Almost a year to the day after issuing extensive and controversial proposed worker classification rules, the New Jersey Department of Labor & Workforce Development (NJDOL) on May 5, 2026, adopted new regulations that purport to clarify the statutory “ABC test” for determining whether a worker is an independent contractor or employee. The regulations, which become effective October 1, 2026, largely mirror the proposed classification rules published in May 2025, though some of the provisions that garnered the most opposition during the rulemaking process have been watered down somewhat.
As was the case with the proposed rules, a worker is presumed to be an employee, and “the burden of proof to establish independent contractor status under the ABC test is on the putative employer.” In order for the putative employer to meet that burden, it “must establish that the services at issue and the individual providing those services meet all three prongs of the ABC test.”
Prong A: Control Over Worker and Their Performance
Prong A is about how much control the employer exercises – and has the right to exercise – over the worker and the services they provide. In order for a putative employer to meet its burden under Prong A to prove a worker is a contractor and not an employee, it must show, to “the satisfaction of the Department, that “[s]uch individual has been 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.”
Furthermore, the employer needs to show not only that it has not exercised control, but also that “it does not reserve the right to control or direct the individual’s work.” When evaluating under Prong A whether a worker has been, and will continue to be, free from control or direction over the performance of services, the following factors will be considered:
- Whether the individual is required to work any set hours or jobs.
- Whether the putative employer has the right to control the details and means by which the individual performs the services.
- Whether the individual must render the services personally.
- Whether the putative employer negotiates for and acquires the work performed by the individual.
- Whether the putative employer fixes the individual’s rate of pay.
- Whether the individual bears any risk of loss for the work they perform.
- 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.
- 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,
- Whether the putative employer provides training to the individual.
One significant change between the proposed and final rules regarding Prong A concerns control exercised over a worker for legal compliance purposes. The proposed regulations provided that any control or direction that the putative employer exercised “in order to be in compliance with a law or rule [would] be considered; that is, it [would] be given equal weight to what would be given any other control or direction that the putative employer … exercised.”
This language raised objections that employers would effectively be punished for following the law. Accordingly, the final regulations now state that “[a]ctions taken by a putative employer solely to comply with federal, state, or local laws or regulations shall not, standing alone, be considered evidence of control or direction under Prong A.”
Additionally, the proposed regulations included as an indicia of control any requirement that a worker use software or apps controlled by the employer. That language was removed from the final version.
Prong B: Services Performed Outside Regular Course or Place of Business
Prong B considers “whether a service is either outside the usual course of business for which such service is performed” or whether “such service is performed outside of all the places of business of the enterprise for which such service is performed.” Affirmative answers to either point would weigh in favor of contractor status.
Under the final rules, an employer’s “places of business’ refers to locations where the enterprise has a physical plant or conducts an integral part of its business.” Importantly, the final rules added language stating that a remote worker’s “personal residence where they perform remote work … shall not be considered among the putative employer’s places of business.”
“Usual course of business” may “include activities that the putative employer regularly engages in to generate revenue or develop, produce, sell, market, or provide goods or services. An entity may have more than one usual course of business.”
Prong C: Degree of Independence
Prong C involves an evaluation of whether a worker is “customarily engaged in an independently established trade, occupation, profession, or business,” in which case it would be an indication of contractor status. In making this determination, the following factors can be considered:
- The duration, strength, and viability of the individual’s business (independent of the putative employer).
- The number of customers of the individual’s business and the volume of business from each respective customer.
- 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.
- The number of employees of the individual’s business.
- The extent of the individual’s investment in their own tools, equipment, vehicles, buildings, infrastructure, and other resources.
Lastly, the final rules make clear that an employer’s efforts to establish contractor status for a worker simply through documents categorizing them as such will be ineffective. “[O]ne cannot transform an individual into an independent contractor who would otherwise be considered an employee, by reporting the earnings of that individual using a Federal Form 1099, as opposed to a Federal Form W-2.” Similarly, “[a] written or oral contract or agreement labeling an individual as an independent contractor is not dispositive of whether an individual is an independent contractor pursuant to the ABC test.”
While the final rules take some of the harsher edges off the proposed rules in terms of tilting the scales in favor of employee status, New Jersey employers still have a steep hill to climb when claiming a worker is a contractor rather than an employee. If you have any questions about the final rules or worker classification generally, please contact Barry Capp at Ansell.Law.