The New “ABCs”: NJDOL Adopts New Rules on Worker Classification

The New Jersey Department of Labor and Workforce Development adopted new regulations on May 5, 2026, clarifying the statutory “ABC test” for use in determining whether a worker is an independent contractor or employee. The regulations will be published on June 1, 2026, and are set to take effect on October 1, 2026.

What Does the New Rule Provide?

The new regulations will apply to multiple statutes enforced by the NJDOL including the New Jersey Unemployment Compensation Law, the New Jersey Wage and Hour Law and the New Jersey Wage Payment Law. As noted in the comments to the Final Rule, New Jersey’s ABC test has been the test for independent contractor status under the State’s Unemployment Compensation Law since 1936.

Under the new regulations, to be classified as an independent contractor under New Jersey law, a putative employer has the burden of proof to meet all three (3) prongs of the ABC test:

A) the worker has been and will continue to be free from control or direction over the performance of services both under the worker’s contract of service and in fact;

B) the work performed is either outside the usual course of the business for which the work is being performed or the work is performed outside of all the places of business of the enterprise; and

C) the worker is customarily engaged in an independently established trade, occupation, profession, or business.

How Does the New ABC Test Differ from the Previous One?

Previously, the ABC test relied on interpretative case law. The new rules adopt the test into the New Jersey Administrative Code, giving the NJDOL direct authority to interpret the test during audits.

The primary differences created by the new test are:

Prong A of the previous test focused on whether the employer actually exercised control or direction over the worker. The new rule specifies that the business must prove it does not exercise control and does not “reserve the right to control or direct the individual’s work.”

Prong B of the new rule clarifies that work is not outside the usual course of business if it is “integrated into the hiring entity’s business,” even if the work is done off premises. The previous test allowed flexibility in determining if a worker was part of the “usual course” of business.

Finally, Prong C of the new test requires proof that the worker is “customarily engaged” in an independent business, meaning they must operate an entity that exists and can survive independently of the relationship at issue. The new rules explicitly state that having an LLC, using a digital app or having a 1099 contract are not enough on their own to prove this.

What Should Employers Do Now?

As noted above, the new rules will become operative on October 1, 2026, 120 days from the anticipated June 1, 2026 publication/effective date. Accordingly, business groups may still seek to object to or modify the regulations during the 120-day lead time. Employers – especially those who use independent contractors – should reevaluate their current worker classification to avoid a potential audit or liability for worker misclassification.