As the marijuana business landscape continues to change in California, so do the insurance rules. In many cases, what you don’t know could actually save you money.
Nonprofit vs. For Profit
With the implementation of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) in January 2018, adult-use cannabis businesses now have a choice. These businesses may now be organized as non-profit or for-profit.
There are advantages and disadvantages to both types of business formats. If you are still deciding which is right or your business, a great article on the pros and cons of each can be found here.
Whether you are just starting out or thinking about converting your business from non-profit to for-profit status, you should know that status affects your workers’ compensation insurance.
What Does Work Comp Have To Do With It?
As you are aware, workers’ compensation insurance is based on the number of employees and their payroll. The more employees you have, the higher your payroll and the higher your insurance premium will be.
Non-profit businesses must report all payroll, even for owners and officers. This is an added expense when for-profit businesses can exclude owners and officers from coverage.
There are caps for payroll for the following: Executive Officers, Partners, Individual Employers and Members of a Limited Liability Company. The minimum reported payroll for included officers is $52,900 and the maximum is $133,900. However, even those amounts can have a significant impact on the Workers Compensation premium.
Have You Made the Change?
If your cannabis business has converted from non-profit status to for-profit status, you should be aware that the status change is not reported to your insurance company or your insurance broker.
Though company officers can be excluded from workers’ compensation coverage, this is not automatic. It must be elected by the insured (you). You may elect to exclude some or all owners and executive officers from coverage, but you must inform your insurance broker in writing and complete and return any required forms before the officers can be excluded.
Should You Exclude Your Owners and Officers?
The only real benefit to excluding owners and officers from workers’ compensation coverage is the reduction in the policy premium. While this may be a big benefit to some companies, excluding officers is not without disadvantage.
Any company owners and officers who are excluded from policy coverage will not be covered in the event of on-the-job illness or injury. It is important that these officers have health or medical insurance coverage placed elsewhere, and that the health or medical coverage not exclude on-the-job injuries.
In the case of sole proprietors, it may be wise to include them on the work comp policy to be sure that they are able to afford time away from work and medical bills in the event of on-the-job illness or injury.
Your Hayes broker can guide you through the ins and outs of work comp coverage for your cannabis business, whether it be non-profit or for-profit. Call today to discuss your options.