New Jersey Adopts ABC Test Rules for Independent Contractor Classification

Background

New Jersey has adopted new rules regarding the ABC test and independent contractor classification. The notice of adoption was filed on May 5, 2026, and the rules have an effective date of October 1, 2026.

The Department emphasized that it is not adopting a new test for independent contractor status. Instead, the rules put into writing the Department’s longstanding interpretation of New Jersey’s existing statutory ABC test, which has been applied under the Unemployment Compensation Law and has also been applied to the New Jersey Wage and Hour and Wage Payment Law.

Under the ABC test, once services are performed for remuneration, the relationship is generally presumed to be employment unless the alleged employer can satisfy all three prongs of the test. Failure to satisfy any one prong may result in an employment classification.

What Employers Need to Know

The adopted rules address how the Department will evaluate Prongs A, B, and C of the ABC test. This includes factors related to whether the individual is free from control or direction, whether the service is outside the usual course of the business or outside the employer’s places of business, and whether the individual is customarily engaged in an independently established trade, occupation, profession, or business.

• Prong A – Control or Direction: Whether the worker is free from the employer’s control in practice, including control over how the work is performed, required tools or materials, uniforms or logos, and reporting requirements. Actions taken solely to comply with legal requirements generally will not, by themselves, show control.

• Prong B – Usual Course or Place of Business: Whether the work is outside the employer’s usual course of business or performed outside the employer’s places of business. The rules also address remote work, noting that a worker’s personal residence will not typically be considered the employer’s place of business.

• Prong C – Independently Established Business: Whether the worker operates an independent business, considering factors such as business duration and viability, number of customers, compensation, employees, and investment in tools, equipment, or other business resources.

Written Agreements and 1099s Are Not Enough

The Department’s guidance reinforces that classification depends on the substance of the working relationship, not just the terms of a contract or the payment method. Courts and the Department look beyond a written independent contractor agreement or use of an IRS Form 1099 to determine the true nature of the relationship.

Employers should therefore avoid relying solely on contractor agreements, invoices, or tax forms to support an independent contractor classification. Those documents may be relevant, but they do not control the analysis if the actual working relationship is inconsistent with independent contractor status.

What This Means for Employers

Employers that engage independent contractors in New Jersey may face closer scrutiny of whether those workers are properly classified. The rules do not appear to create a new classification framework, but they provide a more detailed roadmap for how the Department may analyze contractor relationships.

This is particularly important for businesses that rely on freelancers, gig workers, consultants, owner-operators, temporary project-based workers, or individuals who perform services that are closely connected to the company’s core business. Employers should be prepared to show that the individual is operating an independent business and that the relationship satisfies all three parts of the ABC test.

Recommended Next Steps for Employers

To prepare for the October 1, 2026, effective date, employers should:

• Identify independent contractors, freelancers, consultants, and other non-employee workers performing services in New Jersey.
• Review contractor relationships under all three prongs of the ABC test, including the level of control, the nature and location of the work, and whether the worker operates an independently established business.
• Review contractor agreements, onboarding practices, reporting requirements, branding requirements, and other day-to-day practices that may affect classification.
• Avoid relying solely on 1099 treatment or contract language to support independent contractor status.
• Consult employment counsel before making classification changes or continuing higher-risk contractor arrangements.