In April of 2025, the New Jersey Department of Labor and Workforce Development issued a notice of proposed rulemaking. The labor agency is considering tightening the standards for independent contractor status. It could have important implications for many workers in our state. Within this article, our New Jersey wage and hour attorney provides an overview of the key things to know about independent contractor classification and the proposed reforms in New Jersey.
What is an Independent Contractor?
An independent contractor is a self-employed person who has been hired to perform services under a contract—either formal (written) or informal (implied). To be clear, an independent contractor is not classified as an employee. Indeed, they are not employees even if they work with the same company on a regular basis. Independent contractors maintain control over how the work is completed, including setting their own schedule and using their own tools or methods.
Note: An employer cannot simply decide whether or not they want to classify someone as an independent contractor. There are specific legal standards that must be satisfied for a person to be labeled as an independent contractor instead of an employee in New Jersey.
Why Worker Classification Matters (Many Benefits Tied to Status as Employee)
Worker classification determines whether someone is legally considered an employee or an independent contractor—and the difference matters. Employees are entitled to a wide range of legal protections and benefits that independent contractors do not receive. In other words, misclassification denies a worker of key legal rights/legal benefits. Here is an overview:
An Overview of the Current Rules for Worker Classification in New Jersey
- Overtime Pay/Minimum Wage: Employees covered under the Fair Labor Standards Act (FLSA) and New Jersey labor law. They are entitled to overtime pay—typically 1.5 times their regular rate—for hours worked over 40 in a week. Independent contractors are not protected by the FLSA. They do not get overtime pay or minimum wage benefits.
- Unemployment Insurance: Employees who lose their job through no fault of their own may be eligible for unemployment compensation benefits through state-administered programs. Independent contractors cannot claim unemployment benefits because they do not pay into the system.
- Workers’ Compensation Coverage: Employees who are injured on the job are typically covered by workers’ compensation insurance. That coverage which helps pay for medical care and lost wages. Independent contractors must pay for their own insurance or cover expenses out-of-pocket if injured while working.
- Employer-Provided Health Insurance: Many employers offer group health insurance plans that significantly reduce medical costs for employees. Independent contractors must obtain their own coverage. They are not covered by employers.
- Protection Against Discrimination: Employees are protected by federal and state anti-discrimination laws—such as Title VII of the Civil Rights Act and the New Jersey Law Against Discrimination (LAD). These laws prohibit employers from discriminating based on race, color, religion, sex, national origin, age, disability, and other protected characteristics. Independent contractors, by contrast, are generally not covered by these employee-focused protections. If an independent contractor experiences discrimination, they often have limited or no recourse under employment discrimination laws. Instead, their rights largely come from contract law which provides significantly less protection in this context.
Understanding the NJDOL’s Proposed Changes for Independent Contractor Status
As noted, the NJDOL has recently rolled out new proposed regulations to tighten the use of independent contractors by businesses and organizations. The rules seek to codify and clarify the application of the state’s “ABC test.” That test is used for determining independent contractor status in New Jersey. These proposed rules aim to provide detailed guidance on each prong of the ABC test and it draws from recent court decisions in the state. Here is an overview of the ABC prongs:
- Freedom from Control: To start, independent contractors must be outside of the direct control of the hiring entity when it comes to exactly how work is performed. The proposed rules specify that employers must demonstrate both the absence of actual control and the absence of the right to control the worker’s performance.
- Course of Employment: The next prong examines whether the service is outside the usual course of the employer’s business. The proposed rule clarifies that “usual course of business” includes activities the employer regularly engages in to generate revenue. It is not merely about where the worker is located.
- Independent Trade: The final prong requires that the worker is customarily engaged in an independently established trade, occupation, profession, or business. The proposed regulations list factors like the duration and viability of the worker’s business, the number of clients served, and the worker’s investment in their enterprise.
Speak to Our New Jersey Wage and Hour Lawyer Today
Charles Z. Schalk is a New Jersey employment attorney who handles all types of wage and hour claims, including worker misclassification cases. If you have any questions about independent contractor status, please do not hesitate to call us at (908) 526-0707 or contact us online for a confidential initial consultation. Our team handles wage and hour cases throughout New Jersey.