FACT SHEET

NEW JERSEY’S ABC TEST: NEW NJDOL RULES EFFECTIVE OCTOBER 1

What the updated Independent Contractor classification guidance means for New Jersey businesses and workers.

OVERVIEW

The New Jersey Department of Labor and Workforce Development (NJDOL) put new rules into effect on October 1, 2026, providing detailed regulatory guidance on the application of NJ’s ABC test for the classification of Independent Contractors (ICs). The objective of these rules is to reduce the guesswork businesses face when applying the NJ ABC test and to clarify how guidelines will be enforced.

The NJ ABC test itself has not changed. Instead, these new rules formalize the NJDOL’s interpretation of the test and how it will apply to worker-classification determinations.

THE THREE PRONGS OF THE ABC TEST

PRONG A: FREEDOM FROM CONTROL OR DIRECTION

Prong A: Worker has been and will continue to be free from control or direction over the performance of services, both under the worker’s contract of service and in fact. To satisfy the first prong, the employer must prove it has not exercised control or direction over the worker’s performance. Accordingly, the contract may not include language reserving the right to do so. For this prong, a worker can still be considered an employee even if the employer exercises only minor control.

The NJDOL has provided nine factors to be considered when looking at Prong A:

  • Whether the worker is required to work set hours or jobs.
  • Whether the employer has the right to control the details and means of performance.
  • Whether the services must be rendered personally.
  • Whether the employer negotiates for and acquires the services.
  • Whether the worker’s rate of pay is fixed by the employer.
  • Whether the worker bears any risk of loss.
  • Whether the worker is required to be on call or on standby at set times.
  • Whether the employer limits the worker’s ability to perform services for others.
  • Whether the employer provides training.

The above factors are not an exhaustive list. The NJDOL will evaluate every factor of the relationship between the employer and the worker, and no set number of factors will determine a pass or fail of this prong.

*An important exception exists for Prong A regarding the assessment of regulatory compliance. If an employer is required by law to administer a degree of control over the work, it will not be considered evidence of control or direction for the purposes of the ABC test.

PRONG B: OUTSIDE THE USUAL COURSE OR PLACES OF BUSINESS

Prong B: Work performed is either outside the usual course of the business for which the work is being performed, or the work is performed outside of all the places of business of the enterprise. This is the “core to business” prong of the test, and objectively, the part that is least prescriptive in the newly issued rules. The NJDOL will consider services or activities that the employer regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services AND that the employer may have more than ONE usual course of business. It is not restricted to the obvious good or service the employer provides.

To determine the “places of business” part of the prong, the rules specify where the employer has a physical location or conducts an integral, essential part of its business. In the world of remote work, the rules generally do not treat a worker’s personal residence as an employer’s place of business, subject to exception. A client or customer location, however, may be treated as the employer’s place of business if the services performed there are an essential component of the employer’s business.

PRONG C: INDEPENDENTLY ESTABLISHED BUSINESS

Prong C: Worker is customarily engaged in an independently established trade, occupation, profession or business. For this prong, the NJDOL provided seven non-exhaustive factors that they will weigh when determining misclassification:
  • The duration, strength, and viability of the worker’s business, independent of the employer.
  • The number of customers and volume of business from each.
  • The amount of remuneration from the employer compared to remuneration from others in the same industry.
  • The number of employees of the worker’s business.
  • The extent of the worker’s investment in their own tools, equipment, vehicles, buildings, infrastructure, and other resources.
  • Whether the worker sets their own pay rate.
  • Whether the worker advertises, maintains a visible business location, and is available to work in the relevant market.

The rules for this prong go out of their way to provide the following clarifications, as well:

  • The following factors individually are not sufficient alone to establish IC status:
    • Multiple jobs/clients
    • Licensure
    • Business registration, regardless of the tax classification
    • Maintaining business insurance
    • Reporting earnings on a 1099 rather than a W-2
  • Just because there is a written agreement between the parties labeling the worker as an IC, it does not automatically make one an IC. They will consider the balance of bargaining power of the parties during negotiation of the contract, whether the agreement reserves the right for the employer to unilaterally modify terms, whether each party has rights to terminate the agreement at any time, and the existence of restrictive covenants such as noncompete and/or non-solicitation provisions.

OTHER KEY POINTS

Burden of Proof – Like many IC tests across the country, the NJDOL’s guidance emphasizes the fact that when evaluating workers for misclassification, a worker always starts from a place of being an employee, and it is the burden of the employer to prove that the worker is instead engaged as an IC; both under the contract AND in fact.

Putative Employer – It’s important to note that the NJDOL made a point to refer to the engaging entity of the worker as “putative employer.” This means that any business that engages a worker (for example, a staffing firm, its client, or both) can be held liable for misclassification. It is not limited to who holds the contract or who has direct interaction with the worker on a day-to-day basis.

Conjunctive Rules – The three prongs of the NJDOL test are conjunctive, meaning failure to satisfy any one prong of the test is a failure to prove IC status for that worker altogether.

WHAT BUSINESSES SHOULD DO NOW

With these rules in effect, businesses that engage ICs in New Jersey should consider:

  • Updating classification processes to ensure workers based in New Jersey are assessed against questions that reflect the NJDOL guidance above.
  • Reviewing current IC relationships by examining both the written contracts and how the work is actually performed and addressing any concerns that come up.
  • Educating managers and business partners to ensure those who engage and supervise workers, including clients and staffing partners, understand the updated rules.

KEY TAKEAWAY

The ABC test itself has not changed, but the NJDOL’s new rules make it significantly harder to classify a worker as an IC in New Jersey. Businesses should review their current arrangements, document how each IC satisfies all three prongs, and seek legal guidance when a worker’s classification is unclear.

DOWNLOAD THIS FACT SHEET
Disclaimer: This fact sheet is provided for general informational purposes only and does not constitute legal, tax, or other professional advice. It summarizes the New Jersey Department of Labor and Workforce Development’s rules interpreting the ABC test and is not a complete statement of the law. Worker classification depends on the specific facts of each relationship, and laws, regulations, and agency interpretations may change. Consult qualified legal counsel about your particular circumstances before making classification decisions.

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