An omnibus regulatory reform bill (HB 765) was signed into law by Governor McCrory on Oct. 22, 2015 and is now effective. It contains a provision which addresses a problem with workers’ compensation that has emerged over the last couple of years.
The existing provision of the Workers’ Compensation Act of North Carolina (the Act) required entities with “three or more employees” to provide the benefits required by the Act. Additionally, the Act stipulates that executive officers as per the bylaws or charter of a corporate entity “shall be considered employees.” So a charity or homeowners’ association with three or more volunteer, non-compensated officers of the board of directors, whether or not there are any compensated employees, is required to have a workers’ compensation insurance policy. This requirement has not been generally understood and therefore, many such entities are in non-compliance with the Act.
HB 765 offers a solution to this issue. A provision of the Bill excludes executive officers, directors, and committee members described in the charter, articles or bylaws of a nonprofit corporation under specified chapters of the NC General Statutes or under section 501 (c) (3) of the federal tax code from the definition of “employee” under the Act. These excluded positions cannot be compensated beyond the reimbursement for reasonable expenses associated with their voluntary service. However, if the nonprofit corporation employs one or more compensated persons, the excluded executive officers, directors, and committee members do count towards the “three or more employees” rule but are not considered employees for coverage purposes. The new law does not prohibit the nonprofit corporation from voluntarily providing workers’ compensation benefits to the otherwise excluded executive officers, directors, and committee members.
In summary, it appears that a charity or home owners’ association with no compensated employees will not be required to purchase workers’ compensation insurance. However, the same entity with one compensated employee and two or more volunteer, non compensated executive officers will have to purchase workers’ compensation insurance. The workers’ compensation policy would only cover the compensated employee, not the volunteer, non compensated executive officers.
Click here for a more detailed white paper of HB 765.
(The foregoing post is not intended to be a legal opinion but rather a summary of the plain language of the Bill. As commentary and further analysis of the Bill develop, the opinions expressed in this article may change.)
Stuart Powell, CPCU, CIC, CLU, ARM, ChFC, AAI, ARe, CRIS, has over 40 years experience in the industry, both as an independent agent and as IIANC’s resident insurance guru for the last 20 years. A valuable resource for IIANC members providing technical information, Stuart is well-known across the country for his vast insurance knowledge. He regularly teaches for numerous insurance organizations and is on the national faculty for the Society of Certified Insurance Counselors.
Questions? Contact Stuart at email@example.com or 888-275-8914.