Employee Misclassification – Another Reader Question

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Employee Misclassification – Shareholders and Officers

Avoid Employee Misclassification in naming shareholders and officers.

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I received another question on the pitfalls of misclassifying employees. In California, there was a company that had been advising employers to exploit a loophole in the labor code to avoid their workers comp obligations by classifying workers as shareholders and corporate officers.  

Premium Auditors are trained to look for and recognize shareholders and officers that should not be listed as such in your worker’s compensation policy or company records.   In other words, this type of employee designation causes auditors to disallow any shareholders or officers exemptions from the payroll records.  In the short-term this may have worked, but in the long term the method failed often and left the employer with an unexpectedly large premium audit bill. 

In most states, shareholders and corporate officers are exempted from the remuneration (payroll) figures for employers.  Giving a rank-and-file employee a position title such as Vice President or any executive title does not guarantee an automatic exemption.  If any company gives you advice to try this method, please avoid them at all costs. This is very illegal.  The company in California that was giving this advice is being pursued very heavily by the California Attorney General.  

We would never advise a company to try this method.  The Workers Comp premium auditor will catch this at the end of the policy year, so the advice to try this method is basically worthless.  The only money earned by this method is the advisory company getting paid for useless advice.

As we have mentioned in the last two posts, there is nothing wrong with questioning or disputing the workers comp classification codes or anything else in an employer’s workers compensation policy or premium audit. This is allowed by your Workers Comp policy.                     

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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