New Jersey Codifies the “ABC Test” for Independent Contractors: What Businesses Need to Know

New Jersey has formally adopted regulations codifying the state’s “ABC test” for determining whether a worker is properly classified as an independent contractor or must instead be treated as an employee. The regulations, announced by the New Jersey Department of Labor and Workforce Development, take effect October 1, 2026, and apply across multiple employment statutes, including the New Jersey Wage and Hour Law, Wage Payment Law, and Unemployment Compensation Law.

While the ABC test has existed for decades through New Jersey case law, the formal codification of these standards is significant because it reinforces New Jersey’s already aggressive approach to worker classification enforcement and places businesses on notice that regulators will continue to scrutinize independent contractor relationships closely.

What Is the ABC Test?

Under the ABC test, a worker is presumed to be an employee unless the hiring entity can establish all three of the following elements:

A. Freedom From Control

The worker must be free from the company’s control or direction in performing the work, both contractually and in practice.

B. Work Outside the Usual Course or Place of Business

The worker must either:

• perform work outside the usual course of the company’s business; or
• perform the work outside all places of business of the enterprise.

C. Independently Established Business

The worker must be customarily engaged in an independently established trade, occupation, profession, or business.

If the company fails to satisfy even one prong of the test, the worker may be deemed an employee under New Jersey law.

Why This Matters to Your Business

New Jersey courts and regulators have historically interpreted the ABC test broadly in favor of employee status. The new regulations largely codify principles already articulated by the New Jersey Supreme Court. The practical effect is that many independent contractor relationships that may be permissible in other states could create liability in New Jersey. Misclassification claims can expose your business to: unpaid overtime and minimum wages; tax liability; unemployment and workers’ compensation exposure; penalties and interest; liquidated damages, attorneys’ fees; and litigation.

The financial exposure can become substantial very quickly, particularly for companies utilizing large contractor workforces.

What Businesses Should Do Now

Businesses operating in New Jersey should not assume that longstanding contractor relationships are compliant simply because they have existed for years.

Companies should consider:

• reviewing all independent contractor relationships.
• auditing agreements and operational practices.
• evaluating whether contractors truly operate independent businesses.
• reassessing control over schedules, pricing, and work methods.
• examining whether contractors perform work central to the company’s business; and
• updating documentation and policies where appropriate.

Importantly, written agreements alone are not enough. Regulators and courts will evaluate how the relationship functions in practice.

Conclusion

The codification of the ABC test represents another step in New Jersey’s continued expansion of worker protections and aggressive enforcement of employee classification laws. Businesses relying on independent contractors should proactively evaluate their practices now, before the regulations take effect in October 2026. Failing to do so may expose your company to substantial liability, regulatory enforcement actions, and costly litigation.