only be backdated 15 days.

Examples: With a 1/1/18 effective date, if the waiver is turned in and accepted by 1/15/18, the officer exclusion will be effective 1/1/18. With a 1/1/18 effective date, if the waiver is turned in and accepted by 2/15/18, the officer exclusion will be effective 2/1/18.

For specific questions about your workers' compensation policy, contact Rancho Mesa Insurance Services, Inc. at (619) 937-0164.