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.
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Effective
Date:
|
April 1,
2023
|
Approved:
|
Rex
Blateri, Chief of Employer Services
|
Origin:
|
Employer
Policy
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Supersedes:
|
Elective
Coverage policy effective December 14, 2021
|
History:
|
Revised April
1, 2023; December 14, 2021; January 13, 2020; November 27, 2018; March 24,
2016; October 22, 2007. New policy September 12, 2007.
|
Review
Date:
|
April 1,
2028
|
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, by
using the online Application for Ohio Workers’ Compensation Coverage (U-3) or the online Application for or Request to Cancel Elective
Coverage (U-3S). An employer may also notify BWC by submitting a U-3 or a U-3S in writing.
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 remains
in effect, and the employer is responsible for the payment of estimated
premium, until BWC receives notice from the employer requesting termination of
coverage for any elective coverage person or minister.
6.
BWC may accept an email
from a BWC staff member to cancel an employer’s elective coverage, if the BWC
staff member made new employer outreach and confirmed the employer’s intent to
cancel elective coverage. This request must be received within forty-five (45)
days of the policy issued date.
7.
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 is 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 lapses elective coverage and
policy coverage retroactive to the effective date.
8.
When BWC receives
payment from the employer for all installments due, elective coverage and
policy coverage reinstates.
9.
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 Minimum and Maximum Private State Fund
Payroll Limitations
policy
10.
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.
11.
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.
12.
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.
BWC may identify
and confirm ICORP status with an employer during the new business application
process or during the review of an entity type change on the Notification of
Policy Update (U-117). When an ICORP hires an employee, the corporation is no
longer an ICORP, and the owner becomes a corporate officer of that corporation
and can no longer elect coverage.
i.
As a corporate
officer, the owner of the corporation with an employee is 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.
b.
An employer that
hires periodic or seasonal employees does not qualify for ICORP status.
c.
If coverage was
elected, the ICORP must notify BWC to cancel elective coverage upon the hiring
of an employee. BWC will update the employer’s entity type to the appropriate
corporation status, and the minimum and maximum payroll reporting requirements
for corporate officers will be applicable.
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, and individuals incorporated as a corporation
with no employees: IRS Form 1120 or 1120S.
4.
Ministers: IRS Form
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.
c.
ICORPs who earn
between the minimum and maximum must report payroll based on their actual W-2
wages.
d.
Officers of family
farm corporations and ICORPS that are S-corporations must report a reasonable
wage for the services they perform. If the regular earnings do not constitute a
reasonable wage for the services performed, then their portion of ordinary
income from federal tax form 1120S Schedule K-1 (less section 179 depreciation
deduction) is to be included to establish a reasonable wage up to the maximum.
Net losses are not to be deducted.
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 by:
a.
Completing and
submitting a U-3S;
b.
Online notification
via www.bwc.ohio.gov for the individual(s) listed on the U-3S service offering;
c.
Formal letter or
email identifying the individual that no longer elects to be covered; or
d.
Informing a BWC
staff member making new employer outreach to the employer within forty-five
(45) days of the policy issued date.
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 future effective date of
cancellation provided by the employer on the U-3S; or
c. The date the employer last operated
the business. See the Cancellation of Workers’ Compensation
Coverage policy.
The employer may be required to provide documentation of the date the employer
last operated the business.
E.
Resolution of
complaints.
1.
Employer complaints are
processed under the General Employer Complaint Policy.
2.
BWC has identified
specific extenuating circumstances that apply to retroactive elective coverage.
These circumstances are outlined in section IV.F below.
F.
Specific extenuating
circumstances that apply to retroactive elective coverage.
1.
Elective coverage
person or church believes there is elective coverage for a claim.
a.
An elective coverage
person or minister has been injured and files a workers’ compensation claim.
However, no elective coverage exists. 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 there was intent for elective coverage, BWC will grant retroactive
elective coverage.
b.
Supporting
documentation:
i.
The employer must be
reporting sufficient payroll for employees and the elective coverage person or
minister for past policy years prior to the date of injury.
ii.
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.
iii. The employer must submit a completed
U-3S form within forty-five (45) days of the BWC notification.
c.
An audit, and possibly
tax records, may be required to confirm the employer’s assertion of elective
coverage.
d.
BWC will add
elective coverage effective the beginning date of the current policy year for
the elective coverage person or minister and assign payroll to the
classification code applicable to the duties performed.
e.
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.
2.
Employer believes
there is elective coverage for a claim occurring prior to July 1, 2019, because
policy coverage reinstated prior to the date of injury.
a.
A lapsed employer
pays an installment, which includes premium for elective coverage. The employer’s
policy coverage was reinstated; however, elective coverage was terminated due
to the lapse in coverage.
b.
If a claim occurs
after policy coverage was reinstated, but before the end of the coverage period
for the installment, BWC grants retroactive elective coverage for the closed
period.
c.
Since BWC recalculates
installments when elective coverage terminated, the employer must submit a
completed U-3S form within forty-five (45) days of the BWC notification to
reinstate and extend elective coverage.
G.
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 a minister under its workers’ compensation policy. When a new
minister arrives to replace the minister covered previously, the church must
complete and submit a U-3S to add coverage for the new minister and cancel
coverage for the prior minister. 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 desires coverage 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. The dentist
is now required to report his earnings, subject to the minimum and maximum
payroll reporting requirements, as well as the earnings of the assistant 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. The landscaper 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. Shareholders are owners, and if there is more than one owner, the
company is not an ICORP.