New Jersey’s Worker-Classification Regulations Take Effect: What Employers Need To Know

As of Oct. 1, 2026, companies that retain independent contractors to perform services in New Jersey are subject to the New Jersey Department of Labor and Workforce Development’s (NJDOL) worker-classification regulations, under N.J.A.C. 12:11 et seq. The regulations codify and clarify the State’s longstanding application of the three-pronged “ABC” test for distinguishing employees from independent contractors. The regulations are not intended to adopt a new framework, but memorialize NJDOL interpretations of the distinctions between employment and independent contractor relationships.

The ABC Test

Under the ABC test, anyone who performs services for pay is presumed to be an employee. To overcome that presumption, a business must establish that the working relationship satisfies all three prongs of the ABC test, as follows:

• Prong A: The worker is free from the company’s control or direction over the performance of the work, both contractually and in practice
• Prong B: The work falls outside the company’s usual course of business or is performed away from all its business locations
• Prong C: The worker customarily operates an independently established trade, occupation, profession, or business

If the working relationship fails to satisfy any one prong, the worker is considered an employee, regardless of the contract’s terms.

For Prong A, the regulations identify nine non-exhaustive control factors, including set hours, fixed pay rates, training and geographic restrictions. For Prong B, the regulations explain that a company’s usual course of business includes any activities it regularly conducts. In addition, “places of business” are limited to locations where the company maintains a physical facility or conducts an integral part of its business; a worker’s home used for remote work is excluded. For Prong C, the regulations clarify that formalities such as signed agreements, Forms 1099, business registrations or LLC formations claiming the worker is an independent contractor are not sufficient on their own.

In short, the NJDOL uses a substance-over-form approach. A well-drafted contractor agreement offers limited protection if the worker keeps company-set hours, is paid a fixed rate or must complete company training. Employers should expect the NJDOL to examine how the relationship operates day to day, not simply how it is described on paper.

No Industry Exemptions: How New Jersey Compares to Other States

Unlike other states, New Jersey has not created broad, profession-based exemptions from the ABC test. By comparison, while California enacted an ABC test in 2019, it later exempted many occupations, including numerous licensed professionals and business-to-business arrangements, which are evaluated under a more flexible multifactor test. While it is possible that New Jersey will adopt such carveouts in the future, in the meantime, New Jersey businesses in every industry must satisfy all three prongs for each worker they treat as an independent contractor.

As it stands, New Jersey’s framework more closely resembles Massachusetts’ strict ABC test, which has few exceptions. Pennsylvania, by contrast, applies a statutory classification test only in the construction industry. Regional employers operating in both New Jersey and Pennsylvania may therefore need to apply different standards to similarly situated workers across state lines.

Consequences for Misclassification

The stakes of getting classification wrong are significant, and the penalties are cumulative. Employers may face administrative fines of up to $250 per misclassified worker for a first violation and up to $1,000 for each subsequent violation, plus a penalty payable to the worker of up to 5% of the worker’s gross earnings during the preceding 12 months. Additional consequences include back pay, liquidated damages of up to 200% of unpaid wages, stop-work orders, and license suspensions. In the construction industry, knowing misclassification may also lead to criminal liability and debarment from public works.

What Should Employers Do Now?

• Audit each independent contractor relationship under all three prongs, focusing on the parties’ day-to-day practices
• Review and refine contractor agreements to remove terms that imply employer control
• Document classification decisions with agreements, invoices, and other records that show the contractor operates an independent business
• Reclassify workers when appropriate. Because penalties are assessed per worker and increase for subsequent violations, proactive reclassification is far less costly than defending an NJDOL enforcement action