New Jersey Finalizes ABC Test Rule for Independent Contractors
A new Department of Labor rule effective October 1, 2026, details the framework for the state's stringent three-prong test for worker classification, creating new compliance burdens for employers.
New Jersey's Department of Labor and Workforce Development has adopted a comprehensive new rule, effective October 1, 2026, that formalizes the stringent "ABC test" used to determine whether a worker is an employee or an independent contractor. The rule clarifies the state's aggressive stance on worker misclassification and provides a detailed framework that investigators will use. Under the test, a worker is presumed to be an employee unless the employer can prove all three prongs: (A) the worker is free from the employer's control; (B) the work is outside the employer's usual course of business or performed off-site; and (C) the worker is customarily engaged in an independent trade.
The regulation details numerous non-exhaustive factors for each prong, giving employers a clearer, albeit stricter, roadmap for compliance. Notably, it includes a safe harbor, clarifying that control exercised solely to comply with laws or regulations will not by itself prove an employment relationship. Given the state's enhanced enforcement powers, including stop-work orders and increased penalties, businesses engaging contractors in New Jersey should immediately audit existing relationships against the new detailed criteria to mitigate significant liability risks before the rule takes effect.