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Author Topic: Officers paid by combinable entities  (Read 2303 times)
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« on: February 12, 2009, 08:54:24 PM »

I recently did an audit where there were two combinable entities on my policy: one was a closely-held corporation with all 4 stockholding officers excluded; the other was a sole-proprietor.  The two entities were combinable because the officer who owned over 50% of the stock in the corporation was also the sole-proprietor.

The Corporation operated a retail store; and the sole-proprietor leased the rights to some of the water pumped from a local well.  The owner of the well had a pump and filtration facility, and leased one of the holding tanks to the sole-proprietor.  One of the other officers of the corporation would fill purchased bottles with water from the tank and deliver them to customers and to the corporation’s store.

The prior carrier had properly assigned the store to 8006(1) Stores — groceries and provisions — retail, but had assigned the bottling operation to 2163 Bottling — beverages — no spirituous liquors.  While 2163 is the applicable code for this bottling operation, there is no exposure to include on the audit because the only payroll developed was for an employee who is also an excluded officer of the corporation. 

Even if an individual officer of one entity is not an officer of other combinable entities, the auditor must combine the total pay for that officer from all combinable entities the carrier insures and do one of the following:

  • If excluded by endorsement on one of the combinable entities - exclude the total pay for that individual from all combinable entities.

  • If not excluded by endorsement from any of the combinable entities - subject the total pay of that individual from all combinable entities to the officer minimum and maximum payroll limitations.

Even if the officer in this example received no payroll from the corporation, but his entire payroll was from the sole-proprietor, his total combined payroll would still be excluded.

This is only true if the entities are insured by the same carrier (whether on one or multiple policies).  If two or more combinable entities are insured by different carriers, each carrier will handle the officers as if there were no combinable entities apart from those they insure.

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