New Jersey Department Of Labor And Workforce Development Adopts Regulations Clarifying Application Of New Jersey’s Existing Independent Contractor ABC Test

Key Takeaways

• On May 5, 2026, the New Jersey Department of Labor and Workforce Development (NJDOL or the Department) adopted final rules clarifying and memorializing its interpretation of the three-prong “ABC test” for independent contractor classification. The new rules take effect October 1, 2026.
• On adoption, the Department made several targeted revisions, including clarifying that compliance with legal obligations—standing alone—does not establish control or direction under Prong A. The new rules also confirm that an individual’s personal residence where remote work is performed will not typically be treated as the putative employer’s place of business for purposes of worker classification.

Overview of the Adopted Rules

Although the ABC test has long been New Jersey’s statutory standard for worker classification, the new rules provide guidance on how the NJDOL interprets and applies that test. The rules apply under various statutes the Department administers or enforces, including the Unemployment Compensation Law, Temporary Disability Benefits Law, Wage Payment Law, Wage and Hour Law, Earned Sick Leave Law, and the Call Center Jobs Act. The final rules do not alter or eliminate existing statutory exemptions from coverage under, or exemptions from the requirements of, those statutes.

The ABC Test Framework and Burden of Proof

Under the ABC test, individuals performing services for remuneration are presumed to be employees unless all of the following circumstances apply:

• (A) The individual has been and will continue to be free from the control or direction over the performance of work performed, both under contract of service and in fact; and
• (B) The work is either outside the usual course of the business for which such service is performed, or the work is performed outside of all the places of business of the enterprise for which such service is performed; and
• (C) The individual is customarily engaged in an independently established trade, occupation, profession, or business.

The test is conjunctive; all three must be satisfied for an individual to be classified as an independent contractor. The rules reiterate that the ABC test is not a checklist and requires a holistic, fact-specific analysis.

Key Features of the Adopted Rules

Prong A. The focus is on whether the putative employer actually exercises—or reserves the right to exercise—control over how the work is performed. Relevant factors include whether: (1) the individual is required to work set hours or specific jobs; (2) the putative employer has the right to control the details and means of the work, including by requiring specific tools, supplies, or materials, requiring a uniform or logo, or requiring reporting at prescribed times or intervals; (3) the work must be performed personally; (4) the putative employer is the one sourcing and negotiating for the work; and (5) the putative employer sets the rate of pay. Prong A also calls for an examination regarding whether the individual bears any real risk of loss, has to be on call or available at set times, or is restricted from working for others, and whether the employer provides training. The presence of one or more of these factors may indicate some degree of control, but the factors are not a checklist; the analysis turns on the entire relationship and whether, taken as a whole, the individual has been and will continue to be free from control or direction. The final rule also clarifies that steps taken solely to comply with legal or regulatory requirements shall not, standing alone, be considered evidence of control or direction under Prong A.

Prong B. The NJDOL kept the general framework that an entity’s usual course of business includes the activities it regularly engages in to generate revenue or to develop, produce, market, or provide its goods or services and that an entity can have more than one usual course of business. On adoption, the NJDOL removed proposed examples of services that are typically inside or outside the putative employer’s usual course of business and proposed examples of locations where the putative employer typically conducts an integral part of its business, while retaining the core “usual course of business” and “places of business” principles. It also retained the definition of “places of business” as locations where the enterprise has a physical plant or conducts an integral part of its business. The rule clarifies that an individual’s personal residence where remote work is performed will not typically be treated as the putative employer’s place of business.

Prong C. The inquiry is whether the individual is customarily engaged in an independently established trade, occupation, profession, or business. Factors include, among others: (1) the duration, strength, and viability of the individual’s business (independent of the putative employer), (2) the number of customers of the individual’s business and the volume of business from each respective customer, (3) the amount of remuneration the individual receives from the putative employer compared to the amount of remuneration the individual receives from others in the same industry, (4) the number of employees of the individual’s business, and (5) the extent of the individual’s investment in their own tools, equipment, vehicles, buildings, infrastructure, and other resources.  The rules also memorialize that indicators such as holding another job, professional licensure, business registration, or insurance are insufficient alone to establish an independent business under Prong C. Where the putative employer requires or encourages the individual to establish a business entity or obtain liability and/or workers’ compensation insurance, those facts may suggest a business in name only or otherwise not suggest independent contractor status.

Notably, form will not trump substance. For example, issuing a Form 1099 rather than a W-2 will not, by itself, convert an employee into an independent contractor. Likewise, under the rules, a written agreement that labels a worker as an independent contractor will not be controlling. Instead, fact-finders evaluating the weight to be given to an independent contractor agreement may consider nonexclusive factors such as whether there was an imbalance in bargaining power, whether the agreement was presented on a take-it-or-leave-it basis, whether the employer retained the right to unilaterally modify terms, and whether either party could terminate the relationship at will. Finally, the fact that an individual would not qualify for unemployment benefits based on their earnings has no bearing on whether they are properly classified as an independent contractor.

What Employers Need to Know

Employers with New Jersey operations should consider auditing existing contractor relationships in light of the new rules clarifying New Jersey’s ABC test. The review should focus on how the relationships operate in practice because classification turns on the facts surrounding the relationship and the substance rather than the form of the arrangement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.