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Executive Officer

Discussion on the laws, types of officers, rules, classification, and premium determination.

A. Corporate Officer Definitions

The statutory definition in the Indiana WC Act is as follows: 
IC 22-3-6-1(b)
(1) An executive officer elected or appointed and empowered in accordance with the charter and bylaws of a corporation, other than a municipal corporation or governmental subdivision or a charitable, religious, educational, or other nonprofit corporation, is an employee of the corporation under IC 22-3-2 through IC 22-3-6. An officer of a corporation who is an employee of the corporation under IC 22-3-2 through IC 22-3-6 may elect not to be an employee of the corporation under IC 22-3-2 through IC 22-3-6. An officer of a corporation who is also an owner of any interest in the corporation may elect not to be an employee of the corporation under IC 22-3-2 through IC 22-3-6. If an officer makes this election, the officer must serve written notice of the election on the corporation's insurance carrier and the board. An officer of a corporation may not be considered to be excluded as an employee under IC 22-3-2 through IC 22-3-6 until the notice is received by the insurance carrier and the board.
 
The Indiana Code is available on the State of Indiana website.
 
The key to establishing "executive officer" status is more than just the title. The title/status must be established in accordance with the charter and bylaws of the corporation. Merely calling an employee an "assistant vice president," for example, does not automatically deem him/her an executive officer.
 
The definition for an Executive Officer is found in the Basic Manual Rule 2.E.1, page R15:
 
"Executive officers of a corporation or unincorporated association are the president, vice president, secretary, treasurer, or any other officer appointed in accordance with the charter or bylaws of such entity."
 
Also, check out two articles from the Big I Focus magazines:
 
B. Exclusion From Coverage
 
1. Officer Inactive
In instances where an executive officer is inactive in the business (perhaps serving on the corporate board of directors for the value of his/her name) and may only attend annual meetings or directors meetings, then our rules permit the exclusion of the payroll of such officer in determining the insured's premium, but the officer is still covered. Please see section below on "Exclusion From Premium."
 
 
2. Any Corporate Officer Exclusion
Effective July 1, 2014, any officer of a corporation may now elect to exclude himself/herself from the WC Act, Senate Enrolled Act 294. The next year, effective May 7, 2015, SEA 33 added owner wording: "An officer of a corporation who is also an owner of any interest in the corporation may elect not to be an employee of the corporation…”
 
The WC Board of Indiana revised State Form 36097 (R8 / 6-15), Notice For Workers Compensation and Occupational Diseases Coverage ("Election Form"). For more information, please see ICRB Circular 2014-06.
 
It is also appropriate to attach endorsement WC 00 03 08 (Partners, Officers and Others Exclusion Endorsement) and insert wording to identify the excluded officer.
 
To rescind an election, the Board does not have a form, so a letter to the Board and carrier should be acceptable.
 
Note on Sole Officer of a Corporation
Effective 05/13/09 to 07/01/2014, House Enrolled Act 1701 revised the definition of an executive officer of a corporation (including a Subchapter S corporation) under IC 22-3-6-1(b) (1). It added a provision that an officer of a corporation who is the sole officer of the corporation may elect not to be an employee of the corporation. 
 
Effective July 1, 2014, Senate Enrolled Act 294 provides that any officer of a corporation may now elect to exclude himself/herself from the WC Act. For more information, please see ICRB Circular 2009-05, and ICRB Circular 2010-09.
 
Assigned Risk Application Procedure:
The applicant is responsible for submitting the clearance certificate to the State. The approved clearance certificate should be submitted with the application. If the clearance certificate is not yet completed or approved, the ICRB needs at least a copy of the signed form before binding the application.

Once we have the signed form, we can assume it is pending approval by the State and we can bind coverage. We will make a note to the servicing carrier that the form is pending approval.
The servicing carrier may make a business decision to:
·        assume the corporate officer is not exempt and charge premium for the exposure, until the exclusion is official, or
·        allow a reasonable time (30 days) for the State to approve the clearance certificate. After that, it would be appropriate for the carrier to charge the employer for the officer’s coverage until the exclusion is official (clearance certificate approved and received).
 
 
 
3. Public or Nonprofit Officer
Public officers traditionally have been excluded from coverage, based on the theory that one who exercises the power of a public official cannot be regarded as an employee of the state or political subdivision. Coverage has been extended to members of the Indiana General Assembly. However, an entity may elect to cover the officer(s). IC 22-3-6-1(b) (2) states "An executive officer of a municipal corporation or other governmental subdivision or of a charitable, religious, educational, or other nonprofit corporation may...be brought within the coverage...by specifically including the executive officer in the contract of insurance." This is accomplished by attaching the "Sole Proprietors, Partners, Officers and Others Coverage Endorsement" (WC 00 03 10) to the policy.
 
Question:
If such an executive officer (e.g., a school board member) elects to be brought within coverage, can an insurance company refuse to honor the request?
 
Answer:
It would be unusual for an insurance company already on the account to refuse to include one of these kinds of executive officers if they elect to be covered. In the assigned risk market, we would expect the servicing carrier to add the coverage since the law permits such an election.
 
A carrier might say that by adding such officer(s), there might be a change in the scale of the risk. I think that would be stretching it and I would think if someone complained to the insurance department, the response would be that adding such officer(s) is not a change in the scale of the risk and the carrier must add the coverage and cannot cancel midterm. Of course if the carrier doesn't care to cover such officer(s), it can always non-renew upon normal expiration date.
 
If the executive officer of a nonprofit or government entity met the definition of executive officer in the Basic Manual, Rule 2.E.1., page R15, then the executive officer payroll rules would apply. There is a special rule that applies to the payroll computation for executive officers of volunteer fire departments.
 
For a discussion on Township Trustee, please the separate document on this subject.
 
4. Sole Proprietor, Partner, or LLC Member
A different scenario exists for a sole proprietor, partner, and a member or manager of a limited liability company (LLC). They are not considered employees but may elect to include themselves as employees per IC 22-3-6-1.
 
 
C. Exclusion From Premium
 
To determine if there's a premium charge, first you must determine if the executive officer in question is active or inactive. If he's considered active, then a premium charge is required per our rules, subject to minimum and maximum limits for officers. If he's inactive, then no premium charge applies per Basic Manual Rule 2.E.1.b (5):
 
"Payroll is excluded when...
The executive officer is elected for the value of his/her name or because of stock holdings, has no duties and does not visit the premises, except perhaps to attend directors' meetings. The executive officer ceases to perform any duties and does not visit the premises, except perhaps to attend directors' meetings."
 
The rule provides that the carrier must exclude payroll of an officer in calculating the employer's premium when the officer is virtually inactive. It doesn't say not to provide coverage (the statute mandates coverage is provided).
The rule uses common sense. The point is that if an officer is inactive, then the carrier has no exposure, and therefore, no premium charge is necessary to cover the "exposure." The rule implies it is not fair to charge premium for inactive officers for which virtually no exposure exists.
 
 
D. Payroll & Classification
 
Rules on including or not including an executive officer's payroll are found in the Basic Manual, Rule 2.E.1.b.(4) and (5). Rules on the classification assignment for an executive officer are found in Rule 2.E.1.a.
 
In general, executive officer rules apply on a policy basis. So, one officer that is active in two corporations and each corporation has its own policy, then you look at the officer's payroll and classification separately for each policy.
 
The exception would be if one carrier writes multiple corporations under one or multiple policies, then, you can consider them as one unit (entity) for purposes of applying the executive officer rule. This exception can be most helpful by applying only one maximum payroll limitation to an officer's payroll even though he/she might be paid under several of the corporations that are all covered under the one policy. You add up all payroll from all corporations under one policy for an executive officer, and then apply the maximum if the total payroll exceeds the limit. See Basic Manual Rule 2.E.1., second paragraph, for the rule language.
 
Payroll limitations (minimum and maximum) apply to the average weekly payroll of an officer for the number of weeks employed during the policy period. For amounts, please see table below. Reference Basic Manual Rule 2.E.1.b.(3)
 
 
E. Payroll Limitations for Business Owners
 
For calculating premium, our rules place an advisory minimum and maximum payroll for executive officers, and beginning for 2012, also for sole proprietors, partners, and limited liability company (LLC) members.
 
The limitations apply to the average weekly payroll. The amounts appear in the Basic Manual rate pages, Miscellaneous Values page. Below is a chart showing the amounts for recent years.
 
(Refer to Basic Manual Rule 2-E)
 
Owner
Status
Charge
1/1/2014
1/1/2015
1/1/2016
1/1/2017
Sole Proprietor, Partner, LLC member
excluded,
Fixed (prior to 2012)
min/max same as officer
can opt in
Executive
Officer
included (corp officer can opt out)
Min Annual
$ 36,400
  
$ 36,400
 
$ 36,400 $ 36,400
Max Annual
$166,400
$166,400
$171,600 $176,800
Min Week
$ 700
$ 700
$ 700 $ 700
Max Week
$ 3,200
$ 3,200
$ 3,300 $ 3,400
 
Here's a summary of the changes for Payroll Derivation for 2014:
      Statewide Average Weekly Wage (SAWW) for executive officers, sole proprietors, partners, and LLC members based on latest available U.S. Department of Labor (USDOL) Bureau of Labor Statistics (BLS)
·        Occupational Employment Statistics Quarterly Census of Employment and Wages (QCEW), Total Private Industry. State Average Weekly Wage (SAWW) = $795
      Minimum equal to 85% of the SAWW (795 x 0.85 = 710) rounded to nearest 50 = $700
      Maximum equal to 4 times the SAWW (795 x 4 = 3,340) rounded to nearest 100 = $3,200
 
For more information, the PIA and Big I magazines both featured articles (click here) on this topic in December 2011. Risk & Insurance online contains an article on the subject titled "Indiana: Bureau proposes new rates for upcoming year" in its WorkComp Forum section.
 
 
F. Executive Officer Minimum Payroll Transition Program
 
Effective 01/01/11, a three year transition program began for the executive officer minimum payroll amount. Item Filing B-1420 Amendment, approved 12/10/10, revised the minimum payroll value for executive officers.
 
For the first year of the transition (2011), the executive officer minimum payroll amount was $585. This amount replaced the $1,000 amount which was shown in the January 1, 2011 advisory rate filing.
 
For more information, please refer to ICRB Circular 2010-13 and an article in the Big I Focus Magazine, February 2011.
 
For 2012, advisory rate filing amounts supersede both Item Filing B-1420 and the Indiana Executive Officer Minimum Payroll Transition Program.
 
 
G. Corporate Officer Resignation
 
A corporate officer may resign at any time by notifying the corporate board. The change can become effective no sooner than the date of the notification. The process does not require a filing with the Secretary of State.

 

The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.
 

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The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.