H.B 183 - coverage requirement impacts

As you may have heard House Bill 183 had some significant impacts for Ohio employers. Last month, you learned about the bill's impacts on the professional employer organization (PEO) community. As the bill became law on Nov. 5, we want to explain the other significant component, change in coverage requirements.

First, there was a change made to the definition of employee, a change that will exempt an individual incorporated as a corporation from having to maintain workers' compensation coverage. However, this is ONLY if the individual who incorporated as a corporation is the sole owner and has no employees. If the corporation has employees, the individual incorporated as a corporation must continue to maintain the required coverage on himself/herself and all other employees.

HB 183 and definition of employee
The Ohio Revised Code (ORC) defines employee for the purposes of workers’ compensation coverage in Section 4123.01(A)(2)(c). Currently, any employer operating as a corporation must report payroll to BWC and pay premium for all employees, including the owner(s) and corporate officer(s) of a corporation (excluding family farm corporations). Effective Nov. 5, 2004, however, the statute will exclude an individual incorporated as a corporation as an employee when there is a sole owner and no employees. Such individuals will no longer be required to report their specific payroll and pay premiums to the state fund. If they want coverage, then they must submit the Application for Optional Supplemental Coverage (U3-S).

Definition of an individual incorporated as a corporation
An individual incorporated as a corporation is a single/sole owner corporation with zero employees. This includes any corporation (S-Corp, LLC Corp, C-Corp) as long as there is a sole owner with no employees. When we refer to being excluded as an employee in terms of required workers’ compensation coverage, this refers to only the owner of such a corporation where there are no employees.

All other personnel associated with other corporations - including corporate officers - are still considered employees of a corporation for workers’ compensation purposes. You must report payroll and pay premium on these personnel. So, coverage is optional but ONLY for these individuals who have incorporated as a corporation and who have no employees.

Note:BWC’s general rule that officers of corporations are employees is not altered by the statutory change. Thus, if a husband and wife are co-owners of a business, both would be considered employees, and the exemption under ORC 4123.01(A)(2)(c) would not apply since there would not be a sole individual incorporated as a corporation and no employees. This scenario is two people incorporated as a corporation. Again, these statutory changes apply to only single-owner corporations with zero employees.

Optional supplemental coverage
Individuals incorporated as corporations with no employees who want to continue workers’ compensation coverage can establish supplemental coverage which will provide workers’ compensation coverage specifically for the sole owner of the corporation. You will have to submit a completed Application for Optional Supplemental Coverage (U3-S)to BWC and do it immediately if you are the single/sole owner of a corporation with zero employees, and wish to maintain uninterrupted workers’ compensation coverage on yourself.

Consequences for not timely submitting an application for supplemental coverage
If BWC does not receive a complete U-3S from an individual who is incorporated as a corporation with no employees, then that individual will not be covered for workers’ compensation purposes as of Nov. 5, 2004. This would negatively affect claims being allowed for the single/sole owner of the corporation.

Rule changes to support individual incorporated as a corporation
To support implementation of HB 183 (revision of ORC 4123.01(A)(2)(c)), two rules had to be modified: changes to 4123-17-07 and 4123-17-30 of the Ohio Administrative Code will become effective on Jan. 1, 2005. So, the administrative components will not be fully in place until that date; however, the law does require individuals incorporated as a corporation, sole owner, zero employees, to choose optional supplemental coverage for themselves if they want to continue workers' compensation coverage for their own claims.

In conclusion, if an employer is an individual incorporated as a corporation, as sole owner with zero employees, the employer does NOT have to establish or maintain an Ohio workers’ compensation policy. The “if” means that the individual must be sure this change in law applies to him or her as an employer. The exception would be if the employer would be required by another authority to show proof of workers’ compensation coverage (in which case having optional supplemental coverage would be sufficient) or at any time when coverage is required such as when the employer is no longer sole owner or hires an employee.