On May 5, 2026, the New Jersey Department of Labor and Workforce Development (NJDOL) adopted new worker-classification regulations under N.J.A.C. 12:11. The regulations provide clarity and guidance on the application of the New Jersey’s longstanding “ABC Test,” which determines whether a worker is classified as an “independent contractor” or an “employee.” The regulations were published on June 1, 2026, and will officially take effect on October 1, 2026.
The updated regulations reflect decades of judicial precedent, including the New Jersey Supreme Court’s landmark rulings in East Bay Drywall, LLC v. Department of Labor, 251 N.J. 477 (2022) and Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor, 125 N.J. 567 (1991). Following a lengthy delay, including a brief regulatory freeze under Governor Mikie Sherrill’s incoming administration, and thousands of comments from the business community, the finalized regulations are narrower than the initial May 2025 proposal. The NJDOL removed several controversial provisions, such as industry-specific examples targeting rideshare, delivery, caddies, and drywall sectors, as well as language that would have treated a worker’s mandatory use of proprietary smartphone applications or digital software as an automatic form of employer “control.” By formalizing these boundaries, the regulations seek to establish uniform compliance standards across the New Jersey Unemployment Compensation Law, the Wage and Hour Law, the Wage Payment Law, and the Earned Sick Leave Law, while effectively protecting workers as well as legitimate business interests.
The ABC Test
Under the regulations, all service performed for remuneration is legally presumed to be employment. To successfully classify a worker as an independent contractor, the hiring enterprise bears the full burden of proving that all three prongs of the test are met:
(A) The worker is free from control/direction over performance of services, both under the contract and in fact; and
With respect to Prong A, N.J.A.C. 12:11-1.3 codifies a non-exhaustive list of nine factors to evaluate control, including set hours, mandated training, required equipment, fixed pay rates, and restrictions on working for other parties. The final rule clarifies that actions taken by an employer solely to comply with federal, state, or local laws or regulations shall not, standing alone, be considered evidence of control.
(B) The work performed is either being performed outside the usual course of business or is being performed outside of all the places of business of the entity; and
With respect to Prong B, N.J.A.C. 12:11-1.4, provides that the enterprise’s “usual course of business” is defined as activities regularly engaged to generate revenue or to develop, produce, sell, market, or provide goods and services. The final rule confirms that a remote worker’s personal residence does not constitute a place of business of the employer.
(C) The individual must be customarily engaged in an independently established trade, occupation, profession, or business.
Regarding Prong C, N.J.A.C. 12:11-1.5 outlines seven non-exhaustive factors to determine if the worker operates a genuinely viable business capable of surviving the termination of the relationship (e.g., number of clients, investment in tools/infrastructure, independent rate-setting, and advertising). Holding an LLC or an insurance certificate alone, are not sufficient to satisfy this prong.
It is important to recognize that all three prongs of the ABC test must be satisfied for a worker to classify as an independent contractor under applicable New Jersey law.
Under the regulations, formal documentation and paperwork will not override the economic reality of the relationship. The question of independent contractor status is determined based on an evaluation of the facts surrounding the relationship between the putative employer and the individual providing the services and the application of the ABC test to those facts.
“A written or oral contract or agreement labeling an individual as an independent contractor is not dispositive of whether an individual is an independent contractor pursuant to the ABC test. Further, the issuance of a Form 1099 instead of a W-2 cannot transform an individual into an independent contractor who would otherwise be considered an employee.
It is important for businesses to review these regulations before the October 1st effective date to reduce misclassification claims, penalties, back-pay exposure, or a retroactive audit by the NJDOL.
This summary is for informational purposes only and is not intended to constitute legal advice. This information should not be reused without permission.