New Jersey (US): Regulations for independent contractor ABC test take effect

At a glance

• Effective October 1, 2026, regulations issued by the New Jersey Department of Labor and Workforce Development (NJDOL) clarify the ABC test; businesses must satisfy all three prongs.
• Prong A requires freedom from control, assessed across the entire relationship rather than by counting factors.
• Prong B requires services outside the business’s usual activities or outside all its places of business.
• Prong C requires a stable, independent business capable of surviving the relationship’s termination.
• Businesses should review contractor relationships: misclassification risks include penalties, unpaid wages, and unemployment contributions.

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As of October 1, 2026, business owners in New Jersey have additional guidance to determine whether individuals providing services to their business should be classified as independent contractors or employees. This important distinction is evaluated by the NJDOL using a three-part standard known as the 'ABC test'. In general terms, the test examines the individual’s freedom from control (Prong A), whether the services fall outside the business’s usual activities or are performed outside all of its places of business (Prong B), and whether the individual operates an independently established business (Prong C). A written or oral agreement labeling an individual as an independent contractor has little to no bearing on the individual’s actual status. Instead, the business must satisfy all three factors based on the nature of the engagement itself, or the worker should be classified as an employee.

The ABC test’s factors, although concise, have not always been obvious or easy in application. The new regulations discussed below provide added clarity for the evidence the NJDOL will weigh in an audit or classification dispute under laws such as New Jersey’s Unemployment Compensation, Wage and Hour, and Wage Payment Laws. Because misclassification can lead to penalties, fines, and liability for unpaid wages and unemployment contributions, among other things, businesses should measure their existing independent contractor relationships against this additional guidance.

Below, we summarize the NJDOL’s guidance as it relates to evaluating each of the ABC test’s prongs.

Prong A

‘Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact.’

The regulations list nine non-exhaustive control factors, including:

• whether the individual is required to work any set hours or jobs;
• whether the putative employer has the right to control the details and means by which the services are performed by the individual;
• whether the services must be rendered by the individual personally;
• whether the putative employer negotiates for and acquires the services performed by the individual;
• whether the individual's rate of pay is fixed by the putative employer;
• whether the individual bears any risk of loss for services performed;
• whether the individual is required to be on call, on standby, or otherwise available to perform services at set times determined by the putative employer, even if the individual does not actually perform services at such times;
• whether the putative employer limits the individual's performance of services for other parties, such as by limiting the individual's geographic area or potential clientele; and
• whether the putative employer provides training to the individual.

According to the regulations, a conclusion that the putative employer has met Prong A of the ABC test will not be based on whether a majority of the above factors have been met.

Rather, Prong A requires an evaluation of the entire relationship between the individual and the putative employer to determine whether the individual has been, and will continue to be, free from control or direction by the putative employer.

Prong B

‘Such service is either outside the usual course of business for which such service is performed, or that such service is performed outside of all the places of the enterprise for which such service is performed.’

The regulations provide that the putative employer’s ‘usual course of business’ may encompass activities it regularly performs to generate revenue or develop, produce, sell, market, or provide goods or services, and that an entity may have multiple usual courses of business.

Places of business are limited to locations where the company has a physical plant or conducts an integral part of its business.

Among other things, the regulations provide examples of services that typically will or will not be outside of the putative employer’s usual course of business.

Prong C

‘Such individual is customarily engaged in an independently established trade, occupation, profession or business.’

In evaluating Prong C, the NJDOL has identified the following non-exhaustive factors for consideration:

• the duration, strength, and viability of the individual's business (independent of the putative employer);
• the number of customers of the individual's business and the volume of business from each respective customer;
• the amount of remuneration the individual receives from the putative employer compared to the amount of remuneration the individual receives from others in the same industry;
• the number of employees in the individual's business;
• the extent of the individual's investment in their own tools, equipment, vehicles, buildings, infrastructure, and other resources;
• whether the individual sets their own rate of pay; and
• whether the individual advertises, maintains a visible business location, and is available to work in the relevant market.

As with Prong A, the regulations provide that a conclusion that the putative employer has met Prong C of the ABC test will not be based on whether a majority of the above factors have been met.

Rather, Prong C requires an evaluation of the entire relationship between the individual and the putative employer to determine whether the individual is customarily engaged in an independently established trade, occupation, profession, or business.

The putative employer must establish that an individual's independently established trade, occupation, profession, or business is a stable and lasting enterprise capable of surviving the termination of the relationship with the putative employer.

Employers are encouraged to review each independent contractor relationship against all three prongs and reclassify workers where appropriate.