The Board points out that the important thing to do, for the
officer who works at the corporation or is an owner who may not actually work
there, is that they inform their agent when they take out the policy on the
other employees. They can both exclude themselves and adapt the form as they
see fit. So, even though the state form only addresses an officer with an
ownership interest, both officer scenarios are accepted by the Board.
Regarding stockholders and shareholders, they aren’t mentioned
or covered in the statute. What is relevant is if they are officers, then they
come within the statute. If they are not, they don’t. If they work at the
corporation, they are employees.
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.
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.
endorsement gives the carrier the flexibility to name the officers
individually, or by describing them, such as “all executive officers,” or “all
executive officers except the president.”
key is to use the language the carrier is comfortable with and so that it is
clear to all parties who is to be included so there’s no doubt when charging
for premium or when a claim occurs.
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?
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)
Sole Proprietor, Partner, LLC member
Fixed (prior to 2012)
min/max same as officer
can opt in
included (corp officer can opt out)
||$ 750 |
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
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 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.