New Jersey has long had a reputation as one of the toughest states in the country for classifying workers as independent contractors. On May 5, 2026, the New Jersey Department of Labor and Workforce Development (NJDOL) gave that reputation some new teeth: it formally adopted regulations that spell out, in far more detail than before, how the state’s decades-old ABC test will be applied. The rule becomes operative on October 1, 2026. (Its formal effective date was June 1, 2026, but it will not be enforced until October 1.) Hiring entities using independent contractors in New Jersey should review their classification practices before that date.
What Is the ABC Test?
New Jersey’s ABC test is not new. It has governed independent contractor status under the state’s Unemployment Compensation Law since 1936, codified at N.J.S.A. 43:21-19(i)(6)(A)-(C). It also governs classification under the New Jersey Wage and Hour Law and Wage Payment Law.
Under the ABC test, a worker is presumed to be an employee. To classify a worker as an independent contractor instead, the hiring entity bears the burden of proving all three of the following:
- (A) The worker is free from control or direction over the performance of services, both under contract and in fact;
- (B) The work is either outside the usual course of the business for which the work is performed, or is performed outside all of the places of business of the hiring entity; and
- (C) The worker is customarily engaged in an independently established trade, occupation, profession, or business.
If a hiring entity cannot establish even one of these three prongs, the worker is treated as an employee. This is meaningfully stricter than the “economic reality” test used under federal law and in many other states, which weighs a broader set of factors (opportunity for profit or loss, investment, permanence, degree of control, and others) without requiring a hiring entity to satisfy every element.
What the New Regulations Add to Each Prong
The statutory language of the ABC test has not changed. Rather, the regulations provide more detailed guidance for applying each prong and identify specific factors the NJDOL will consider, particularly under Prongs A and C.
Prong A — Freedom from Control
The NJDOL will consider factors such as:
- Whether the worker sets their own hours or is required to be on call.
- Whether the hiring entity dictates how the work is performed, including through required tools, materials, or uniforms.
- Whether the hiring entity provides training.
- Whether the worker must personally perform the work or is free to delegate the work to others.
- Whether the worker must report at set times or intervals.
- Whether the worker’s rate of pay is fixed by the hiring entity.
- Who bears the risk of financial loss.
- Whether the worker is free to perform similar services for other entities.
Among the changes from the proposed rule, two may be particularly significant for regulated and technology-enabled industries: (1) actions taken by a hiring entity solely to comply with federal, state, or local laws or regulations will not, standing alone, be considered evidence of control or direction under Prong A; and (2) the final rule deletes the proposed subfactor expressly identifying required use of a hiring entity-controlled digital application or software as a consideration under Prong A.
Prong B — Outside the Usual Course or Place of Business
A hiring entity can satisfy this prong in either of two independent ways:
- Outside the usual course of business: The services are outside the hiring entity’s usual course of business (the regulations provide that the usual course of business may include activities the hiring entity regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services); or
- Outside the place of business: The work is performed entirely outside all of the hiring entity’s places of business.
Important clarification for remote work: The regulations clarify that an individual’s personal residence is not considered one of the hiring entity’s places of business merely because the individual performs work remotely from that residence. In other words, a contractor’s home does not become the hiring entity’s “place of business” simply because the contractor works there. Hiring entities that rely on remote independent contractors should take this clarification into account when evaluating Prong B.
Prong C — Independently Established Business
This prong focuses on whether the worker operates an independent business that could survive termination of the particular work relationship.
Relevant factors include:
- The duration, strength, and viability of the worker’s independent business.
- The number of other customers or clients the worker has.
- The amount the worker earns from the hiring entity compared with the amount the worker earns from others in the same industry.
- The worker’s investment in their business.
- Whether the worker has employees of their own.
- Whether the worker advertises their business.
- Whether the worker maintains a business location.
What Does Not, by Itself, Satisfy the Test
The regulations also make clear what will not, standing alone, establish independent contractor status. Formalities such as issuing a 1099, executing a written independent contractor agreement, requiring business registration, or requiring the worker to carry insurance are not sufficient by themselves to satisfy any prong of the test. The NJDOL, consistent with New Jersey courts, will look to the substance of the working relationship rather than the paperwork surrounding it.
What Employers Should Do Before October 1, 2026
Key steps include:
- Audit existing independent contractor relationships, with legal oversight, against all three prongs of the ABC test — not only the prongs that appear easiest to satisfy.
- Review contractor agreements and actual day-to-day practices for indicators of control, including set schedules, required tools or uniforms, company-provided training, and restrictions on working for other companies.
- Re-assess remote contractor arrangements under Prong B in light of the clarification that a contractor’s personal residence is not considered a place of business of the hiring entity.
- Document evidence supporting Prong C for existing contractors, such as other clients, advertising, and independent business investment.
- Monitor further guidance from the NJDOL and consult employment counsel before making classification decisions, given the consequences of misclassification, including unpaid wage claims, tax assessments, penalties, and the NJDOL audits.
Employers seeking additional detail can consult the NJDOL’s own guidance on the ABC test, including the Worker Classification Questionnaire its auditors use when evaluating a relationship.