New Jersey Employers: Workers are Employees or Independent Contractors? New Rules Codified

Earlier this year, the New Jersey Department of Labor and Workforce Development (NJDOL) adopted N.J.A.C. 12:11, which codified the “ABC test” used to determine whether a worker is an employee or an independent contractor. While N.J.A.C. 12:11 officially took effect October 1, 2026, the test was previously described and used by courts and the NJDOL to determine worker status under various New Jersey laws. The codification provides employers with more specific guidance on how the test will be applied by courts and agencies in disputed cases.

Learn more about the ABC test and how to apply it to your workers. 

Breaking Down the ABC Test

The ABC test is applied when interpreting the:

• Unemployment Compensation Law, N.J.S.A. 43:21-1 et seq.
• Temporary Disability Benefits Law, N.J.S.A. 43:21-25 et seq. 
• Wage Payment Law, N.J.S.A. 34:11-4.1 et seq.
• Wage and Hour Law, N.J.S.A. 34:11-56a1 et seq.
• Earned Sick Leave Law, N.J.S.A. 34:11D-1 et seq.
• Call Center Jobs Act, N.J.S.A. 34:21-8 et seq.  

Notably, this test is distinct from similar tests under federal laws for determining worker classification. Misclassification of employees as independent contractors can have severe consequences, such as the payment of back wages, unpaid contributions and other penalties.

In New Jersey, workers are generally presumed to be employees, unless the employer can satisfy the ABC test. Under the test, the employer must demonstrate the following three (3) prongs:

1. Such individual has 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;

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

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

PRONG A – Control of Services

Under prong A, the employer must show that it does not and cannot control the individual’s work. The codified rule provides a list of factors to consider when determining whether an employer exercises control over an individual’s work:

1. Whether the individual is required to work any set hours or jobs;
2. Whether the putative employer has the right to control the details and means by which the services are performed by the individual;
3. Whether the services must be rendered by the individual personally;
4. Whether the putative employer negotiates for and acquires the services performed by the individual;
5. Whether the individual’s rate of pay is fixed by the putative employer;
6. Whether the individual bears any risk of loss for services performed;
7. 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;
8. 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
9. Whether the putative employer provides training to the individual. 

The rule also permits courts and agencies to look at other facts to make this determination.

PRONG B – Whether the Services are in the Course of Business for the Employer

To satisfy prong B, the employer must demonstrate either that the individual’s services are outside of the employer’s usual course of business or that the individual’s services are performed outside of the employer’s place(s) of business. Notably, an employer’s “course of business” is defined broadly, and may include activities the employer uses to generate revenue or otherwise provide services. Consequently, an employer can have more than one “course of business.”

PRONG C – Whether the Individual is Customarily Engaged in an Independent Business

Under prong C, the employer must show that the individual is customarily engaged in an independently established trade, occupation, profession or business. Similar to prong A, the rule lists several factors to be considered when making this determination:

1. The duration, strength, and viability of the individual’s business (independent of the putative employer);
2. The number of customers of the individual’s business and the volume of business from each respective customer;
3. 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;
4. The number of employees of the individual’s business;
5. The extent of the individual’s investment in their own tools, equipment, vehicles, buildings, infrastructure, and other resources;
6. Whether the individual sets their own rate of pay; and
7. Whether the individual advertises, maintains a visible business location, and is available to work in the relevant market.

Again, courts and agencies are permitted to look at other facts when making a determination under prong C. 

Steps for New Jersey Employers

While New Jersey courts applied the ABC test well before the adoption of N.J.A.C. 12:11, this new rule should serve as a reminder for employers to audit their current contractor relationships, review agreements and review policies to ensure proper classification. Employers seeking guidance related to these steps can seek assistance from the experienced Employment and Labor Law attorneys at Fitzpatrick Lentz & Bubba P.C.