New Jersey REALTORS® and brokerages should be aware of major updates coming to the state’s independent contractor rules. On May 5, 2026, the New Jersey Department of Labor and Workforce Development (NJDOL) formally adopted regulations clarifying how the state applies the “ABC test” when determining whether a worker is considered an independent contractor or an employee. The regulations are scheduled to take effect on October 1, 2026.
For industries like real estate that rely heavily on independent contractors, these changes are drawing significant attention.
What Is the ABC Test?
New Jersey already uses the ABC test to determine worker classification under laws including the:
- New Jersey Unemployment Compensation Law
- Wage and Hour Law
- Wage Payment Law
Under the ABC test, workers are presumed to be employees unless the business can prove all three of the following:
A. Freedom from Control
The worker must be free from control or direction in performing their services, both contractually and in practice.
B. Outside the Usual Course of Business
The work performed must either:
- fall outside the company’s normal course of business, or
- be performed outside all places of business of the company.
C. Independently Established Business
The worker must be independently engaged in an established trade, occupation, profession, or business.
If a business fails to satisfy even one of the three prongs, the worker may legally be classified as an employee instead of an independent contractor.
Why This Matters to REALTORS®
Independent contractor status has long been the standard structure for real estate agents. However, legal analysts and business groups are warning that the clarified regulations could increase scrutiny on industries dependent on 1099 workers.
The real estate industry was specifically mentioned during public discussions surrounding the regulations, alongside gig workers, consultants, and other freelance professions.
Many brokerage models could face questions regarding:
- supervision and control of agents,
- required office presence,
- branding and marketing expectations,
- compensation structures,
- and whether agents operate truly independent businesses.
Because Prong B of the ABC test focuses on whether services are part of the company’s “usual course of business,” some legal observers believe industries centered around commissioned professionals may face heightened examination.
What the New Regulations Do
According to the NJDOL, the new rules do not create an entirely new test. Instead, they formally codify decades of court decisions and provide more detailed guidance on how the ABC test should be interpreted.
The regulations:
- clarify how regulators evaluate each prong,
- identify factors used to determine “control,”
- emphasize that written contracts alone do not determine classification,
- and reinforce that businesses bear the burden of proof.
Simply issuing a 1099 or having an independent contractor agreement does not automatically establish independent contractor status under New Jersey law.
Industry Reaction
The regulations generated thousands of public comments during the rulemaking process. Business organizations and independent workers have expressed concern that stricter interpretations could reduce flexibility and create operational challenges for companies that rely on freelance or commission-based models.
At the same time, state officials maintain the rules are intended to:
- prevent worker misclassification,
- protect workers’ rights,
- and create fairness among businesses that properly classify workers.
What NCJAR® Members Should Do Now
While the regulations do not take effect until October 1, 2026, brokerages and real estate professionals may want to begin reviewing their independent contractor relationships with legal counsel to better understand how the clarified standards could affect their business operations.
Areas worth reviewing may include:
- independent contractor agreements,
- supervision practices,
- office requirements,
- marketing policies,
- and how agents maintain independent business operations.
As the implementation date approaches, additional guidance and potential legislative discussion may continue at both the state and industry level.
References
- New Jersey Department of Labor and Workforce Development — “NJDOL Adopts Clear Rules on Worker Classification”
- Greenbaum, Rowe, Smith & Davis LLP — “The ABC Test: NJ Adopts New Regulations for Determining Independent Contractor Status”
- JD Supra — “New Jersey Department of Labor codifies ABC test for independent contractors”
- NJ Department of Labor — Independent Contractors and Misclassification Guidance
