Determining Insurance Coverage

When must employers carry workers' compensation insurance?

All businesses that employ three or more workers are required to have coverage. For purposes of determining three or more, any person who does the work of the business entity may be considered an employee. This includes owners if they work in the business, as well as family members, part-time, temporary and seasonal workers. Employees in non-profit, charitable and religious organizations also fall under the coverage requirements. Agricultural employers are now required to carry workers' compensation insurance. See the list of agricultural FAQs.

There are some exceptions to the "three or more" rule. Coverage is not required for domestic servants or real estate salespeople. Federal employees covered by the Federal Employees' Compensation Act or other federal programs are not required to carry coverage. Executive employees or sole proprietors with a financial interest who are employed by the professional or business corporation or limited liability company can elect not to accept the provisions of the Workers' Compensation Act. However, despite opting out, the executive must still be counted for determining the number of workers.

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Construction  Safety Hats

New Mexico workers' compensation law requires coverage for all employees engaged in construction activities. Employers required to be licensed under the provision of the Construction Industries Licensing Act must purchase workers' compensation insurance coverage regardless of the number of employees. This also applies to out-of-state contractors working in New Mexico. The Construction Industries Division (CID) is authorized to revoke or suspend a license for failure to maintain coverage.

A construction corporation, partnership or LLC must have coverage, even if there is only one executive employee. Executive employees are counted, which triggers the coverage requirement. However, to save money on premiums (which are based on a company's payroll), executive employees may exempt  themselves from coverage by filing the Executive Employee Affirmative Action Election form with their insurance carrier. Sole proprietors in the construction industry may choose not to acquire coverage by submitting the CID Sole Proprietor Affirmative Election form. Contact the Employer Compliance Bureau at (505) 841-6851 to determine eligibility.

A business not located in the state that employs workers in New Mexico engaged in activities required to be licensed under the CID must carry workers' compensation insurance.

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Determining Coverage

It is important for business owners to clearly define who is an employee, and who is not. Today's workforce includes independent contractors, leased employees, temporary workers, and workers on call.

Independent Contractors

Employers are exempt from providing workers' compensation insurance for independent contractors. Knowing whether someone is an independent contractor or employee depends on the facts in each case. To assist in determining an employee's status, use the assessment tools provided by the IRS (www.irs.gov).

Some of the factors used to evaluate whether someone is an independent contractor or employee are:

  1. Behavioral:  Who controls or has the right to control what the worker does and how the worker does the job?
  2. Financial: Who controls the business aspects of the worker’s job, such as how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.?
  3. Type of Relationship:  Are there written contracts or employee benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue? Is the work performed a key aspect of the business?

Businesses must weigh these and other factors when determining whether a worker is an employee or independent contractor. Some factors may indicate the worker is an independent contractor, and others that the worker is an employee. There is no set formula of factors, and no one factor stands alone in making the determination. Factors relevant in one situation may not be relevant in another. The key is to look at the entire relationship and to document the factors used in coming to a determination. Contact the Employer Compliance Bureau at (505) 841-6851 for assistance in making this determniation.

The New Mexico Office of the Superintendent of Insurance has a Workers' Compensation Division that can also be of assistance in determining whether someone is an employee or independent contractor within the state of New Mexico.

Executive Employees

Employees of a corporation who are also officers or executives of the corporation may choose to exempt themselves from coverage. This is limited to the chairman of the board, president, vice-president, secretary, treasurer or other executive officer, and only if that employee owns 10  percent or more of the corporation's stock. The same applies for executive employees of a limited liability company (LLC). Use the Executive Employee Affirmative Election form to declare the exemption, through your insurance agency. When counting the number of employees of the corporation or LLC to determine whether it must have coverage, officers or executives who have exempted themselves must still be included in the count.

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Out-of-State Employers with Operations in New Mexico

A company with three or more employees total, and at least one working in New Mexico, whether the employment is permanent, temporary or transitory, must carry workers' compensation insurance. Workers can be residents or non-residents of New Mexico. Also, any business not located in the state that employs workers engaged in activities required to be licensed under the New Mexico Construction Industries Licensing Act must carry workers' compensation insurance no matter the number of workers.

Businesses insured in another state whose insurance carrier is also licensed in New Mexico can get an endorsement from the carrier for accidents in New Mexico. If the insurer is not licensed in New Mexico, a policy must be purchased. Businesses that prefer to self-insure can apply to the WCA for this status if financial requirements are met.

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Tribal Sovereignty Issues

The WCA does not have enforcement on tribal lands, absent their consent; however, the tribes may choose to enforce the requirement. Businesses that operate on a Native American reservation or pueblo must follow the guidelines of that tribe. Some tribes choose to have workers' compensation coverage for their tribal enterprises, and others choose to require private businesses located on their land  to provide workers' compensation coverage.  If a private business is located on tribal land and a workers' compensation claim or coverage dispute occurs, it may be resolved in a tribal court or the WCA's administrative court, depending on the circumstances.

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Voluntary Coverage

Businesses that are exempt from the coverage requirement may voluntarily choose to come under the protection of the Workers' Compensation Act by acquiring insurance. This protects workers in case of an injury, and protects the business from lawsuits through the exclusive remedy doctrine of workers' compensation. An employer in an exempt category who chooses to have coverage may purchase coverage.

Employers without workers' compensation insurance do not have any special protection in case of a workplace injury. An injured employee is free to file a tort liability lawsuit against an employer, without defined limits on the damage award.


Penalties for Non-Coverage

Businesses that fail to obtain workers' compensation insurance despite being legally required to do so may incur penalties ranging in severity from monetary fines to injunctions against the business. The WCA's Employer Compliance Bureau will contact the uninsured business, and if it fails to obtain coverage, the business owner will be summoned for a hearing at the WCA. The WCA also has the authority to file injunctions against a non-compliant businesses to temporarily cease operations until coverage is obtained.

If an accident occurs and the business does not have insurance as required by law, then the business can be liable for paying the cost of medical treatment and a percentage of the injured worker's wages. Find out more about the Uninsured Employers' Fund.