If your business uses independent contractors in New Jersey, October 1, 2026 is a date you should have on your calendar. Read on to learn why.

On May 5, 2026, the New Jersey Department of Labor and Workforce Development adopted new rules at N.J.A.C. §12:11 that codify how the state’s “ABC test” applies when deciding whether a worker is truly an independent contractor or legally should be treated as an employee.

Watch: NJ’s independent contractor rule

I’ve written and talked about this in earlier blogs and videos, but here’s what employers need to understand now:

The burden is on you….

• Not the worker.
• Not the written agreement.
• Not the accountant who issued the 1099.
• Not the contractor who said, “I prefer to be paid this way.”

If your business classifies someone as an independent contractor, you must be able to prove that the worker satisfies all three parts of New Jersey’s ABC test. If you cannot prove all three, the worker is considered an employee.

This is not just a paperwork issue

Many business owners assume independent contractor status is fairly simple.

They think:

“They signed an independent contractor agreement.”
“They invoice us.”
“They have an LLC.”
“They carry insurance.”
“They get a 1099.”
“They work for other companies, too.”

Those facts may be relevant, but none of them is enough by itself.

That is one of the biggest traps for employers. New Jersey does not look only at what you call the relationship. It looks at the reality of the relationship.

In other words, substance matters more than labels.

A quick refresher: What is the ABC test?

Under New Jersey’s ABC test, a worker is presumed to be an employee unless the employer can prove all three of the following:

A: The worker is free from control or direction.

This means the worker must be free from the company’s control, both under the contract and in real practice.

The question is not only, “What does the agreement say?” The question is also, “How does this relationship work?”

• Do you control the worker’s schedule?
• Do you dictate how the work must be performed?
• Do you require training, reporting, uniforms, tools, logos, or specific procedures?
• Do you reserve the right to control the work, even if you do not exercise that right every day?

These facts matter.

B: The work is outside your usual course of business, or outside all your places of business.

This is often the prong that surprises employers.

If the contractor is doing the same type of work your business exists to provide, you may have a problem.

For example, if a marketing agency hires an outside graphic designer, that is very different from a dental office hiring a plumber to fix a leak. One may be part of the company’s usual business. The other probably is not.

The analysis is fact-sensitive, but the point is simple: if the contractor is helping you deliver your core service to your customers, do not assume the classification is safe.

And just because the contractor works remotely doesn’t mean they work outside all your places of business.

C: The worker is customarily engaged in an independently established business.

This prong asks whether the worker truly has an independent business that exists apart from your company.

• Does the worker have other clients?
• Does the worker advertise to the public?
• Does the worker set their own rates?
• Do they have their own tools, equipment, business infrastructure, or employees?
• Would their business continue if your company stopped using them?

This is where many employers are underprepared. A business registration, a certificate of insurance, or an LLC may help tell part of the story, but those documents alone do not prove an independently established business.

What changed on May 5?

The ABC test itself is not new in New Jersey. Employers have been dealing with it for years.

What changed is that the Department of Labor has now adopted formal rules explaining how it interprets and applies the test across several New Jersey labor laws, including unemployment, wage and hour, wage payment, temporary disability, earned sick leave, and other worker-protection laws.

This matters because the state now has a clearer regulatory framework to use in audits, claims, and enforcement actions.

For employers, the practical message is this:

You have a limited window to review your independent contractor relationships before the rules become effective on October 1, 2026.

Why misclassification is so risky

Misclassifying workers can create serious exposure, including:

• unpaid wage claims; 
• overtime claims; 
• unpaid payroll taxes; 
• unpaid unemployment and disability contributions; 
• earned sick leave issues; 
• penalties and interest; 
• disruptive audits; and
• lawsuits by workers who later challenge their classification. 

This is not just about whether someone receives a W-2 or a 1099. It affects payroll, benefits, tax obligations, wage and hour compliance, and legal risk.

What should employers do now?

Before October 1, employers should take a close look at every independent contractor relationship.

Start by asking:

• What work does this person perform? 
• Is that work part of our usual business? 
• How much control do we exercise over the work? 
• Do we control the schedule, methods, tools, training, or reporting? 
• Does the contractor have a real independent business? 
• Would that business survive without us? 
• What documentation do we have to support the classification? 

If you cannot answer these questions clearly, that is your warning sign.

The takeaway for employers

Independent contractors can still exist in New Jersey. But employers cannot simply call someone a contractor and hope the classification holds up.

The new rules make one thing very clear: if challenged, the employer must be ready to prove the relationship satisfies all three parts of the ABC test.

Now is the time to review your contractor relationships, clean up your documentation, and correct problems before they turn into expensive claims or audits.

Not sure if your independent contractors are properly classified?

Call Rubin Employment Law at 973.787.8442 or email legaladmin@alixrubinlaw.com to schedule a consultation.

This blog is for informational purposes only. It is not offered as legal advice, nor is it intended to create an attorney-client relationship with any reader. Consult with a competent local employment counsel to determine how the matters addressed here may affect you.