The New Jersey Department of Labor and Workforce Development (NJ DOL) has announced proposed regulations that would significantly expand and clarify how the state applies its ABC Test—the legal standard used to classify an individual as an independent contractor.

Under the current ABC Test, a hiring entity must prove that all three criteria are met to classify someone as an independent contractor rather than a W-2 Worker. The burden of proof falls entirely on the hiring company engaging the services, and the proposed changes would raise the bar for compliance.

Key Objectives: 

1. Prong A: Control and Direction
2. Prong B: Work Outside of the Usual Business
3. Prong C: Independently Established Business
4. How Companies Can Prepare 

Prong A: Control and Direction

Prong A of the ABC Test requires that the individual be free from control and direction of the hiring entity when performing the work.

The NJ DOL’s proposed regulations go a step further by stating that the hiring entity must not even reserve “the right to control” the work. This expands the scope to include any situation where a company exercises, or could exercise, minimal control.

The proposed regulations list some factors that may be considered to determine whether this criterion is met. These include:

• Who sets the individual’s working hours.
• Whether specific tools, software, or uniforms are required or provided.
• Whether the company provides training to the individual.
• Whether services must be rendered personally by the individual.
• Whether the individual has any risk for loss and how the rate of pay is determined.
• Whether the individual is limited in their ability to provide services to other clients.

The list is explicitly stated to be non-exhaustive and there is no specific number of factors that are determinative.

Prong B: Work Outside of the Usual Business

Prong B requires that the individual performs work that is outside the usual course of the company’s business or outside all the company’s places of business.

The proposed regulations provide examples of what services are outside of the hiring company’s usual form of business (e.g. a dental office hiring a cleaning person) but also what is likely to be determined to be not outside the usual scope of business with examples that include a transportation network engaging a driver to transport customers.

The DOL further proposed clarification of what will be considered a location where an “integral part” of the company’s business is conducted. Examples given in the proposed regulations expand into areas that exceed what would generally be seen as a company’s place of business.

Prong C: Independently Established Business

Under prong C, the individual must be engaged in an independently established trade, occupation, or business. The proposed regulations clarify that merely because an individual has multiple employers or a licensure in a specific occupation does not mean that they automatically meet this requirement.

Furthermore, the proposed regulations state that paying a individual via IRS Form 1099 instead of IRS Form W-2 does not automatically qualify someone as an independent contractor.

How Companies Can Prepare

With the regulations facing a comment period that closes on July 7, 2025, these proposed changes highlight New Jersey’s increasingly aggressive stance toward independent contractor classifications. While the rules are not yet final, they signal a continued tightening of enforcement that could expose companies to audits, penalties, and further classification risks.

Navigating evolving classification laws can be complex—but it doesn’t have to be.

As a trusted Employer of Record (“EOR”) and contingent workforce management organization, TCWGlobal serves as a trusted partner to our clients in managing Independent Contractor vetting and compliance management on a global scale. We pride ourselves on navigating complex, fast-changing legal frameworks—both in the U.S. and internationally.

At TCWGlobal, we’re closely monitoring developments like New Jersey’s proposed rules to ensure our clients stay ahead of changing independent contractor laws. We can help your organization stay compliant by handling the complexity of proper classifications based on the jurisdiction where the work is being performed. Our Independent Contractor services can assist in keeping your business compliant, no matter where you operate.

Explore our IC Compliance Guide for a state-by-state breakdown of independent contractor laws or connect with us to learn how we can assist your business in navigating this rapidly evolving area of the law.

Need Help?

Need help managing your contingent workforce? Contact TCWGlobal today to learn more.

Whether you need expertise in Employer of Record (EOR) services, Managed Service Provider (MSP) solutions, or Vendor Management Systems (VMS), our team is equipped to support your business needs. We specialize in addressing worker misclassification, offering comprehensive payroll solutions, and managing global payroll intricacies. 

From remote workforce management to workforce compliance, and from international hiring to employee benefits administration, TCWGlobal has the experience and resources to streamline your HR functions. Our services also include HR outsourcing, talent acquisition, freelancer management, and contractor compliance, ensuring seamless cross-border employment and adherence to labor laws. 

We help you navigate employment contracts, tax compliance, workforce flexibility, and risk mitigation, all tailored to your unique business requirements. Contact us today at tcwglobal.com or email us at hello@tcwglobal.com to discover how we can help your organization thrive in today's dynamic work environment. Let TCWGlobal assist with all your payrolling needs!