The Statute and What It Says
New Jersey's ABC test is codified at N.J.S.A. 43:21-19(i)(6), part of the Unemployment Compensation Law. The same three-prong standard governs unemployment insurance, temporary disability insurance, and (per the state supreme court's 2015 Hargrove decision) wage payment and wage-and-hour law.
"Services performed by an individual for remuneration shall be deemed to be employment... unless and until it is shown to the satisfaction of the division that: (A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and (B) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and (C) Such individual is customarily engaged in an independently established trade, occupation, profession or business."
According to the New Jersey Department of Labor and Workforce Development, the default presumption is employment. The hiring entity must affirmatively prove all three prongs to rebut that presumption. Failing any one prong means the worker is classified as an employee.
Prong B Is Disjunctive (And It Still Fails)
New Jersey's Prong B is subtly different from California's. The New Jersey version uses "either... or" language, creating two alternative paths to satisfy the prong:
Prong B: Either of These Must Be True
Path 1
The service is performed outside the usual course of the business for which the service is performed.
Path 2
The service is performed outside of all the places of business of the enterprise for which the service is performed.
In theory, the second path offers an opening. A business could argue that even if cleaning is within its usual course of business, the cleaner works at customer properties rather than at the business's own place of business, and therefore Prong B is satisfied.
This argument does not work for vacation rental management companies. Here is why:
Why Path 1 Fails
A vacation rental management company's usual course of business includes delivering clean, guest-ready properties. Turnover cleaning is the central operational activity. Courts consistently hold that when the service is integral to what the business delivers, it is within the usual course of business.
Why Path 2 Fails
A property management company's "places of business" are not limited to its office. New Jersey courts and the state Department of Labor interpret "places of business" functionally. The properties under management are effectively the company's places of business because the company holds the operational control, sets the rules, schedules the work, and delivers the product from those locations. A cleaner working at a managed property is working at a place of business of the enterprise, not outside it.
The April 2025 proposed regulations reinforce this interpretation. According to Littler's analysis of the proposed rulemaking, the Department includes examples specifically distinguishing between cleaning services performed for businesses whose primary function includes cleaning (where Prong B fails) and cleaning performed for businesses where cleaning is incidental to the core function (like a dental office hiring a cleaner to clean the office itself, where Prong B may pass).
The 2025 Proposed Regulations Raise the Stakes
The New Jersey Department of Labor's April 2025 proposed regulations are not yet final, but they signal enforcement intent. The Department is explicitly telling property management companies, cleaning companies, and other service businesses that the ABC test will be enforced strictly and that generic contractor-style structures will not survive audit.
Three things worth noting about the proposed rules:
Examples are binding in practice
Even though examples in proposed regulations are illustrative rather than statutory, auditors and administrative law judges routinely rely on them. A proposed example stating that cleaning services for a cleaning-adjacent business fail Prong B is effectively a bright-line rule for enforcement purposes.
The burden remains on the employer
The proposed rules reiterate that the hiring entity must affirmatively prove all three prongs. There is no presumption of contractor status even for workers who sign contractor agreements, receive 1099 forms, or have business entities of their own.
Cross-agency referrals
A New Jersey Department of Labor determination that a worker is an employee can trigger simultaneous assessments from the Division of Taxation (unpaid state payroll taxes), the Department of Unemployment Insurance (back contributions), and the Division of Wage and Hour Compliance (unpaid wages and overtime). A single complaint can unwind an entire workforce classification structure across multiple enforcement agencies.
Exposure for a Typical NJ Property Management Company
For a New Jersey-based property management company with 10 to 50 turnover cleaners currently classified as 1099 contractors, misclassification exposure spans:
- Back unemployment insurance contributions at NJ's rate (typically 0.4% to 5.4% of wages), plus interest
- Unpaid temporary disability insurance contributions
- Unpaid state payroll taxes including withholding
- Unpaid minimum wage and overtime under NJ Wage and Hour Law (back three years)
- Liquidated damages up to 200% of unpaid wages under NJ Wage Theft Act
- Attorney fees if a private action is filed
- Federal exposure including IRS back taxes and DOL wage claims
In 2019, the New Jersey Legislature passed the Wage Theft Act (NJ Wage Theft Act of 2019), which significantly increased penalties for wage violations, including those stemming from misclassification. Liquidated damages, attorney fee provisions, and expanded personal liability for corporate officers all make a New Jersey misclassification case substantially more expensive than the same case would have been ten years ago.
What to Do Instead
The realistic options in New Jersey are the same as in California and Massachusetts:
W2 your cleaners directly
Run cleaners on payroll through a payroll provider (Gusto, ADP, Paychex). Withhold state and federal taxes, pay overtime, carry workers compensation insurance, and enroll in unemployment and temporary disability contributions. The additional employer cost in New Jersey is typically 18 to 30 percent above the per-turnover contractor rate, driven by state-specific contributions.
Contract with an established cleaning company
Move to a vendor relationship with a genuine cleaning company that has its own employees, its own insurance, and other clients. The cleaning company bears the employment classification question for its individual cleaners. You pay a vendor invoice, not individual contractors. Make sure the cleaning company is real: own entity, own insurance, multiple clients, independent operations.
Do not rely on 1099 structures alone
The most common mistake is assuming a written independent contractor agreement creates contractor status. It does not. The ABC test looks at the substance of the relationship, not the label. Paperwork that calls someone a contractor while the actual relationship looks like employment produces the worst possible outcome: loss on the classification question plus documented evidence of intentional misclassification.
Sources
- New Jersey Department of Labor and Workforce Development. Independent Contractors and Misclassification.
- Littler Mendelson. New Jersey's Declaration of No Independence? Agency Issues Proposed Regulations on the ABC Test.
- N.J.S.A. 43:21-19(i)(6). New Jersey Unemployment Compensation Law, ABC test statutory language.
- Hargrove v. Sleepy's, LLC, 220 N.J. 289 (2015). New Jersey Supreme Court decision extending ABC test to wage claims.
- New Jersey Wage Theft Act of 2019. Enhanced penalties and personal liability for wage violations.