Policy
Name:
|
Elective
Coverage
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Policy #:
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EP-05-03
|
Code/Rule
Reference
|
Ohio
Revised Code (ORC) 4123.01; Ohio
Administrative Code (OAC) 4123-17-07, 4123-17-30,
4123-17-14.
|
Effective
Date:
|
July 1, 2019
|
Approved:
|
Winnie
Warren, Interim Chief of Employer Services
|
Origin:
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Employer
Policy
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Supersedes:
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Elective
Coverage policy effective August 1, 2018.
|
History:
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Revised January
13, 2020; November 27, 2018; March 24, 2016; October 22, 2007. New policy September
12, 2007.
|
Review
Date:
|
July 1,
2024
|
I. Policy Purpose
The
Ohio Bureau of Workers’ Compensation (BWC) administers elective coverage in
accordance with all applicable laws and rules.
II. Applicability
This
policy applies to private employers, authorized representatives, and the
following BWC departments: Customer Assistance, Collections, Regional Employer
Management Services, and Policy Processing.
III. Definitions
A.
Church: An established and legally recognized
church, congregation, denomination, society, corporation, fellowship,
convention, or association that is formed primarily or exclusively for
religious purposes.
B.
Elective coverage
person: A sole
proprietor, a member of a partnership, a member of a limited partnership, an individual
incorporated as a corporation (ICORP) with no employees, an officer of a family
farm corporation, or an individual member of a limited liability company (LLC)
filing a federal tax form as a sole proprietor or partnership.
C.
Elective coverage
entity: A sole
proprietorship, partnership, limited partnership, individual incorporated as a
corporation with no employees, a family farm corporation, or an LLC filing a
federal tax form as a sole proprietor or partnership.
D.
Family farm
corporation: A corporation
founded for the purpose of farming agricultural land in which the majority of
the voting stock is held by, and the majority of the stockholders are, persons
or the spouse of persons related to each other. For a complete definition see
ORC 4123.01(E).
E.
Individual
incorporated as a corporation (ICORP):
A single or sole owner of a corporation with no employees is excluded as an
employee under Ohio workers’ compensation laws.
F.
Minister: A duly ordained, commissioned,
accredited, or licensed minister, member of the clergy, rabbi, priest, or
Christian Science practitioner. This definition also includes assistant
ministers and associate ministers.
IV. Policy
A.
BWC policy on
elective coverage entities, elective coverage persons, and ministers.
1.
An employer that
elects to cover an elective coverage person or minister must notify BWC in
writing, by using the Application for Ohio Workers’ Compensation Coverage (U-3)
or the Application for Elective Coverage (U-3S).
a.
The U-3 may only be
used by an employer that is initially applying for workers’ compensation
coverage.
b.
The U-3S is used by an
employer with an active BWC policy.
2.
Coverage for
elective coverage persons and ministers is not effective until a U-3 and
non-refundable application fee, or a U-3S, has been filed with BWC. See section
IV.A.1 above.
a.
On the U-3 on which
the employer elects coverage, elective coverage will take effect at the same
time as the new employer’s workers’ compensation coverage. See the Application
for Coverage (U-3) policy for additional information.
b.
Employers with an
active BWC policy.
i.
Mail-in applications:
Elective coverage will take effect at 12:01 a.m. on the date BWC receives the
completed U-3S.
ii.
Walk-in applications:
Elective coverage will take effect when BWC time and date stamps the U-3S.
iii. Online applications: Elective coverage
will take effect upon submission of the completed U-3S as indicated by the BWC
website time and date indicator.
3.
After proper
election, notice, and payment of premium, elective coverage persons and
ministers are entitled to receive compensation and benefits as provided in ORC Chapter 4123.
4.
Payroll will be
assigned to the National Council on Compensation Insurance (NCCI)
classification code and description applicable to the duties performed.
a.
If the elective
coverage person has multiple duties, payroll will be assigned to the highest
rated classification applicable to the duties performed.
b.
BWC will adjust the
employer’s estimated annual premium and installment payments if an elective
coverage person or minister is added during the policy year.
5.
Elective coverage will
remain in effect, and the employer will be responsible for the payment of
estimated premium, until BWC receives written notice from the employer
requesting termination of coverage for any elective coverage person or minister.
6.
BWC will lapse the elective
coverage and policy coverage if the employer fails to pay an installment
timely. See the Prospective
Billing Installment Payments policy for additional information
regarding installment payment plans, due dates, grace periods, and a default in
installment payment.
a.
The lapse effective
date will be the first day of the month after the due date for the installment.
b.
For a new employer
who fails to pay its initial installment payment, BWC will lapse elective
coverage and policy coverage retroactive to the effective date.
7.
When BWC receives
payment from the employer for all installments due, elective coverage and
policy coverage will reinstate.
8.
An elective coverage
entity is not required to report the payroll of an elective coverage person,
unless the entity elects to cover such person for workers’ compensation.
a.
If election is made,
the elective coverage entity must report the payroll of the elective coverage
person.
b.
The payroll of an
elective coverage person is subject to the weekly minimum and maximum reporting
requirements. See the Employer Services policy Minimum
and Maximum Private State Fund Payroll Limitations.
9.
A church employer
that elects to cover a minister must report the actual payroll for the
minister. A church electing coverage for its minister is not subject to minimum
and maximum payroll reporting requirements.
10.
A minister may elect
coverage as a sole proprietor. If such election is made, the minister is
subject to the minimum and maximum payroll reporting requirements.
11.
ICORP: An individual
incorporated as a corporation is not considered an employee and can elect
workers’ compensation coverage ORC 4123.01(A)(2)(c).
a.
It is the
responsibility of the employer to identify itself as an ICORP.
b.
When an ICORP hires
an employee, the corporation is no longer an ICORP, and the owner can no longer
elect coverage.
i.
The owner of the
corporation with an employee is considered a corporate officer and subject to
the minimum and maximum payroll reporting requirements.
ii.
BWC will not permit
an employer to revert to ICORP status, even if the employer no longer has
employees. The owner shall remain a corporate officer subject to minimum and
maximum payroll reporting requirements.
c.
An employer that
hires periodic or seasonal employees does not qualify for ICORP status.
d.
If coverage was
elected, the ICORP must notify BWC to cancel elective coverage upon the hiring
of an employee.
B.
Determining legal
entity type. If a question arises regarding the proper legal entity type of an
employer for workers’ compensation purposes, BWC will use the federal tax form
filed by the employer to define legal entity type, as follows:
1.
Sole proprietor or
LLC acting as a sole proprietor: Internal Revenue Service (IRS) Form 1040 with
Schedule C.
2.
Partnership or LLC
acting as a partnership: IRS Form 1065 with Schedule K-1.
3.
Corporations including
family farm corporate officers, individuals incorporated as a corporation with
no employees, and ministers: IRS Form 1120, 1120S, or 990.
C.
Payroll true-up reporting
guidelines.
1.
After the conclusion
of each policy year, every private employer must report actual payroll to BWC
for the full policy year, from July 1 through June 30. See the Payroll
True-Up policy for additional information.
2.
Specific payroll
reporting requirements associated with elective coverage.
a.
Sole proprietors and
partners, including LLC acting as sole proprietorship or partnership:
Individuals who earn between the minimum and maximum will report payroll based
on their actual net incomes as follows:
i.
Sole proprietors:
Net income is based on Form 1040, Schedule C, E, or F.
ii.
Partnerships: Net
income is based on Form 1065, Schedule K-1 ordinary income minus section 179
depreciation, plus guaranteed payments.
b.
Officers of family
farm corporations who earn between the minimum and maximum will report payroll
based on their actual W-2 wages. For S-corporations, officers must report
payroll based on wages for services they perform, which include W-2 wages and
all or part of the ordinary income from Schedule K-1 minus section 179
depreciation.
c.
ICORPs who earn
between the minimum and maximum must report payroll based on their actual W-2
wages. For S-corporations, ICORPs must report payroll based on wages for
services they perform which include W-2 wages and all or part of ordinary
income from Schedule K-1 minus section 179 depreciation.
D.
Employer and
elective coverage person requests to cancel elective coverage.
1.
To cancel elective
coverage the employer or the elective coverage person must notify BWC in
writing by:
a.
Completing and
submitting a Notification of Policy Update (U-117);
or
b.
Online notification
via www.bwc.ohio.gov
for the individual(s) listed on the policy in the personal policy information
section of elective
coverage.
2.
BWC will adjust the
employer’s estimated annual premium and installment payments.
3.
BWC will cancel
elective coverage effective:
a.
The date BWC
receives the request from the employer or elective coverage person;
b.
The effective date
of cancellation provided by the employer on the U-117; or
c.
The date the
employer last operated the business. See the Employer Services policy Cancellation
of Workers’ Compensation Coverage. The employer may be required
to provide documentation of the date the employer last operated the business.
E.
Retroactive cancellation
of elective coverage. An employer or elective coverage person may request
cancellation of elective coverage to a date prior to the date BWC receives the
request. If such a request is submitted, BWC will use the following guidelines:
1.
The request to
retroactively cancel elective coverage must be submitted in writing.
2.
Retrospective premium
billing guidelines (when the requested cancellation date is prior to July 1,
2015):
a.
BWC will NOT grant
retroactive cancellation of elective coverage if there was intent by the
employer to have elective coverage. Factors that indicate an intent to have
elective coverage include, but are not limited to:
i.
An elective coverage
person or minister has filed a claim that was allowed, and the date of injury
is after the requested cancellation date.
ii.
The U-3 indicates
coverage was needed to bid on a job.
iii. Elective coverage was active for more
than one year after the effective date.
iv.
Elective coverage
payroll has been reported.
b.
If there was no
intent by the elective coverage person to have elective coverage, BWC will
grant a request to retroactively cancel elective coverage.
3.
Prospective billing
guidelines when the requested cancellation date is after July 1, 2015:
a.
BWC will only grant
retroactive cancellation of elective coverage if a new employer requests
cancellation within forty-five (45) days of the policy issued date.
b.
BWC will not grant
retroactive cancellation of elective coverage if the employer requested
coverage on a U-3S. A U-3S demonstrates an employer’s intent for elective coverage.
The employer must file a U-117, or a written request, with BWC to cancel
elective coverage. BWC will cancel elective coverage effective the date the
request is received.
F.
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 retroactive cancellation of
elective coverage. These circumstances are outlined in section IV.G below.
3.
BWC has identified
specific extenuating circumstances that apply to retroactive elective coverage.
These circumstances are outlined in section IV.H below.
G.
Specific extenuating
circumstances that apply to retroactive cancellation of elective coverage to a
date prior to July 1, 2015.
1.
An elective coverage
entity mistakenly requests elective coverage for the first time.
a.
An elective coverage
entity elects coverage. The elective coverage entity is required to report
payroll for the elective coverage person according to the minimum and maximum
reporting requirements and pay premium. However, the elective coverage entity
reports zero payroll. This situation results in BWC billing the employer for
this coverage based on the minimum reporting rule.
b.
Requirements for
granting relief:
i.
BWC staff will
explain elective coverage to the employer.
ii.
The elective
coverage entity did not desire elective coverage.
iii. This circumstance must be the first time
the elective coverage entity has had elective coverage.
iv.
BWC policy permits
an employer to make this request one, and only one, time.
2.
The employer has not
been operating.
a.
The employer closed operations
but failed to notify BWC to cancel elective coverage.
b.
Supporting documentation
for granting relief includes, but is not limited to:
i.
Tax records.
ii.
Dissolution
documents.
c.
This circumstance
may involve the retroactive cancellation of the employer’s entire policy. The
elective coverage retroactive cancellation should be addressed first. See the
Employer Services policy Cancellation
of Workers’ Compensation Coverage for guidelines on retroactive
cancellation of the employer’s entire policy.
H.
Specific extenuating
circumstance that applies to retroactive elective coverage. Elective coverage
person or church believes there is elective coverage for a claim.
1.
An elective coverage
person or minister has been injured and files a workers’ compensation claim.
However, no elective coverage is noted. In this situation, the elective
coverage person or church believes there is elective coverage due to payroll
being reported with employee payroll for past policy years prior to the date of
injury. Once confirmed, in these circumstances, BWC will grant retroactive
elective coverage for the policy year when the claim occurred and provide
retroactive elective coverage.
2.
Supporting
documentation:
a.
The employer must be
reporting enough payroll for employees and the elective coverage person or
minister for past policy years prior to the date of injury.
b.
In the case of a new
employer, the twelve (12) month estimate on the U-3 application must include
estimated elective coverage payroll and meet the minimum reporting requirement.
c.
The employer must
submit a completed U-3S form within forty-five (45) days of the BWC
notification.
3.
An audit, and possibly
tax records, may be required to confirm the employer’s assertion of elective
coverage.
4.
BWC will build
elective coverage periods in the employer management system for the elective
coverage person or minister.
5.
BWC will terminate
elective coverage at the end of the current policy year, if the employer fails
to submit a U-3S within the required forty-five (45) day time frame. BWC will
notify the employer that further reporting of elective coverage payroll will
not be honored without a U-3S.
I.
Scenarios.
1.
Sole
proprietor/partnership not electing coverage.
A sole proprietor or partnership that
does not apply for workers’ compensation coverage is not required to pay
estimated premium and report actual net income as payroll to BWC. Such sole
proprietor or partner would not be eligible for workers’ compensation benefits
in the event of an injury or illness while on the job.
2.
Sole
proprietor/partnership electing coverage.
A sole proprietor or partnership elects
coverage when submitting a U-3, or elects coverage when submitting a U-3S after
coverage has been established. Sole proprietors and partnerships are required
to pay estimated premium and report actual net income as payroll according to
minimum and maximum payroll reporting requirements. If a sole proprietor or
partner who elected coverage was injured on the job, the claim would be a
covered claim if elective coverage was active on the date of injury.
3.
LLC as a sole
proprietor.
a.
An LLC is formed by
an individual who operates the LLC as a sole proprietorship for tax purposes.
The individual who owns the business applies for coverage for their employees
as required, but the individual does not elect coverage as the sole proprietor.
The policy is kept in force with timely estimated premium payments. In this
case, if an employee is injured, the claim would be a covered claim.
b.
If the sole
proprietor is injured, BWC does not provide benefits because coverage was not
elected for the individual.
4.
LLC as a
partnership.
a.
An LLC is formed by
individuals who operate the LLC as a partnership for tax purposes. The partners
who own the business apply for coverage for their employees as required, but the
partners do not elect coverage for themselves. The policy is kept in force with
timely estimated premium payments. In this case, if an employee is injured, the
claim would be a covered claim.
b.
If a partner is
injured, BWC does not provide benefits because coverage was not elected for the
partners.
5.
Family farm officers
(requirement to update policy information).
A family farm corporation properly
applies for and maintains elective coverage on the family members that are
officers of the corporation. If a spouse is subsequently made an officer of the
corporation, BWC must be notified by the completion of a U-3S and payment of
adjusted estimated premium reflecting the addition of the elective coverage. Without completion of the U-3S and payment of estimated
premium, the spouse does not have elective coverage and would not be covered if
an injury occurred.
6.
Church electing to
cover its ordained minister as an “employee” under the church’s workers’
compensation policy.
A church opts to provide elective
coverage for the minister under its workers’ compensation policy. When a new
minister arrives to replace the minister covered previously, the church must
complete and submit a new U-3S for the new minister and a U-117 cancelling
coverage for the prior minister. If a new application is not completed, the new
minister will not be covered for a work-related injury. The minister’s actual
earnings must be reported under this option.
7.
Ordained minister as
a sole proprietor with elective coverage.
A church decides not to cover its
minister as an employee under its workers’ compensation policy. In this
situation, the minister may elect to establish elective coverage as a sole
proprietor by filing a U-3. Ordained ministers who elect coverage as sole
proprietors are subject to the minimum
and maximum payroll reporting requirements.
8.
ICORP with no
employees other than the owner (including S-Corp, LLC, C-Corp).
a.
A recently
incorporated dentist plans to work alone until such time that his practice
requires the services of an assistant. The dentist wants to be covered for
workers’ compensation. He completes and submits a U-3 to establish coverage in
preparation for the practice to open. The dentist selects elective coverage on
the U-3 application. Elective coverage is actively maintained with timely
estimated premium payments. Estimated premium is based on minimum
and maximum payroll reporting requirements.
b.
When the assistant
is hired, the status of the employer changes from an ICORP to a corporation. As
a corporation, the dentist, is still an officer of the corporation, and he is
now required to report his earnings, subject to the minimum
and maximum payroll reporting requirements, as well as the earnings
of the employee to BWC. Because of this status change, the dentist must notify
BWC and cancel elective coverage.
9.
ICORP expects to
have seasonal employees.
A recently incorporated landscaper
contacts BWC regarding workers’ compensation coverage. The employer plans to
work alone initially and hire employees based upon seasonal fluctuations in business.
As an employer with a periodic need for employees, the landscaper does not meet
the conditions to qualify as an ICORP with no employees. As a result, he must
complete and submit a U-3 to establish a policy and coverage as a corporation.
Wages should be reported following the requirements for a corporation.
10.
A company has two
shareholders, in which one works for the company, and the other does not.
The company believes it should be
considered an ICORP. Pursuant to ORC section 4123.01(A)(2)(c) an
employee is not "an individual incorporated as a corporation,"
therefore the company would not apply to this situation. In addition,
shareholders are owners, and if there is more than one owner, the company is
not an ICORP.