OhioBWC - Basics: (Policy library) - File

 

Policy Name:

Elective Coverage

Policy #:

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:

Employer Policy

Supersedes:

Elective Coverage policy effective August 1, 2018.

History:

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.