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OhioBWC - Basics: (Policy library) - File

Cancellation of Workers' Compensation Coverage

 

Policy Name:

Cancellation of Workers’ Compensation Coverage

Policy #:

EP-03-01

Code/Rule Reference:

Ohio Administrative Code (OAC) 4123-17-76.

Effective Date:

March 13, 2017

Origin:

Employer Policy

Supersedes:

All EM policies and procedures regarding the cancellation of workers’ compensation coverage that predate the effective date of this policy.

History:

Revised September 22, 2017; October 31, 2016; March 18, 2015; May 7, 2014; April 15, 2014. New Policy, October 25, 2013.

Review Date:

July 1, 2020

 

 

I.       Policy Purpose

 

The Ohio Bureau of Workers’ Compensation (BWC) sets forth the following guidelines for processing an employer’s request to cancel its workers’ compensation coverage and BWC-initiated cancellation of workers’ compensation coverage.

 

II.     Applicability

 

This policy applies to BWC Customer Assistance, BWC Collections, BWC Field Operations, BWC Policy Processing, employers and their authorized representatives.

 

III.    Definitions

 

A.     Cancellation of workers’ compensation coverage: The termination of workers’ compensation coverage when an employer ceases operations, coverage is no longer needed, or BWC initiates cancellation pursuant to OAC 4123-17-76.

B.     Estimated annual premium (EAP): The annual estimate of premium utilizing the estimated payroll and approved rates. BWC’s premium estimates are based on the most recently completed policy year of actual payroll multiplied by the employer’s blended rate for the policy year being estimated.

C.    True-up: Annual reconciliation of estimated payroll and actual payroll. All employers must file annual payroll after the conclusion of the policy year. BWC will calculate any premium obligation or credit for the completed policy year. For an employer cancelling coverage, true-up is due within forty-five (45) days of the date of the BWC notice of cancellation.

IV.   Policy

A.     Employer requirements.

1.     An employer may cancel its workers’ compensation coverage if all of the following criteria are met:

a.     The employer must notify BWC in writing;

b.     One of the following circumstances apply:

i.       The employer ceases operations in Ohio, or

ii.      The employer no longer has employees as defined in ORC 4123.01(A)(1)(b) and the employer agrees to cancel any elective coverage permitted under ORC Chapter 4123;

c.      The employer must true-up for the final policy year, and any other missing policy years, as set forth in OAC 4123-17-14. See section IV.A.5 below.

2.     The employer’s cancellation request must provide BWC with the following information:

a.     Reason for the cancellation.

b.     Effective date of the cancellation.

3.     The employer may not request a cancellation date that is earlier than the beginning date of the current policy year, unless the employer has documentation it ceased operations on such date.

4.     If a new employer requests cancellation on the original effective date, this request must be made prior to the due date of the first installment payment. The application fee is non-refundable.

5.     BWC will send correspondence instructing the employer to report actual payroll, or true-up, online at www.bwc.ohio.gov through the last date it had employees.

a.     The employer must true-up and pay any premium that is owed within forty-five (45) days of the date of the correspondence.

b.     If an employer fails to true-up within forty-five days of the correspondence, BWC will increase the employer’s EAP by ten percent (10%) and bill the employer.

c.      Failure to pay any premium owed will result in certification of the debt to the Attorney General.

B.     BWC evaluation of cancellation request.

1.     BWC will not honor a cancellation date that is prior to a policy year during which the employer paid premium installment payments.

2.     The cancellation effective date must be at least one day after the last date the employer had employees to ensure active coverage through the cancellation date. The cancellation effective date may be extended to the day after the final date of the policy year. The final date of the policy year is June 30 for PA employers and December 31 for PEC employers.

3.     Claim related issues must be resolved.

a.     BWC staff must verify through research there are no claims filed with a date of injury on or after the requested cancellation effective date.

b.     If the employer has any claims with a date of injury on or after the requested cancellation date, BWC staff will contact the employer to obtain the appropriate cancellation date or verify the business was sold or transferred.

C.    Guidelines for cancellation of workers’ compensation coverage.

1.     A cancellation date request that falls within the current policy year will be treated as a business issue.

2.     A cancellation request for a date prior to the beginning date of the policy year requires documentation. For examples of documentation which may establish the employer ceased operations, see section IV.F.1.b.

3.     BWC may retroactively cancel an employer’s coverage for good cause shown. Good cause means a substantial reason, one that affords a legal justification or a legal excuse, as set forth in OAC 4123-14-03(B).

4.     There may be situations in which an employer’s coverage is erroneously cancelled. The following principles will guide the voiding of an employer’s erroneously cancelled status:

a.     BWC error will be corrected without penalty to the employer. This process may entail:

i.       Updating the employer’s policy status and extending the due dates for installment payments.

ii.      Changing the coverage status of a claim to “covered.”

iii.     Reversal of employer billings for the now covered claim.

iv.    Reinstatement in any program from which the employer may have been auto-removed.

v.      Removal of liens and fees certified to the Attorney General.

b.     Employer error will require the employer to submit a new Application for Ohio Workers’ Compensation Coverage (U-3) with the non-refundable application fee. This process may apply to employers identified by the Employer Compliance Department or Special Investigations Unit as still in operation.

i.       The first hire date on the U-3 for the new policy must be the day after the cancellation date on the employer’s previous policy if the employer has been in continuous operation.

ii.      BWC will charge the employer a no coverage penalty of not less than $120 for the period when coverage was not established.

iii.     BWC will bill the employer dollar for dollar for any claims that occur during the period when coverage was not established.

iv.    BWC may combine the employer’s cancelled policy into the recently issued policy if deemed appropriate by BWC underwriting guidelines.

5.     BWC will issue a warrant in the name of the employer of record as shown in BWC systems if it is determined the employer is entitled to a refund. The name on the warrant will not be modified. BWC recommends the employer confirm no refund is anticipated before closing a company bank account. Financial institutions may not honor a refund warrant on a closed account.

D.    BWC initiated policy cancellations.

1.     BWC may cancel an employer’s coverage if any of the following apply:

a.     The employer fails to pay the required premium by the annual renewal date in accordance with OAC 4123-17-14, and the employer’s EAP is equal to the minimum administrative charge set forth in OAC 4123-17-26;

b.     The employer’s coverage is lapsed, and the employer’s account has a balance of less than two hundred dollars ($200), and as of BWC’s processing date the employer’s policy has no allowed claims filed against it within the last two years; or

c.      The employer is a new employer who failed to pay any estimated premium or assessments when due.

2.     BWC may cancel a lapsed employer’s policy if documentation or evidence is obtained that clearly demonstrates the employer is no longer in operation in the state of Ohio. Examples of documentation or evidence may include, but are not limited to, some combination of three of the following:

a.     Secretary of State cancellation.

b.     Tax records such as Schedule C from the employer’s IRS 1040, or IRS corporate tax forms 1120 or 1120S.

c.      Disconnected phone.

d.     Returned mail.

e.     Newspaper articles showing closure, bankruptcy, or criminal conviction.

f.       Site visits showing the business is closed or is no longer operating.

g.     Death certificate or obituary of owner.

h.     Internet web sites or articles indicating bankruptcy, sale, or closure.

3.     The effective date of cancellation shall be:

a.     For situations described in sections IV.D.1.a and b, the last date of the most recently completed policy year.

b.     For situations described in section IV.D.1.c, the original effective date of the employer’s policy.

c.      For situations described in section IV.D.2, a date based on the evidence. If BWC cannot determine a date, the current date or the earliest date supported by this policy will be used.

4.     BWC staff will enter notes and save documents to the appropriate systems to support a BWC initiated policy cancellation.

E.     Resolution of complaints.

1.     Employer complaints should be processed under the General Employer Complaint Policy.

2.     BWC has identified specific extenuating circumstances that apply to the cancellation of workers’ compensation coverage. These extenuating circumstances are outlined in section F, below.

3.     Adjustment of the employer’s account:

a.     Per ORC 4123.37 an assessment or judgment does not bar the adjustment of the employer’s account upon the employer furnishing payroll records to BWC. BWC staff retains the ability to assist the employer to report actual payroll, through the submission of payroll records.

b.     BWC staff can accept actual payroll, with appropriate documentation, even if the employer’s requested cancellation date is denied under this policy.

4.     If the employer’s requested cancellation date is denied, BWC will nevertheless cancel the employer’s workers’ compensation coverage. The effective cancellation date will be the earliest date supported by this policy.

F.     Specific extenuating circumstances that apply to cancellation of workers’ compensation coverage.

1.     Extenuating circumstance: Employer has not been operating.

a.     The employer has ceased operations and failed to notify BWC to cancel coverage, resulting in a lapsed or cancelled uncollectable status.

b.     The employer must establish it ceased operations. The following may be evidence the employer ceased operations:

i.       Tax Records: If the owner or officer of the business can produce W-2s for the periods no coverage was in place, this indicates he or she was working for another employer. This information alone may not be conclusive as an individual can be employed and operate a business simultaneously. This documentation along with other information obtained in researching the employer’s complaint can assist in making the determination.

a)     A sole proprietor would be more likely to start and stop businesses than a larger type organization such as a corporation. A copy of the sole proprietor’s individual tax return for the year cancellation is requested and the subsequent year, if filed and available, should indicate if business income is included.

b)     Obtaining IRS Transcripts: If the owner or officer does not have a copy of his/her tax return, he/she can request tax return transcripts from the IRS by calling 1-800-829-1040, or by submitting to the IRS Form 4506T, Request for Transcript of Tax Return. Delivery takes approximately two weeks. Information about obtaining IRS transcripts can be found at this link.

ii.      Purchase Agreement or other Sales Documents may prove the former business or equipment was sold.

iii.     Dissolution Documents proving an operation has gone out of business may include bankruptcy documents, records from the Secretary of State’s office, or release documents from other agencies.

iv.    A BWC staff member may request a site visit by BWC Field staff for industries such as retail and manufacturing where operational status can clearly be determined by observation of the location.

2.     Extenuating circumstances that only apply to employers who lapsed coverage prior to July 1, 2015 (retrospective premium).

a.     Extenuating circumstance: The employer needed a certificate to place a bid, but failed to notify BWC to cancel coverage when the certificate was no longer needed, resulting in a lapse status. Many independent contractors must obtain a workers’ compensation certificate of coverage to bid on individual jobs.

i.       If the employer indicates the certificate was used for bidding purposes, the employer should be charged for the period(s) the certificate was used, regardless if the employer was awarded the bid(s).

ii.      Cancellation can be granted for subsequent periods as long as the employer was charged for periods the certificate was used to prove workers’ compensation coverage, and there is no evidence the employer was otherwise amenable as an Ohio employer. A complete review of BWC systems must be conducted to verify no payroll was ever reported.

b.     Extenuating circumstance: The employer never had employees and its policy is in a lapsed status.

i.       The employer must meet ALL of the following criteria:

a)     The employer is an entity type that can elect coverage. (See Elective Coverage policy.)

b)     The employer never had elective coverage. If the employer did elect coverage for an individual(s) and coverage was retroactively cancelled to the effective date of coverage through the adjudication process, the employer meets the definition of never having elective coverage.

c)     The employer never reported payroll for the initial payroll period of coverage or always reported zero payroll and paid the minimum administrative charge. An employer who reported zero payroll due to a PEO relationship does not qualify for this extenuating circumstance.

d)     No compensable claims have been charged to the policy.

e)     There is no evidence in the employer’s file or on BWC systems that indicates the employer ever had employees.

ii.      If the employer meets ALL of the above criteria, the policy can be cancelled as follows:

a)     If the employer never reported payroll for the initial payroll period of coverage, the employer’s policy can be cancelled to the beginning date of the payroll period following the initial payroll period of coverage. The employer’s policy will be placed in Final Cancel status and the employer will owe the minimum administrative charge for the initial period of coverage and any applicable penalties.

b)     If the employer always reported zero payroll and paid the minimum administrative charge, the employer’s policy can be cancelled to the beginning date of the payroll period immediately subsequent to the last payroll period the employer reported zero payroll. The employer’s policy will be placed in Final Cancel status and, if not previously paid, the employer will owe the minimum administrative charge and any applicable penalties.


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