Guidance for New Mexico Employers: Misclassification of Independent Contractors

New Mexico



From Lexology, Modrall Sperling provides a review of the federal and state standards for classifying workers in New Mexico.  Modrall writes:

In January, 2016, the New Mexico Department of Workforce Solutions entered into a Memorandum of Understanding (MOU) with the US DOL, which allows both departments to, among other things, share information related to State and Federal laws, conduct coordinated investigations, and conduct formal cross-training of investigators.

Many courts outside of New Mexico have recently used the  “economic  realities  test”  and  the  new  DOL  FLSA guidelines to determine whether a worker has been misclassified as an independent contractor by his employer. Although New Mexico courts have not yet analyzed the issue, other courts have found misclassifications under the “economic realities test,” and have imposed penalties on those businesses who have misclassified their workers.

Despite the attention that the new “economic realities test” has received, and despite the New Mexico Department of Workforce Solutions’ recent MOU with the DOL, New Mexico agencies have not adopted the “economic realities test.”  For example:

Unemployment Compensation

With respect to Unemployment Compensation, New Mexico law defines a non-employee as one who established by a preponderance of the evidence that:

  1. Such an individual has been and will continue to be free from control or direction over the performance of such services both under his contract of service and in fact;
  2. Such service is outside the usual course of business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
  3. Such individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the contract of service.

1978 NMSA § 51-1-42 (F)(5); See also, Solar Age Mfg., Inc. v. Employment Sec. Dept. 1986-NMSC-012, 103 N.M. 780, 714 P.2d 584.

Worker s ’  Compensation 

A worker’s entitlement to Workers’ Compensation benefits in New Mexico is governed by the “right to control test.” Harger v. Structural Services, Inc., 1996-NMSC-018, 121 N.M. 657, 916 P.2d 1324. The “right to control test” focuses on “whether the principal exercised sufficient control over the agent to hold the principal liable for the acts of the agent.” Korba v. Atlantic Circulation, Inc., 2010-NMCA-029, ¶5, 148 N.M. 137, 139, 231 P.2d 118, 120.

Taxation and Revenue

Finally, the New Mexico Taxation and Revenue Department accepts the determination of employee or independent contractor status made by the Internal Revenue Service, which evaluates the degree of control an employer exerts over a worker or project. See 1978 NMSA 7-3-2 (defining “employer” and “employee” for the purposes of the Withholding Tax Act).

Source: Guidance for New Mexico Employers: Misclassification of Independent Contractors – Lexology

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