New Jersey Codifies the ABC Test: What the Independent Contractor Regulations Mean for Your Business

New Jersey has codified the ABC test for determining whether a worker is an employee or an independent contractor, effective October 1, 2026. For most New Jersey businesses, the test itself hasn’t changed. The state’s long-standing enforcement position is now codified, and businesses that have treated workers as independent contractors should assess their risk now.

Key takeaways:

• The New Jersey Department of Labor and Workforce Development adopted the regulations on May 5, 2026, codifying the ABC test courts have applied for decades.
• A worker is presumed to be an employee unless the business can prove all three prongs of the test.
• Misclassification exposure includes federal and New Jersey employment taxes, and a portion of unpaid amounts can become the personal responsibility of the business owner or anyone involved in payroll or decision-making.

Employee or Independent Contractor? It Is Not a Matter of Choice

You have a business, and workers perform services for it. Are they employees or are they independent contractors? Some small business owners think that this distinction is a matter of choice. It is not.

Today’s world supports what is called the “gig economy,” which tends to treat workers as independent contractors rather than employees. Uber drivers exemplify the tension. Uber argues that it is merely a technology platform connecting drivers with people who need a ride, and that because drivers are generally part-time and set their own schedules, this favors independent contractor status. Nearly every state argues that classifying drivers as independent contractors leaves them ineligible for protections such as minimum wage, overtime, unemployment, and workers’ compensation. After a protracted fight in California, Uber and similarly situated companies funded a ballot initiative; voters approved Proposition 22, and the California Supreme Court unanimously ruled that app-based ride-hailing companies can continue to classify their drivers as independent contractors, provided the protections in Proposition 22 are available. Those protections do not rise to the level that employees are entitled to in California.

How the New Jersey ABC Test Works

What happens when we cross the country and land in New Jersey? For many years, New Jersey has used the ABC test to determine whether a worker is an employee or an independent contractor. The test, unanimously approved by the New Jersey Supreme Court in two well-known cases, East Bay Drywall, LLC and Carpet Remnant Warehouse, Inc., is deceptively simple. A worker is an employee unless the business can establish all three of the following:

A. The worker has been and will continue to be free from control or direction over the performance of services, both under the worker’s contract of service and in fact;

B. The work performed is either outside the usual course of the business for which the work is being performed, or the work is performed outside of all the places of business of the enterprise; and

C. The worker is customarily engaged in an independently established trade, occupation, profession or business.

What about Uber in New Jersey? The state maintains that ride-hailing companies cannot satisfy the New Jersey ABC test, and specifically Prong B, because New Jersey considers vehicles to be within a company’s place of business. Uber paid the state $100 million in 2022 to resolve findings that it misclassified workers. Lyft paid $19.4 million. New Jersey argues that misclassification deprives these workers of crucial safety-net features such as unemployment, temporary disability, and family leave insurance.

Prong C is exceedingly difficult to overcome unless a worker is truly an independent contractor. New Jersey takes the position that if the business lets the worker go and the worker would then be among the unemployed looking for work, that worker cannot meet Prong C.

Why the New Jersey ABC Test Matters More Right Now

Before the new regulations, the test came from case law. On May 5, 2026, the New Jersey Department of Labor and Workforce Development adopted final regulations codifying the ABC test, effective October 1, 2026. After many letters opposing the regulations and some praising them, the rules took effect as scheduled and are now in force.

The Independent Women’s Forum’s Center for Economic Opportunity claims that 1.7 million New Jersey independent contractors could lose that status. The New Jersey Business & Industry Association vociferously opposed adoption. The Eastern Atlantic States Regional Council of Carpenters, however, lauded the new regulations, noting that misclassification has long been a concern in the construction industry, where improper classification can deny workers access to unemployment insurance, wage protections and workplace safeguards, while giving unscrupulous contractors an unfair advantage over law-abiding ones.

Who Passes the New Jersey ABC Test

The ABC test has long been the law in New Jersey, and it’s hard to meet unless a worker is truly independent. Think of the plumber, air-conditioning repair person, or painter who comes to your house when you call. They have independent businesses, work for many different people, and are free from your control or direction. If you fire them, they are not unemployed. They go on to the next customer. They will meet the ABC test.

What New Jersey Businesses Should Do Now

If you are a small employer in New Jersey and have treated some or all of your workers as independent contractors, it is time to assess your risk under the New Jersey ABC test for both federal and New Jersey employment taxes. At least a portion of the employment taxes the IRS or the State of New Jersey determines should have been paid can easily become the personal responsibility of the business owner or anyone else involved in payroll or decision-making. Consulting a tax attorney allows those discussions to take place under the attorney-client privilege. For guidance on evaluating worker classifications and the tax exposure that comes with them, contact Scott Novak at Scarinci Hollenbeck.