New Jersey employers will soon face a significant change in how they classify workers, following Governor Sherrill’s adoption of updated ABC Test regulations. The new rules—designed to clarify when a worker is an employee versus an independent contractor—will take effect October 1, 2026. The ABC Test, long used in New Jersey wage and labor enforcement, presumes a worker is an employee unless the hiring entity can prove three conditions: the worker is free from control, performs work outside the company’s usual business, and operates an independently established business. The newly adopted rules refine these standards with clearer definitions, expanded examples, and stronger enforcement tools. 

What Is the ABC Test?

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

A — Control:  The worker is free from the business’s control or direction in performing the work, both under the contract and in practice.

B — Business Course:  The service is performed outside the usual course of the business, or outside all the business’s places of business.

C — Independent Business:  The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Failing any of the three parts means the worker must be classified as an employee.

Key Changes in the New Rules

Clearer definitions of “control,” “usual course of business,” and “independently established business.”

Expanded examples of evidence that may satisfy or fail each prong.

Alignment across agencies, reducing conflicting interpretations between the Department of Labor, Division of Taxation, and unemployment insurance.

Stronger enforcement mechanisms, including increased penalties for misclassification.

Recordkeeping requirements for businesses to demonstrate compliance.

Who Is Affected?

Small businesses, Large employers, Gig‑economy platforms, Professional services firms, Construction, transportation, retail, hospitality, and home‑care industries as well as any business using freelancers, contractors, or 1099 workers

What Businesses Must Do Before October 1, 2026

Review all contractor relationships under the updated ABC Test.

Update contracts to reflect independence requirements.

Ensure contractors have their own business entities, insurance, marketing, and multiple clients (Prong C).

Evaluate whether contractors perform work central to your business model (Prong B).

Adjust internal practices to avoid exerting control inconsistent with contractor status (Prong A).

Train HR, payroll, and management teams on the new rules.

Correct misclassifications proactively to avoid penalties.

For up-to-date information please visit the NJ DOL Independent Contractors and Misclassification page.