New Jersey's New Independent Contractor Rules Take Effect October 1: What Employers Need to Know
New Jersey employers that use independent contractors should take a timely look at their worker-classification practices as new regulations from the New Jersey Department of Labor and Workforce Development (NJDOL), found at N.J.A.C. 12:11, take effect October 1, 2026. The rules don't create a new legal test, and they don't change the underlying law. They provide a detailed framework for applying New Jersey's existing "ABC test," and they give businesses a genuine opportunity to check whether their contractor relationships would hold up under it.
What Is New Jersey's ABC Test?
New Jersey's ABC test, set out in N.J.S.A. 43:21-19(i)(6), generally presumes that a worker performing services for pay is an employee, for purposes of the New Jersey laws to which the test applies, unless the employer, referred to in the statute as the putative employer, proves all three of the following: the worker is free from the employer's control, the work falls outside the employer's usual business or is performed away from its places of business, and the worker is customarily engaged in an independently established trade or business. The employer carries the burden on each prong, and the three requirements are conjunctive: failing even one generally means the worker is treated as an employee.
What's Changing on October 1, 2026?
The new NJDOL regulations don't rewrite the ABC test itself. They synthesize decades of New Jersey case law, including the state Supreme Court's decisions in East Bay Drywall, LLC v. Department of Labor & Workforce Development, 251 N.J. 477 (2022), and Carpet Remnant Warehouse, Inc. v. New Jersey Department of Labor, 125 N.J. 567 (1991), into specific factors regulators will now apply prong by prong. For businesses that haven't looked closely at their contractor relationships in a while, this is a natural prompt to do so.
What Are the Three Prongs of New Jersey's ABC Test?
Prong A: Freedom from Control
The worker must have been, and must continue to be, free from the employer's control or direction in how the work gets done, both under the contract and in actual practice. A contract that simply labels someone an "independent contractor" is never dispositive, and won't even be persuasive, if the business's actual practices show real control over how they work.
Prong B: Nature and Location of the Work
The employer has to show either that the services fall outside its usual line of business, or that they're performed away from all of its places of business. What counts as a "place of business" isn't limited to a traditional office or storefront, which makes this prong especially relevant for remote arrangements.
Prong C: An Independently Established Business
This is often the hardest prong to satisfy. Having a business entity such as an LLC or corporation, a business registration, a professional license, an insurance policy, or a website doesn't establish independence on its own. East Bay Drywall, LLC v. Department of Labor & Workforce Development, 251 N.J. 477 (2022), illustrates the point: the New Jersey Supreme Court upheld a determination that the employer had failed to prove Prong C because the record lacked sufficient evidence of the workers' independently established businesses, and the workers were treated as employees as a result.
Does Remote Work Automatically Satisfy the ABC Test?
No. The NJDOL has said a worker's home office generally won't count as one of the employer's "places of business" under Prong B, though that's a starting point and not a guarantee of a particular outcome. Businesses still need to look at where the work is genuinely performed and how it relates to the company's core operations.
A Recent Example: Tomasello v. ICF Technology
In Tomasello v. ICF Technology, Inc., No. 23-3759 (D.N.J. May 28, 2026), the U.S. District Court for the District of New Jersey considered claims from performers on two streaming platforms who alleged they'd been misclassified, saying the platforms kept 65 percent of their tips and paid less than minimum wage. Under the FLSA's federal economic-realities test, the court found the performers were independent contractors. Under New Jersey's ABC test, the same performers were employees. The court reasoned that the platforms weren't passive technology providers but "highly integrated, proprietary workplace[s]" central to the business, meaning the work wasn't performed outside all of the platforms' places of business under Prong B.
Though the N.J.A.C. 12:11 regulations weren't yet in effect for the claims before it, the Tomasello court still looked to them, since they synthesize rather than create New Jersey law, and treated them as "highly persuasive guidance reflecting the State's established policy on worker classification." The broader lesson: classification under federal law doesn't determine classification under New Jersey law, and a worker can be independent under one framework and an employee under the other.
What New Jersey Employers Should Review
Independent contractor agreements against actual working practices
The scope of services and where they're performed
Evidence of each contractor's independent business, other clients, advertising, business expenses
Whether documentation and
day-to-day practice are consistent
Misclassification exposure goes beyond a 1099 versus a W-2. Depending on the applicable law, a reclassification can mean liability for unpaid unemployment and temporary disability fund contributions, unpaid wages and overtime, employee benefits, and statutory interest. The NJDOL also has enforcement authority that can result in penalties.
Frequently Asked Questions
What is New Jersey's ABC test?
It's the legal standard New Jersey uses to determine whether a worker is an employee or an independent contractor for purposes of the state laws that apply it. Under N.J.S.A. 43:21-19(i)(6), a worker is presumed to be an employee unless the employer carries the burden of proving all three prongs: freedom from control, work outside the usual business or its locations, and an independently established business. The three requirements are conjunctive, so failing even one generally means employee status.
When do New Jersey's new independent contractor regulations take effect?
The new NJDOL regulations at N.J.A.C. 12:11 take effect October 1, 2026. They don't create a new legal test or change the underlying ABC test. Rather, they provide detailed guidance, drawn from decades of New Jersey case law, on how each prong is applied.
Does having an LLC make someone an independent contractor in New Jersey?
Not on its own. Under Prong C, having a business entity such as an LLC or corporation, a business registration, a professional license, an insurance policy, or a website doesn't by itself establish independence. In East Bay Drywall, the New Jersey Supreme Court upheld a finding against the employer because the record lacked sufficient evidence of the workers' independently established businesses.
Does working remotely satisfy New Jersey's ABC test?
Not automatically. The NJDOL has said a worker's home office generally won't count as one of the employer's "places of business" under Prong B, but that's only part of the analysis. Businesses still need to look at where the work is genuinely performed and how closely it relates to the company's core operations.
Which industries are most affected by New Jersey's ABC test?
The NJDOL has identified trucking, construction, rideshare, editing and design, accounting, high-tech engineering, and marketing as industries where independent-contractor misclassification issues commonly arise.
About the Author
Len Sprishen, J.D., LL.M., is a Partner at Schulman Lobel Advisors, LLC.
He advises individuals, closely held businesses, and owners of high-value assets on complex federal, state, and local tax matters, with a practice that includes tax planning, controversy, and strategic advisory services.
If your business has questions about how these New Jersey regulations apply to your situation, reach out to Len directly.
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