What is Senate Bill 189? How Does it Affect You?

If you’re an officer or Board member of a California corporation, you should be aware that the definition that determines who is eligible to waive Workers’ Compensation insurance has been changed.

Originally, California Assembly Bill 2882 – which took effect June 2017 – applied to all Workers’ Compensation policies and narrowed the definition of an excluded owner. The amendment permitted only officers and directors that own 15 percent of all stock of the corporation to be excluded from the Workers’ Compensation policy if they executed a waiver that they meet these qualifications. In addition, the waiver could be obtained by individuals that are a general partner of a partnership or managing member of a liability company.

Senate Bill 189, effective July 1, 2018, changes the ownership threshold for corporations and expands the definition that determines who is eligible for the waiver:

All Corporations– Officers or members of board of directors who own at least 10 percent of the issued and outstanding stock of the corporation are eligible for exclusion.

Family-Owned Corporations– Officers or members of the board of directors who own less than 10 percent of the issued and outstanding stock of the corporation are eligible for exclusion, if they:

• Own at least 1 percent of the issued and outstanding stock of the corporation, and
• Are related (parent, grandparent, sibling, spouse, child) to someone who owes at least 10 percent of the issued and outstanding stock of the corporation, and
• Are covered by a health insurance policy or health care service plan’’

Professional Corporations– Owners of professional corporations (as defined by CA Corporation Code Section 13401) are eligible for exclusion if owners are:

• Covered by a health insurance policy of a health care service plan, and
• Are practitioners rendering the professional services for which the professional corporation was established.

Cooperative Corporations– Officers or members of a board of directors of cooperative corporations law, organized pursuant to the Cooperative Corporation Law, as set forth in Part 2 (commencing with Section (2209) of Division 3 of title one of the Corporations Guide are eligible for exclusion if they are covered by:

• A health insurance policy or a health care service plan, and
• A disability insurance policy that is comparable in scope and coverage, as determined by the California Insurance Commissioner, to a Workers’ Compensation policy.

Trusts– A person that holds the power to revoke a trust with respect to shares of a private corporation held in trust, or a general partnership or limited liability company interests held in trust are eligible to execute a waiver under one of the conditions above.

Sole Shareholders of a Private Corporation– The statute clarifies that a sole shareholder of a corporation is not an employee and is to required to have Workers’ Compensation insurance.

The WCIB views each “member” and “partner” as owning an equal share. For example, if there are four partners, they would each own 25 percent. If there are two members, they would both own 50%, and on and on …