do California workers comp policies cover a business owner's own payroll

The CDI guide describes a business owner who is a sole proprietor and wants workers' compensation to cover himself or herself only. In that situation, the guide says the policy must clearly state the sole proprietor's inclusion, or an endorsement must add it. The CDI also notes that workers' compensation is liability insurance in which the employer assumes complete liability for all work-related injuries, so a policy for a sole proprietor "may not be the best choice."

The guide also points to two Labor Code sections. Section 3351 defines who is an employee and therefore who must be covered, subject to any applicable exclusion. Section 3352 automatically excludes certain workers from that definition and sets out how other specific workers may waive coverage. The CDI adds that Section 3352 does not prohibit an employer from choosing to cover those workers.

Whether the business is a sole proprietorship, partnership, LLC or corporation, the CDI says a broker-agent can explain coverage eligibility issues and present options based on that organizational model. The U.S. Small Business Administration's launch-your-business page adds that ownership rules, liability, taxes and filing requirements for each business structure can vary by state, and it advises conferring with a business tax specialist.

Separately, the CDI's commercial insurance guide says California employers are required under Labor Code Section 3700 to provide workers' compensation through a licensed insurer or State Fund, and may have the option to self-insure.

Per the CDI guide, the final premium cannot be calculated until the policy term ends and payroll records are audited. If payroll came in above the estimate, the employer owes additional premium. If it came in below, the insurer owes a return premium. Some insurers offer monthly payroll reporting. Where it is not offered, the employer can work with its broker-agent or underwriter to report large payroll fluctuations during the term.

How an owner's own pay is treated in the payroll basis depends on the wording of the policy or endorsement, so it is a question for the insurer that wrote the policy.

As one carrier's example, Travelers' premium audit page says payroll is needed to complete a workers' compensation premium audit. It also tells policyholders to keep copies of filed tax forms that apply during the policy term. Under a question about sole proprietors, LLC members and partners, Travelers states that changing legal entity status during the policy term "may impact your coverage and/or premium" under the workers compensation law in your state. A change of entity is therefore worth raising with the insurer before it happens.

The Workers' Comp & EMR Impact Calculator calculates a payroll-and-rate subtotal from your own rating figures and offers printable renewal preparation. For background, see workers' compensation insurance and the California business insurance guide.

1. Does the policy or an endorsement name me, or any other owner, as included? Please show me the wording.
2. If an owner is excluded, how is that documented, and is a waiver or election form involved?
3. How will any included owner appear in the estimated payroll and in the final audit?
4. What payroll and tax records will the auditor ask for, and is monthly payroll reporting available?
5. If my legal entity changes during the term, what happens to coverage and premium?

The business insurance quiz is a free educational assessment that turns your own answers into an editable checklist, with an on-device print or PDF option, so you can gather these items before talking with a broker-agent.

Have a question about your own situation? Send it to PolicyBenchmark.