When determining whether to classify a worker as an employee or an independent contractor, employers in New Jersey must follow the "ABC" test. Under this test, an individual receiving remuneration in return for rendering services is presumed to be an employee unless the employer can meet its burden of proving all three of the following elements:

1. The individual has been and will continue to be free from control or direction over the performance of work performed, both under contract of service and in fact.
2. The work is either outside the usual course of the business for which such service is performed, or the work is performed outside of all the places of business of the enterprise for which such service is performed.
3. The individual is customarily engaged in an independently established trade, occupation, profession or business.

As will be described in further detail below, the consequences of misclassifying workers can be severe. One, employers who misclassify their workers as independent contractors can be found liable by the New Jersey Department of Labor and Workforce Development (DLWD) for the contributions required to be made on behalf of employees to the unemployment, temporary disability, and family leave funds. Two, employers can also be exposed to substantial liability under New Jersey's wage and hour laws for failing to pay the proper minimum and overtime wages of those workers who were misclassified as independent contractors. Three, a determination by either a court or the DLWD that an employer misclassified employees as independent contractors may find itself subject to audits by their workers compensation and employment practices liability insurance carriers. Four, misclassification of workers may result in the DLWD imposing a stop-work order and substantial penalties against a violating employer. Any of those possibilities, let alone the prospect of all of them, places an employer in an incredibly uncomfortable and precarious position both legally and financially.