New Jersey businesses that work with independent contractors have a new reason to review their worker relationships. New regulations governing the state’s ABC test for independent contractor classification went into effect on October 1, 2026, giving businesses an opportunity to take a closer look at how they classify workers and handle year-end reporting.
The regulations do not establish a new ABC test. Instead, N.J.A.C. 12:11, Application of the Statutory ABC Test for Independent Contractor Status formalizes guidance on how the New Jersey Department of Labor and Workforce Development applies the existing test when determining whether a worker qualifies as an independent contractor.
For businesses that work with independent contractors and issue Forms 1099, understanding these requirements is an important part of staying compliant.
Understanding New Jersey’s ABC Test
New Jersey has long used the ABC test to determine whether a worker can be classified as an independent contractor rather than an employee.
Under this test, a worker performing services for compensation is generally presumed to be an employee unless the business can demonstrate that all three criteria are met.
A: Free From Control
The worker must be free from the company’s control or direction in performing the work, both under the terms of the agreement and in actual practice.
B: Outside the Usual Course of Business
The work must either fall outside the usual course of the company’s business or be performed outside all of the company’s places of business.
C: Independently Established Business
The worker must be customarily engaged in an independently established trade, occupation, profession, or business.
All three criteria must be satisfied for a worker to qualify as an independent contractor under New Jersey’s ABC test. If a business cannot establish any one of the three, the worker generally must be classified as an employee under the applicable law.
Why Businesses Should Review Worker Classification
A signed independent contractor agreement or a Form 1099 does not, by itself, establish that a worker is properly classified. What matters is the nature of the working relationship and whether it meets the requirements of the ABC test.
Businesses may want to review their contractor relationships, particularly when a worker:
- Performs work closely related to the products or services the company provides.
- Works primarily or exclusively for one business.
- Has their schedule, assignments, or work methods directed by the company.
- Has limited evidence of operating an independently established business.
These circumstances do not automatically determine a worker’s classification, but they may warrant a closer review.
It’s also important to remember that worker classification is a compliance decision, not a paperwork choice. Businesses should evaluate the actual working relationship rather than relying solely on contracts, payment arrangements, or tax forms.
When questions arise, consulting a qualified legal or tax professional can help businesses determine the appropriate classification based on the specific facts and circumstances.
How Counter Point Can Help With Payroll and 1099 Reporting
Reviewing worker classification doesn’t mean every independent contractor needs to become an employee. However, when a review determines that a worker should be classified as an employee, businesses need to ensure the worker is properly established in payroll, with the appropriate tax withholding and reporting processes in place.
Counter Point can help businesses incorporate newly classified employees into their payroll processes and manage the associated payroll requirements.
Businesses that continue to work with properly classified independent contractors also have year-end reporting responsibilities.
Counter Point can prepare year-end Forms 1099 for your business, even when those contractors aren’t part of your regular payroll. Our team can help simplify the 1099 processing and reporting process, making year-end responsibilities easier to manage.
With the right support, businesses can spend less time navigating payroll administration and more time focusing on their operations.
Questions About Payroll or Year-End 1099 Processing?
Whether your business needs help with payroll, employee setup, or year-end 1099 reporting, Counter Point is here to help.
This information is provided for general informational purposes only and should not be considered legal or tax advice. Worker classification depends on the facts and circumstances of the individual relationship and the laws that apply. Businesses should consult their legal, tax, or other qualified professional advisors regarding specific classification questions.
