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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, 2015

Origin:

Employer Policy

Supersedes:

Elective Coverage policy revised October 22, 2007. Elective Coverage Premium Relief & Retroactive Elective Coverage Complaint Policy revised August 20, 2012.

History:

New policy September 12, 2007; revised October 22, 2007; July 1, 2015.

Review Date:

July 1, 2020

 

 

I.       Policy Purpose

 

The Ohio Bureau of Workers’ Compensation (BWC) will administer elective coverage in accordance with the applicable laws and rules.

 

II.     Applicability

 

This policy applies to private employers, authorized representatives, BWC Customer Assistance, Collections, Field Operations, 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/sole owner of a corporation, who 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 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 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 that has already established a workers’ compensation policy.

2.     Coverage for elective coverage persons and ministers is not effective until a U-3 or U-3S has been filed with BWC.

a.     On a new U-3 on which the employer elects coverage, elective coverage will take effect at the same time as the effective date of 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 that 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 completion of the 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 that matches the duties performed. If the employer has multiple duties, the payroll will be assigned to the classification with the highest rate that reflects the employer’s duties.

a.     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.

b.     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 the elective coverage person or minister or if the employer fails to pay an installment timely as indicated below.

5.     BWC will terminate the coverage of an elective coverage person or minister 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 termination effective date will be the first day of the month of the due date for the installment.

b.     BWC will adjust the employer’s estimated annual premium and installment payments for the remainder of the policy year by prorating the elective coverage premium for the period it was in effect.

6.     For a new employer who fails to pay its initial installment payment, BWC will terminate elective coverage retroactive to the effective date.

7.     If BWC terminated coverage due to failure to pay a required installment timely, the employer may reinstate elective coverage:

a.     The employer must:

i.       File a subsequent executed U-3S form with BWC and

ii.      Pay past and currently due installments to bring the policy to good standing.

b.     BWC will adjust the employer’s estimated annual premium and installment payments for the remainder of the policy year.

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 it 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 back to ICORP status even if the employer no longer has employees. The owner will 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.     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.

3.     Corporations including family farm corporate officers, individuals incorporated as a corporation with no employees, and ministers: IRS Form 1120 or 1120S and W-2 for employee wages.

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 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 may include W-2 wages and ordinary income from Schedule K-1.

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 may include W-2 wages and all or part of ordinary income from Schedule K-1.

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 require the employer to file a final payroll true-up for elective coverage.

a.     The employer must report sufficient elective coverage payroll through the last date that elective coverage was active and pay any premium that is owed. See Payroll True-Up policy for additional information.

b.     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.

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 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: Retroactive cancellation may only be requested by an employer or elective coverage person under the following circumstance: Cancellation is requested after receiving the first installment that includes elective coverage, but before the installment payment is due.

F.     Resolution of complaints.

1.     An employer may file a complaint with BWC if the employer has been notified it owes premium for elective coverage or has filed a claim and has no elective coverage.

2.     BWC has identified specific extenuating circumstances that apply to retroactive cancellation of elective coverage. These circumstances are outlined in section G below.

3.     BWC has identified a specific extenuating circumstance that applies to retroactive elective coverage. This circumstance is outlined in section H below.

4.     BWC will investigate the employer’s complaint.

a.     BWC will ascertain the reasons the employer is requesting relief.

b.     BWC will request documentation from the employer.

5.     BWC will approve or deny the employer’s request for relief.

6.     BWC staff that processes an employer’s complaint must obtain management level sign-off on each recommendation to approve or deny the employer’s request for relief.

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/maximum 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 must be the first time the elective coverage entity has had elective coverage.

iv.    BWC policy allows an employer to make this request 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 policy.

H.    Elective coverage person or minister believes he/she has 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 minister believes he/she has coverage due to his/her payroll being reported with employee payroll for past payroll periods or policy years. In these circumstances, BWC will go back to the payroll period or policy year when the claim occurred and give retroactive elective coverage. If the elective coverage person or minister recently filed a claim and never reported elective coverage payroll until the most recent payroll period or policy year, these requests should be denied and the premiums refunded.

2.     Supporting documentation:

a.     The employer must be reporting enough payroll for employees and the elective coverage person or minister for past payroll periods or 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 U3S form.

3.     An audit, and in certain circumstances tax records, may be required to confirm.

I.       Scenarios.

1.     Sole proprietor not electing coverage.

A sole proprietor 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 would not be eligible for workers’ compensation benefits in the event of an injury or illness while on the job.

2.     Sole proprietor electing coverage.

A sole proprietor elects coverage when completing a U-3. Sole proprietors 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 that 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 partnership.

a.     A 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 do not elect coverage for themselves as the owners. 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.

4.     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 or by the completion of the online elective coverage form and payment of estimated premium. Without such notification and payment of estimated premium, if the spouse were to be injured, the claim would not be covered because the spouse is an officer whose officer status was not properly updated, payroll not reported, and premium not paid to BWC.

5.     Ordained minister electing coverage as an “employee” under the church 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. If a new application is not completed the new minister will not be covered for a work related injury. All of the actual earnings must be reported for ministers under this option.

6.     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.

7.     ICORP with no employees other than the owner (including S-Corp, LLC Corp, C-Corp).

a.     A recently incorporated dentist plans to work alone until such time that his practice will require the services of an assistant. The dentist wants to be covered for workers’ compensation. As such 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 an employee is hired, the status of the employer changes from an ICORP to a regular corporation. As a regular corporation, the dentist, still an officer of the corporation 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 needs to notify BWC of the change and cancel elective coverage.

8.     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 when he will also begin to pay his spouse to keep the financial records for his 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 will complete and submit a U-3 to establish a policy and coverage as a corporation. Wages should be reported following requirements for a corporation.

9.     A company has two shareholders, one works for the company and the other does not.

The company believes that 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 it would not apply to this situation. In addition, shareholders are owners and if there is more than one owner it is not an ICORP.


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