A New Mexico independent contractor agreement is a legally binding contract that outlines the terms of exchange for services provided by the contractor. It lists the contractor’s responsibilities, payment terms, and other details to clarify the scope of the client-contractor arrangement.
- Worker Classification: ABC Test
- Tax Structure: Graduated-Rate Income Tax
- Definition: NM Stat § 51-1-42
- At-Will Employment: Yes
Independent Contractor Definition
If you provide a service to businesses or organizations in New Mexico, you are either an employee or an independent contractor. [1]
Employees typically receive a paycheck with income tax and unemployment insurance. They also have their Social Security tax withheld. The employer generally controls how and when employees perform their jobs and provides workers’ compensation insurance.
Workers operating under an independent contractor agreement in New Mexico are not subject to the same level of control. They must pay their own taxes and can decide how and when to complete the contracted services. Contractors usually pay for their own business expenses and supplies.
Worker Classification Test
Sometimes, an employer will misclassify an employee as an independent contractor when they are actually an employee. To prevent misclassification, the New Mexico Department of Workforce Solutions (DWS) uses the ABC Test, which is consistent with N.M. Stat § 51-1-42.
The ABC test consists of three conditions:
- The contractor is free of employer control or direction regarding service performance under the contract.
- The service provided by the contractor is outside the usual course of business or the service is performed outside of the usual places of business.
- The contractor typically engages in the trade or profession for which they provide services.
If an individual or business meets these three conditions, they’re a contractor. If they don’t meet one or more of these conditions, they’re an employee.
Rights and Responsibilities
Contractors usually have more freedom over how they’d like to perform their work. However, they have greater general responsibilities and restricted rights when it comes to factors like overtime pay or minimum wage.
State Taxes
New Mexico law (N.M. Code R. § 3.2.1.18) requires contractors to self-report income and pay gross receipt tax (GRT) for any income they earn in New Mexico.
In addition, contractors pay self-employment tax to the state, municipal, or federal governments. This tax covers Medicare and Social Security contributions.
For employees, these taxes are usually partially covered by the employer, with the remaining amount deducted from the employee’s paycheck.
Filing for Unemployment
Because a contractor isn’t an employee, they aren’t eligible for unemployment from the client.
Compensation for Work Injuries
If a contractor sustains an injury while they’re performing services for a client, they typically won’t be able to seek compensation for their injuries or for the time they’d have to take off to recover.
Sample
Here’s a sample of our New Mexico independent contractor agreement. You can download our template as a PDF or Word file below:
