New Jersey’s New Independent Contractor Rules Take Effect October 1, 2026: A Guide for Employers
New Jersey employers that use independent contractors should review those relationships before October 1, 2026. The New Jersey Department of Labor and Workforce Development (“NJDOL”) has adopted final regulations governing how it will apply New Jersey’s longstanding ABC Test for determining whether a worker is an employee or an independent contractor. The regulations, codified at N.J.A.C. 12:11, become operative on October 1, 2026. Misclassification of a worker can result in employer liability for unpaid wages, unpaid contributions for unemployment and disability insurance benefits, tax assessments and penalties and audits of other workers to ensure compliance.
October 1st does not bring a new worker-classification test to New Jersey. Employers have been operating under the ABC Test for decades. The new regulations instead formalize the NJDOL’s interpretation of the test and provide more detailed guidance concerning the facts the Department will consider when making worker-classification determinations.
The final rules also differ in several respects from the regulations originally proposed in May 2025. After receiving extensive public comments, the NJDOL removed a number of examples and modified several provisions, including rules concerning regulatory/legal compliance, remote work and the analysis of whether a worker operates an independently established business.
The regulations reinforce a longstanding principle of New Jersey law: classification depends on how the working relationship actually functions, not simply on the documents used to characterize it.
NJ’s ABC Test
Under the ABC Test, a worker who performs services for compensation is presumed to be an employee unless the employer can establish all three of the following:
A. Freedom from control. The worker has been and will continue to be free from control or direction over the performance of the services, both under the parties’ contract and in practice.
B. Outside the usual course or places of business. The services are either outside the usual course of the employer’s business or performed outside all of the employer’s places of business.
C. Independently established business. The worker is customarily engaged in an independently established trade, occupation, profession or business.
The employer bears the burden of proving each prong. Failure to satisfy any one of them results in an employment classification.
The final regulations also clarify that they do not eliminate or modify statutory exemptions that already exist under particular New Jersey employment laws. Whether an exemption applies therefore remains a statute-specific question, and an exemption under one law does not necessarily determine a worker’s status under another.
Prong A: How Much Control Does the Employer Exercise?
Prong A examines whether the worker is genuinely free from the employer’s control or direction.
The regulations make clear that the NJDOL will consider not only whether the employer actually exercises control, but also whether the employer has reserved the right to exercise control. An employer does not need to control every aspect of the worker’s activities for Prong A to be an issue.
Some of the factors the NJDOL may consider are whether:
the worker is required to work particular hours or jobs;
the employer controls the details or means by which the services are performed;
the services must be performed personally by the worker;
the employer negotiates for and acquires the services performed by the worker;
the employer determines the worker’s rate of pay;
the worker bears a risk of financial loss;
the worker must remain on call or available at times established by the employer;
the employer restricts the worker from providing services to others; and
the employer provides training.
The rules also identify circumstances that may be relevant to whether the employer controls the details and means of performance, including requiring the worker to use particular tools, supplies or materials; wear a uniform or display a particular logo or insignia; or report on the worker’s services at prescribed times or intervals. The Department originally proposed including required use of employer-controlled software or digital applications as another consideration but removed that provision from the final rules.
No single factor controls, and employers should not simply count factors for and against independent-contractor status. The Department’s analysis will be fact-specific and will consider the relationship as a whole.
Employers therefore should look beyond the language of their independent contractor agreements. A contract that gives the worker substantial independence will not necessarily satisfy Prong A if the company’s actual practices demonstrate significant control over how the work is performed.
The final rules also contain an important clarification as to control exercised by an employer to ensure compliance with laws or regulations. The Department originally proposed that such control be given “equal weight” to other forms of employer control. The final rules provide that actions taken by an employer solely to comply with federal, state or local laws or regulations will not, standing alone, be treated as evidence of control or direction. While this change seems more in line with prior case law holding that compliance with laws and regulations is not employer control, such compliance activities may still be viewed as indicia of employer control under Prong A if they are implemented to any extent for reasons unrelated to ensuring lawful compliance, or if accompanied by other evidence of control or direction.
Prong B: Is the Worker Performing Services That Are the Same or Similar to the Employer’s Business or at the Employer’s Place of Business?
Prong B can be satisfied in either of two ways: the services must be outside the employer’s usual course of business, or they must be performed outside all of the employer’s places of business.
Under the final rules, an employer’s usual course of business may include activities it regularly performs to generate revenue or to develop, produce, sell, market or provide its goods or services. An employer may also have more than one usual course of business.
As a result, the nature of the contractor’s services matters. If a contractor performs the same or similar services that the company itself regularly sells or provides to customers, Prong B deserves close attention.
The second part of Prong B focuses on where the services are performed. A “place of business” can include not only an employer’s office, store, factory or other physical facility, but also other locations where the employer conducts an integral part of its business.
The proposed 2025 regulations included numerous examples involving particular industries and customer locations. The NJDOL removed those examples from the final rules after commenters raised concerns that they created confusion and did not adequately account for the fact-sensitive nature of the ABC Test. The Department emphasized, however, that the underlying principles illustrated by those examples remain part of the final rule.
The final rules also provide a clear answer to an increasingly important remote-work question: a worker’s personal residence where the worker performs remote work is not considered one of the employer’s places of business.
Prong C: Does the Worker Operate an Independently Established Business?
Prong C examines whether the worker is customarily engaged in an independently established trade, occupation, profession or business.
The final rules identify several factors the NJDOL may examine, including:
the duration, strength and viability of the worker’s business independent of the employer;
the number of customers and the volume of business from each;
the amount of compensation received from the employer compared with compensation received from others in the same industry;
whether the worker has employees;
the worker’s investment in tools, equipment, vehicles, facilities and other business resources;
whether the worker sets his or her own rates; and
whether the worker advertises, maintains a visible business location and makes services available in the relevant market.
Prong C ultimately asks whether there is a real business independent of the particular engagement—one that is established apart from the relationship with the hiring company and is capable of continuing if that relationship ends.
One difference between the proposed and final rules is particularly noteworthy. The proposed rules would have stated that what mattered was not whether the worker was free to work for others, but whether the worker actually performed services for and received compensation from others during the relevant period. The NJDOL deleted that provision from the final rules.
Having other customers remains relevant because the final regulations expressly identify the worker’s customer base and sources of compensation as factors. But the final rule does not make concurrent work for other customers an express requirement for independent contractor status, even though prior case law suggests otherwise. Click here to read our 2023 Q&A discussing Spar Marketing v. NJDOL.
The rules also make clear that certain formalities, standing alone, do not establish independent contractor status. Forming an LLC or other business entity, maintaining business insurance, holding a professional license, having another job, receiving a Form 1099 rather than a W-2, or signing an agreement labeling the worker an independent contractor does not by itself satisfy the ABC Test. For example, the Department expressly states that business registration and insurance may be relevant but are not dispositive of Prong C.
The NJDOL may also consider the circumstances surrounding an independent contractor agreement in determining the weight it should receive, including the parties’ relative bargaining power, whether the agreement was negotiable, whether one party reserved the right to modify its terms unilaterally, and the parties’ termination rights.
What Should New Jersey Employers Do Before October 1?
Employers that use independent contractors should consider reviewing those relationships before the final rules become operative.
1. Identify all independent contractors. Prepare a complete list of individuals providing services as non-employees, including consultants, freelancers, commissioned workers and individuals operating through LLCs or other entities.
2. Analyze each relationship under all three prongs. A strong argument under Prong A does not compensate for a weak Prong B or Prong C. The employer must establish all three.
3. Compare the agreement with day-to-day practice. Review both the written contract and how the relationship actually operates. Pay particular attention to scheduling, assignments, compensation, work methods, reporting requirements, availability and restrictions on outside work.
4. Take a closer look at services that overlap with the company’s usual course of business. If contractors perform the same or similar services that the company regularly provides or sells to customers, Prong B warrants particular scrutiny.
5. Evaluate whether the contractor operates an independent enterprise. Consider the worker’s customer base, efforts to make services available in the market, business investments, ability to set rates and other circumstances demonstrating a business that exists independently of the relationship with your company.
6. Review restrictive contract provisions. Noncompetition provisions, nonsolicitation clauses, restrictions on outside work, mandatory availability requirements and other provisions that give the company control over the worker should be reviewed carefully.
7. Do not rely on formalities alone. An LLC, insurance policy, professional license, Form 1099 or independent contractor agreement may be relevant, but none substitutes for satisfying the ABC Test.
8. Address questionable classifications prospectively. Where a relationship does not satisfy all three prongs, employers should consider whether the relationship can legitimately be restructured or whether the worker should be classified as an employee.
The Bottom Line
The October 1, 2026 regulations do not change New Jersey’s basic ABC Test. They do, however, provide employers with considerably more detail about the factors the NJDOL will use in applying it.
The final regulations are also different in meaningful ways from the version proposed in 2025. Among other changes, the Department removed numerous industry-specific examples, revised its treatment of control required by law, clarified the treatment of remote work, and deleted language that would have expressly focused Prong C on whether a contractor actually performed work for other customers during the relevant period.
For employers, the practical lesson is that independent contractor arrangements should be evaluated based on how they actually operate. A carefully drafted agreement is important, but it cannot by itself establish independent contractor status.
Employers that regularly use independent contractors should consider reviewing those relationships before October 1, 2026 with experienced counsel. Fellig Schwartz, LLC counsels businesses and management throughout New York and New Jersey on employment law compliance, hiring practices, workplace policies, and employment disputes. Identifying and addressing classification problems before an NJDOL audit, wage claim or other dispute arises can reduce the potential exposure associated with worker misclassification.
About the Author
Audra Schwartz is a partner at Fellig Schwartz, LLC, where she advises businesses and management on employment law compliance, workplace policies, restrictive covenant disputes, compensation issues, and business litigation matters throughout New York and New Jersey. She counsels employers on hiring practices, wage and hour issues, employee separations, discrimination and retaliation claims, and employment agreements.
This article is for informational purposes only and does not constitute legal advice nor does it create an attorney client relationship. Employers with questions about New Jersey or New York employment laws should consult employment counsel.
