Who doesn’t love talking about the cost of insurance? Sometimes, when looking at the cost of different insurance policies, it feels like you can get lost in all the various variables and considerations that determine the final amount of an insurance policy. Even still, that final amount may not actually be the final amount, as there may be other costs associated with it. This is especially true when it comes to workers’ compensation insurance. For business owners, navigating the maze of actual insurance costs and other additional costs can be confusing. Ultimately, something like workers’ compensation insurance is crucial, as it helps to ensure your employees will be taken care of in case there is an accident. That means understanding workers’ compensation insurance is just as crucial, even if it may be confusing.
At Payday HCM, we understand this situation. We have plenty of clients ask us questions about workers’ compensation and how workers’ compensation works, as well as the cost of workers’ compensation. One of the most common questions we receive in regards to workers’ comp insurance has to do with assessment fees, specifically in our home state of New Mexico. For those who may not know, these assessment fees may, at first, seem like fees that pay for workers’ compensation insurance. This, however, is misleading.
That’s why, in this article, we’ll be going over workers’ compensation insurance in New Mexico and how the workers’ comp assessment fees differ from workers’ comp insurance premiums. We’ll start by going over what workers’ compensation is and the laws surrounding it in New Mexico before diving into the specifics of the assessment fees and the cost of workers’ compensation outside of that. By the end of this article, you’ll have a better understanding of the costs associated with workers’ compensation insurance.
In this article, you will learn:
What is Workers’ Compensation?
Firstly, before we dive into the differences between the workers’ comp assessment fee and an actual workers’ comp insurance policy, we’ll go over what workers’ compensation actually is and the types of laws surrounding workers’ compensation in New Mexico.
What is Workers’ Compensation?
While you’ve probably heard the term “workers’ comp,” it’s possible that you may not fully understand what it means. Generally, workers’ compensation refers to benefits provided to employees who become injured or ill while on the job. It’s a type of employer-sponsored insurance that typically provides things like:
- Partial wage replacement or indemnity pay
- Coverage of health care costs
- Disability coverage
- Survivor benefits
Workers’ compensation is provided through a private insurance company, with premiums paid for by the employer. On the employee end, workers’ compensation coverage means employees forfeit their right to sue an employer for negligence. Every U.S. state, except for Texas, has laws requiring employers to have workers' compensation insurance.
NM Workers’ Compensation Act
In New Mexico, the Workers’ Compensation Act is what determines the rules and regulations surrounding workers’ comp insurance in the state. The NM Workers’ Compensation Act was first passed in 1929, but has undergone a series of changes over the years, including in 1986 with the creation of the New Mexico Workers’ Compensation Administration.
The creation of the WCA was intended to expedite the process of determining workers’ compensation coverage amounts in court cases. The administration’s duties would only increase further in 1990 to include its judicial functions, as well as prosecuting fraud, providing ombudsman assistance to employers and workers, regulating self-insured employers, and providing workers’ compensation guidance.
Workers’ Compensation Assessment Fee
Now that we understand more about what workers’ compensation is and how the NM Workers’ Compensation Act came about, we can dive deeper into the workers’ compensation assessment fee and how it differs from workers’ compensation insurance.
What is the NM Workers’ Compensation Assessment Fee?
With the creation of the WCA, as well as the expansion of its functions and duties, the state needed a way to fund the administration. This funding comes in the form of the workers’ compensation assessment fee. This fee, paid to the New Mexico Department of Taxation and Revenue and deposited into the Workers’ Compensation Fund, covers the administrative costs associated with the WCA.
And while this fee is paid to the Department of Taxation of Revenue, it isn’t exactly a tax. Instead, it’s a $4.30 per employee fee paid per calendar quarter. For each employee, the employer pays $2.30 of the fee while the employee pays $2. The additional $0.30 goes into the Uninsured Employers’ Fund—a fund that provides workers’ compensation insurance to employees working for employers who do not offer workers’ comp insurance.
Speaking of offering workers’ compensation insurance, businesses with three or more employees are required to offer workers’ comp insurance in New Mexico. According to the WCA, an employee constitutes anyone who “does the work of the business entity.” Federal employees covered by the Federal Employees’ Compensation Act are exempt, while certain executives may file for an exemption with the WCA.
Construction employees are also another exemption to the three-employee rule: any employer licensed under the Construction Industries Licensing Act must provide workers’ compensation insurance regardless of the number of employees. This applies to both domestic contractors and out-of-state contractors working within New Mexico.
Does the Workers’ Compensation Assessment Fee Provide Workers’ Compensation Insurance?
Now, this is where things can get a little confusing. Since most businesses in New Mexico are required to provide workers’ compensation insurance as well as pay the workers’ compensation assessment fee, it may seem like this assessment fee actually provides your employees with workers’ comp insurance. This, however, is not the case.
As stated above, the workers’ compensation fee covers the administrative costs that are generated by the WCA in ruling on workers’ compensation cases, prosecuting fraud, and other functions. This fee is not an insurance premium that provides workers’ comp insurance—employers must obtain workers’ compensation insurance through a workers’ compensation insurance provider or through other methods (like self-insurance).
Workers’ Compensation Insurance
So, if the assessment fee doesn’t provide workers’ comp insurance, where can you obtain coverage? We’ll go over that, as well as typical costs, in this section.
NM Workers’ Compensation Insurance Coverage
If you meet the Workers’ Compensation Act’s requirements for offering workers’ compensation insurance to your employees, you’ll need to find a workers’ compensation insurance provider. When it comes to offering workers’ comp insurance, you do have a few options depending on the size of your business.
For most businesses, working with a private workers’ compensation insurance provider is likely the best option. Here, you’ll be able to choose from conventional coverage in the voluntary market or, for certain businesses that may operate in high-risk industries, you can opt for assigned risk pool coverage.
Larger businesses are able to work with a private insurer to provide workers’ compensation insurance, but they also have the option of self-insuring. The WCA’s Self-Insurance and Regulatory Audit Bureau oversees and approves which businesses are allowed to provide self-insured coverage.
How Much Does Workers’ Compensation Insurance Cost in New Mexico?
Like other insurance policies, it’s hard to say exactly how much workers’ compensation insurance costs, as there are a number of factors—the number of employees, risk factors, and insurance carrier—that impact how much your insurance coverage may cost. Understanding the factors that affect cost can help you get a better idea of the possible cost, though.
One cost that you can directly account for is the assessment fee, which, for employers, is $2.30 per employee per calendar quarter. Aside from that, three factors that help to determine the specific cost of your workers’ compensation insurance include the industry your business is in, the size of your payroll, and your business’s accident history. Ultimately, risk factor is one of the biggest determinants in calculating policy cost.
Taking an Assessment of Workers’ Compensation
Employee safety is a top, if not the top, priority for almost all businesses. As such, there are a number of different laws and regulations that govern how businesses should go about protecting their employees and ensuring their safety. Of course, accidents unfortunately do happen, and businesses need to be prepared for such instances. Understanding how things like workers’ compensation insurance work, though, can sometimes be confusing, especially when there are a variety of different costs associated with it. With the information provided in this article, though, you have the knowledge you need to navigate the workers’ compensation maze with ease.
There is a wide range of laws and regulations that businesses are required to comply with. On top of this, you’ll also need to ensure you’re staying on top of all the required tax withholdings and payments. Considering how many different things you need to keep track of, though, it can be easy for some things to slip through the cracks. Check out our article for an overview of employer taxes, and stay in the know on all the different taxes your business is required to pay.
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