New Jersey employers who retain independent contractors should understand the rule’s requirements and take steps now to evaluate whether they have classified such workers properly.

On May 5, 2026, the New Jersey Department of Labor and Workforce Development (NJDOL) adopted N.J.A.C. 12:11, a rule addressing the framework of the ABC test—the test for determining whether a worker has been properly classified as an employee under the Unemployment Compensation Law, Temporary Disability Benefits Law, Wage Payment Law, Wage and Hour Law, Earned Sick Leave Law and the Call Center Jobs Act. The rule takes effect October 1, 2026. New Jersey employers who retain independent contractors should understand the rule’s requirements and take steps now to evaluate whether they have classified such workers properly.

How Does the ABC Test Work?

Whenever a worker performs services for compensation in New Jersey, the worker is presumed to be an employee unless the purported employer can demonstrate that the worker satisfies the following three prongs of the ABC test:

1. Prong A requires that the individual has been and will continue to be free from control or direction over the performance of services, both under the contract and in fact.
2. Prong B requires that the services are either outside the usual course of the employer’s business or are performed outside of all the employer’s places of business.
3. Prong C requires that the individual be customarily engaged in an independently established trade, occupation, profession or business.

The burden of satisfying the ABC test rests entirely on the employer. If the employer fails to satisfy any single prong, the worker will be deemed an employee.

Prong A: What Constitutes “Control” Over a Worker?

The rule enumerates nine non-exhaustive factors the NJDOL will consider when evaluating if a worker is free from control or direction:

1. Whether the worker is required to work set hours or jobs;
2. Whether the employer controls the details and means of performance;
3. Whether the services must be rendered personally;
4. Whether the employer negotiates for and acquires the services performed by the worker;
5. Whether the employer fixes the rate of pay;
6. Whether the worker bears the risk of loss;
7. Whether the worker is required to be on call or on standby;
8. Whether the employer limits the worker’s ability to work for others; and
9. Whether the employer provides training.

No single factor will automatically determine the outcome, and the NJDOL can consider other factors as well.

Significantly, the rule includes a safe harbor for control exercised for regulatory and legal compliance reasons. This means that actions taken by a purported employer 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. This is a significant change from the proposed rule, which would have treated mandatory legal compliance as evidence of control. This safe harbor is particularly relevant for businesses in heavily regulated industries.

Prong B: Is the Work Part of the Employer’s Business or Performed at the Employer’s Locations?

Prong B can be satisfied in one of two ways. Either the worker’s services are outside the employer’s usual course of business, or the services are performed outside of all the employer’s places of business. The rule defines “usual course of business” as activities the employer regularly engages in to generate revenue or develop, produce, sell, market or provide goods or services. An entity may have more than one usual course of business. The rule defines “places of business” broadly to include not only locations where the employer has a “physical plant,” but also any location where the employer conducts an integral part of its business. This is consistent with the New Jersey Supreme Court’s decision in Carpet Remnant Warehouse, Inc. v. New Jersey Dep’t of Labor, 125 N.J. 567 (1991).

A “physical plant” includes a physical office, store or factory where a substantial amount of the employer’s work is performed. Critically, the “integral part of its business” standard means that the NJDOL may treat locations beyond the employer’s own offices as the employer’s places of business, including, for example, client sites, customer locations, job sites or any other location where the employer’s core business activities are regularly conducted.

The NJDOL retains broad discretion to evaluate places of business on a case-by-case basis, and no predetermined list of locations controls the analysis.

Notably, the rule carves out an exception for remote workers – a worker’s home where they perform remote work does not count as one of the employer’s places of business.

Prong C: What Does It Mean to Be “Independently Established”?

Under Prong C, the NJDOL will evaluate seven factors to determine whether a worker is customarily engaged in an independently established trade, occupation, profession or business:

1. The duration, strength and viability of the worker’s business independent of the employer;
2. The number of customers and volume of business from each;
3. The proportion of income received from the employer compared to other sources;
4. The number of the worker’s own employees;
5. The extent of the worker’s investment in their own tools, equipment and resources;
6. Whether the worker sets their own rate of pay; and
7. Whether the worker advertises and maintains a visible business location and is available to work in the relevant market.

The rule makes clear that certain formalities, by themselves, will not satisfy Prong C, such as having an independent contractor agreement, maintaining a separate business registration, or receiving a 1099. The NJDOL will focus on the substance of the relationship, not the paperwork that governs it.

What Does This Rule Mean for New Jersey’s Enforcement Efforts?

The adoption of N.J.A.C. 12:11 is part of a broader, sustained effort by the state to address worker misclassification. In 2021, New Jersey enacted significant legislation expanding the state’s enforcement tools and interagency coordination with a focus on worker misclassification. The expansion of agency enforcement rights allows for the imposition of increased penalties, stop-work order authority and the ability of multiple state agencies to share information and conduct joint investigations. The NJDOL also established a task force focused on worker classification issues. The new ABC test regulations build on these enforcement foundations by providing the NJDOL with a detailed regulatory framework for evaluating independent contractor relationships. Employers found to have misclassified workers may face assessments for unpaid contributions to state benefit funds, plus interest and penalties. For more information on New Jersey’s expanded enforcement powers, please see Duane Morris’s previous Alert.

What Does This Mean for Employers?

Given the effective date of October 1, 2026, employers who engage independent contractors to perform services in New Jersey should conduct a comprehensive audit of their existing independent contractor relationships to determine whether current arrangements can satisfy all three prongs of the ABC test. Employers should also review and revise their independent contractor agreements to ensure they address each prong of the test and avoid provisions that could be characterized as control beyond what is legally required. For employers in regulated industries, it will be important to document the legal or regulatory basis for any supervisory requirements imposed on independent contractors to take full advantage of the Prong A safe harbor. Employers should also evaluate the locations where their independent contractors perform services and consider whether those locations could be deemed the employer’s place of business under the rule’s broad definition.

Employers should continue to monitor legislative developments in New Jersey, including proposed legislation that, if enacted, would confirm independent contractor status for certain licensed or regulated professionals.

For More Information

If you have any questions about this Alert, please contact Kathleen O'Malley, Michael R. Futterman, Patrice E. LeTourneau, Danielle M. Dwyer, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney at the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.