The fallout from the Aug. 26 signing of Assembly Bill 2883 eventually became the defining topic of discussion during the fourth quarter among insurance agencies, carriers and most notably business owners who now find it more challenging to exclude themselves from their own workers comp policies. Most industry insiders got their first heads-up in mid-October, just a couple months ahead of the Jan. 1 effective date.

According to the article in the Central Valley Business Journal, the legislation requires all officers, members and partners to be covered under the workers compensation policy unless more restrictive qualifications are met.

To compound the matter, language delaying the application of the bill for in-force policies was omitted from the text. This omission, coupled with the narrower definition of who can be excluded from coverage, caused a massive disruption for the industry as a whole.

If your business is set up as a corporation, you must be an officer or director owning at least 15 percent of issued and outstanding stock on Jan. 1, 2017 to qualify for exclusion.

You must also execute a waiver of your rights to workers comp coverage, certifying under penalty of perjury that you are a qualifying officer or director with the requisite stock ownership.

If your business is organized as a partnership or LLC, you must now be a general partner of a partnership or a managing member of an LLC to qualify for exclusion (no minimum amount of ownership required).

The bill was supported by the American Insurance Association and the Association of California Insurance Companies, who contended the election process for opting out of coverage was not clear and led to abuses of the system.

In a handful of cases, certain employers gamed the system by claiming that employees with no real stake in the entity were officers, then excluding them from coverage.

As is often the case, small to middle-market businesses are experiencing the most devastating impact of the new legislation. Previously excludable individuals are covered as of Jan. 1, and premium for those individuals is accumulating.

In the worst cases, owners who do not perform strictly office work are being assigned to more costly classification codes. Many small businesses are seeing premiums double now that key employees are no longer excludable.

At a minimum, employers who exclude individuals from coverage now have additional paperwork to file with insurance carriers. Some entities have convened roundtable discussions with their insurance agents, accountants and lawyers to restructure corporate shares or reorganize the business to accommodate for continued exclusion of key employees.