There are circumstances in which the historical data that is generated by a business does not transfer to a new owner after a change in ownership. If you purchase a business, and that purchase is a material change in ownership, the historical experience of your new business will apply to you unless the following conditions are met:
When an Entire Risk is Sold Examples
- Loretta buys a shoe store from Ted. The shoe store represented all of Ted's California insured operations. Seven of the ten employees retained by Loretta to operate the shoe store during the 90 days after the sale had also worked for Ted during the 90 days before the sale. Since a majority of Loretta's employees also worked for Ted, a material change in employees did not occur and Ted's payroll and loss experience carries forward to Loretta.
Ed buys Chloe's juice bar. The juice bar represented all of Chloe's California insured operations. Of the fifteen employees working for Ed to operate the juice bar during the 90 days after the sale, 5 also worked for Chloe during the 90 days before the sale. Since less than 50% of Ed's employees also worked for Chloe, the payroll for the juice bar must be examined.
A review of Ed's payroll for the 90-day period following the sale shows that $110,000 of the juice bar's total payroll of $225,000 was earned by the five employees that had worked for Chloe. Since a majority of the employees were new, and these new employees generated a majority of the payroll, this is considered to be a material change in employees and thus a change in status. Chloe's experience prior to the sale does not apply to Ed.
In the first example, the majority of the employees performing the purchased operations for the new owner were the same employees performing the same operations that developed the original experience. Conversely, in the second example, the usefulness of the experience is negated when there is a majority change in both ownership and employees.
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