May 28, 2026

New Jersey employers who use independent contractors should take a fresh look at their worker classifications as the state reinforces its strict application of the “ABC” test through newly codified regulations. While the “ABC test” for determining whether a worker is an employee or an independent contractor is not new, New Jersey formally codified the standard through regulations under N.J.A.C. 12:11, underscoring the importance of compliance and the potential consequences of worker misclassification.

What Is the “ABC” Test?

The ABC test is the legal framework New Jersey uses to determine whether a worker qualifies as an independent contractor under the following laws:

• Unemployment Compensation Act
• Temporary Disability Benefits Law
• Wage Payment Law
• Wage and Hour Law
• Earned Sick Leave Law
• Construction Industry Independent Contractor Law

Workers are presumed to be employees. The employer bears the burden of establishing independent contractor status, and to do so, must satisfy all three parts of the following test. If any part is not met, the worker will be treated as an employee under New Jersey law.  

A. Freedom from Control

The worker must be free from the employer’s control or direction in performing the services, both under the terms of a written contract (if there is one), and in practice. The regulations create a nine (9) factor test to evaluate this. 

B. Work Outside the Employer’s Usual Business

The services performed must be outside the usual course of the employer’s business or outside all places of the employer’s business (e.g., a musician hired by a restaurant to perform at an event, but not a caddy hired by a country club on a regular basis).

C. Independently Established Business

The worker must customarily be engaged in an independently established trade, occupation, profession, or business that can continue apart from the relationship with the employer. Merely calling the relationship an independent contractor, or issuing 1099s, or the worker having a license to perform the work, or his or her own business registration or insurance, might not be sufficient.

Steps Employers Should Consider

Misclassification can expose employers to significant liability for unpaid wages, benefits, taxes, penalties, and agency enforcement actions. Employers with New Jersey workers should review their independent contractor relationships to assess compliance with the “ABC test.” This includes:

• Reviewing contractor agreements for terms inconsistent with independent contractor status, including non-compete and non-solicitation provisions, which may weigh against independent contractor classification.
• Confirming documentation exists to support classification decisions. 
• Reassessing workers who might need to be reclassified as employees, including overtime and benefits eligibility. 
• Consider whether overtime payments and employee benefits are required for employees misclassified as independent contractors, if W-2s need to be issued, and whether employment taxes are owed to state and federal taxing authorities.

If you have questions regarding worker classification issues in New Jersey or would like assistance reviewing independent contractor agreements and employment practices, please contact RRD Employment Practice Group Chair Robert W. Small at rsmall@regerlaw.com or 215-495-6500.