Business ownership can impact experience rating.
In the December 4, 2013 News and Notes, we covered the impact of ownership on experience rating which led to a question about how ownership is determined.
Ownership has a direct impact on experience rating and how entities are combined for experience rating, so it is important to understand how to determine an entity's ownership. For the more common entity types, ownership is determined as shown below.
An individual, or sole proprietor, is considered 100% owner.
Partnership, Limited Partnership (LP) & Limited Liability Partnership (LLP)
For these entities, ownership is determined as though each general partner owns an equal share.
Limited Liability Company (LLC)
Ownership is determined as though each member owns an equal share of the LLC. This includes both managing and non-managing members.
Corporation or Association
The Insurance Commissioner's regulations for determining ownership for each type of entity are contained in Section II, Rule 9 of the California Workers' Compensation Experience Rating Plan - 1995 (ERP). The ERP is available in the Manuals and Plans section of the WCIRB website.
It is important to note that for certain entity types, the ownership of an entity for experience rating purposes may not necessarily coincide with how the ownership was established for other purposes (e.g. tax purposes). This is often true of partnerships and LLCs, where ownership for experience rating purposes is allocated equally among all general partners for a partnership, or all members for an LLC.
It should also be noted that the WCIRB does not have jurisdiction over the exclusion on a workers' compensation policy of any of the above parties - sole proprietor, partner, member of a LLC, corporate officer, etc. California Labor Code (§ 3351) governs the inclusion or exclusion of these individuals. If you have questions concerning the exclusion of these parties, consult your insurance professional or legal advisor.
The January 1, 2014 California Workers' Compensation Uniform Statistical Reporting Plan -1995, California Workers' Compensation Experience Rating Plan - 1995 and Miscellaneous Regulations for the Recording and Reporting of Data - 1995 are available in the Publications and Filings section of the website. Here you will also find the approved advisory pure premium rates, experience rating eligibility threshold, expected loss rates and credibility values.
View the Manuals and Plans.
The WCIRB has released another module in its Education on Demand series. The new module is called Preparing for the Workers' Compensation Premium Audit and may be viewed by visiting the Learning Center section of www.wcirb.com. Future Editions Have a suggestion for a future topic? Email [email protected].
Have a suggestion for a future topic? Email [email protected]