AuditorBob
Junior Member
Posts: 5
Joined: Sep 2008
|
Monday September 15, 2008 8:41 PM
|
|
This was an excellent response by lthornton, who wisely addressed the issue of independent contractors. This issue is often unanticipated by business owners in situations as described in the original post.
Just for the sake of completeness, however, I thought I would add that only stock holding officers and directors of closely-held corporations can be excluded from a CA workers' comp policy written for a corporation.
(NOTE: A closely-held corporation is one where all the stock is held by officers and/or directors, exclusively).
Although a stock holding director may be excluded by endorsement, a director who is not also an officer and is not excluded is to be charged based on the director's actual payroll (regardless of stock ownership). This is because the rule permitting the exclusion of officers is from the Labor Code, but the rule governing the application of officer minimum and maximum payroll limitations comes from the CA USRP.
Additionally, the person(s) having the power to revoke a trust in which shares of a private CA corporation are held are deemed to be shareholders of the private corporation. Therefore, stock held in a revocable trust does not violate the closely-held nature of a corporation, and a trustee who is also an officer or director can be excluded.
The trust becomes irrevocable, however, upon the death of the person who had the power to revoke the trust. The successor trustee does not have the power to revoke the trust and, therefore, is not a shareholder. In this case, the trust now owns stock, and the corporation is no longer closely-held. So, in such situations, none of the officers can be excluded on the final audit even if they were listed as excluded on the endorsement.
However, carriers commonly ignore (or are unaware of) the distinctions between revocable and irrevocable trusts and will exclude trustees of irrevocable trusts anyway, especially since the likelihood of a Test Audit difference is virtually nil. The Bureau chooses not to base test Audit differences on officer inclusion/exclusion, which could be easily overturned simply by restructuring the ownership; or officer classification, which could easily be overturned by a letter signed by an officer describing the officer's duties.
-------------------------
AuditorBob
AuditBible.com
The Indispensable Online Resource for Audit Professionals
|
|
