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On May 5, 2026, the New Jersey Department of Labor and Workforce Development (“NJDOL”) formally adopted new regulations that clarify how employers should apply the “ABC test” to determinate whether a worker is properly classified as an employee or independent contractor under state statutes including the State’s Unemployment Compensation Law, Wage and Hour Law, Wage Payment Law, Earned Sick Leave Law, and Temporary Disability Benefits Law. The regulations under New Jersey Administrative Code 12:11 will take effect on October 1, 2026. Although New Jersey has utilized the ABC test for nearly 90 years, the formal codification of these rules should provide clarity and guidance and help employers ensure that they are classifying workers correctly.
The ABC Test
Under the ABC Test, workers are presumed to be employees unless the employer can establish that:
(A) the worker is free from control or direction over the performance of their services;
(B) the service performed by the worker is either outside the usual course of the business or performed outside of the putative employer’s places of business, and
(C) the worker is customarily engaged in an independently established trade or business.
The newly adopted rule provides that the putative employer bears the burden of establishing all three prongs of the ABC test. Additionally, the rule provides a multi-factor analysis for assessing the above-mentioned prongs.
Prong A – Freedom from control or direction
To satisfy Prong A, the putative employer must show both that it has not exercised control or direction over the worker’s performance and that it has not reserved the right to do so. The factors to consider in assessing those elements include whether: the individual is required to work set hours or jobs; the putative employer has the right to control the details and means of performance; the services must be rendered personally; the putative employer negotiates for and acquires the services; the individual’s rate of pay is fixed by the putative employer; the individual bears any risk of loss; the individual is required to be on call or on standby at set times; the putative employer limits the individual’s ability to perform services for others; and the putative employer provides training. Critically, this is not an exhaustive list. Rather, this remains a fact-intensive evaluation and other factors may be considered.
Prong B – Outside the usual course of business or places of business
To determine whether the individual’s services are outside the putative employer’s usual course of business, the rules consider activities that the employer regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services, and that an entity may have more than one usual course of business. To determine whether the services are performed outside the enterprise’s places of business, the rules refer to locations where the enterprise has a physical plant or conducts an integral part of its business. Notably, for employers with remote workers, the rule codifies that a worker’s personal residence where they perform remote work shall not be considered among the putative employer’s places of business.
Prong C – Independently established trade or business
To satisfy Prong C, the adopted rules identify seven non-exhaustive factors: the duration, strength and viability of the individual’s business, independent of the putative employer; the number of customers and volume of business from each; the amount of remuneration from the putative employer compared to remuneration from others in the same industry; the number of employees of the individual’s business; the extent of the individual’s investment in their own tools, equipment, vehicles, buildings, infrastructure and other resources; whether the individual sets their own rate of pay; and whether the individual advertises, maintains a visible business location and is available to work in the relevant market
Next Steps for Employers
During the 120-day window before the final regulation takes effect, companies that utilize independent contractors in New Jersey should audit their independent contractor relationships and review any pertinent agreements to ensure that existing and contemplated future independent contractor relationships do not put the company at risk for misclassification claims.
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.
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