Submitted via email.
Mr. David Fish, Executive Director
Legal and Regulatory Services
Department of Labor and Workforce Development
P.O. Box 110, 13th Floor
Trenton, New Jersey 08625-0110
Re: Proposed New Rules Regarding Independent Contractors: N.J.A.C. 12:11 – Support 57 N.J.R. 894(a), Vol. 9 (May 5, 2025)
Dear Mr. Fish and Members of the Department of Labor and Workforce Development:
The Economic Policy Institute (“EPI”) submits this comment in support of the proposed regulation by the New Jersey Department of Workforce Development Department (“Department”) codifying its interpretation of the state’s long-standing statutory “ABC test.”1 Because the rule will help deter misclassification of employees and for the reasons detailed more fully below, EPI supports the Department’s proposal.
EPI is a nonprofit, nonpartisan think tank working for nearly 40 years to counter rising inequality; low wages and weak benefits for working people; slower economic growth; unacceptable employment conditions; and a widening racial wage gap. We intentionally center low- and middle-income working families in economic policy discussions at the federal, state, and local levels as we fight for a world where every worker has access to a good job with fair pay, affordable health care, retirement security, and a union. EPI has been researching and sounding the alarm about the harms of independent contractor misclassification for over a decade and has weighed in on both state and federal efforts to address the harms of worker misclassification. We appreciate the opportunity to comment on the proposed regulation.
Misclassification robs workers of their basic rights and exacerbates disparities by race, class, and gender
The way a worker is classified has serious implications and costs for their labor rights and economic security. When workers who are employees are misclassified as independent contractors, they lose the legal right to earn at least the applicable minimum wage and to be paid time-and-a-half for overtime hours. They are no longer eligible to participate in state and federal unemployment insurance systems or qualify for workers’ compensation insurance covering treatment and benefits if they are injured on the job. They are no longer eligible for coverage under the National Labor Relations Act (NLRA), which ensures workers’ rights to form unions and bargain collectively to improve their working conditions. As independent contractors, misclassified workers must also assume the full financial cost of Social Security and Medicare, which is split evenly between workers and employers when workers are classified properly as employees.
Misclassification is also a matter of racial and economic justice. Misclassification is rampant in low-wage, labor-intensive industries where women and people of color, including Black, Latinx, and Asian American/Pacific Islander (AAPI) workers, are overrepresented. According to one study, seven of eight high-misclassification occupations are held disproportionately by women and/or workers of color. Additionally, many of the occupations most at risk of misclassification—such as landscapers, truck drivers, home health aides, janitors, and nail salon workers—already have relatively low median annual earnings. Allowing employers to exploit loopholes in labor law puts the economic security of these workers at greater risk. By establishing the presumption that a worker is an employee, the ABC test puts the onus on the employer to prove a worker is truly an independent contractor. In turn, this reduces the likelihood that workers are misclassified and lose protections they should be guaranteed under the law as employees.
Misclassification costs New Jersey workers tens of thousands of dollars per year in lost compensation
Employer misclassification of workers as independent contractors is a long-standing, pervasive problem affecting millions of workers and costing government agencies billions of dollars each year. The actual cost of misclassification and its impact on individual workers’ lives is difficult to quantify and easy to obscure. Nonetheless, EPI has sought to quantify the costs of misclassification to both workers and social insurance programs for 11 commonly misclassified types of jobs and by state.
According to our 2025 analysis, a typical truck driver, as an independent contractor, would lose between $12,938 and $21,533 per year in income and job benefits compared with what they would have earned as a W-2 employee. As a W-2 employee, a truck driving job is worth $60,498, while an independent contractor receiving the same wage, but no supplemental pay or benefits earns $38,965—$21,533 less. The low estimate assumes the employer fully compensates the independent contractor for health and retirement benefits. The high estimate assumes the independent contractor receives no supplemental pay, paid leave, or retirement benefits; must pay the full employer and employee contribution to Social Security and Medicare; and must cover paperwork costs.
Regardless, both the low and high estimates are based on very conservative assumptions regarding the independent contractor’s responsibility for paying both the employee and the employer contributions to Social Security and Medicare. Costs like paperwork and bookkeeping are also based on conservative estimates for both scenarios. Moreover, we have not attempted to place a monetary value on the misclassified worker’s loss of rights guaranteed by the NLRA, including the possibility of union representation. The true costs of misclassification to workers are thus likely even higher than our analysis suggests.
Our 2024 analysis also estimated the cost of misclassification by state for these 11 occupations. In New Jersey, the costs to workers are significant, particularly for heavy truck drivers and construction workers, who lose between $22,400 and $26,000 per year in compensation as a result of misclassification. In all 11 commonly misclassified occupations, these workers earn between 26% and 37% less than a W-2 employee would earn in the same job.
Misclassification robs social insurance funds of thousands per worker every year, damaging New Jersey’s unemployment and workers’ compensation systems
Misclassification does not just shift the full burden of social insurance to workers: It also reduces the total revenues received by the social insurance system (Social Security, Medicare, federal and state unemployment insurance, and workers’ compensation). The total cost of independent contractor status to social insurance programs is between $1,790 and $3,070 for construction workers nationally, depending on whether the independent contractor’s employer makes contributions to their insurance and retirement benefits (low estimate) or does not (high estimate). In New Jersey, misclassification deprives the state’s social insurance fund of roughly $1,000–$3,000 per worker every year (depending on the occupation; see Figure B).
The proposed rule maintains consistent, familiar standards already recognized by employers and workers and affirms New Jersey’s longstanding leadership in preventing worker misclassification
New Jersey has been a leader in addressing worker misclassification for decades. The state initially adopted an ABC test for determining unemployment insurance coverage in 1936, so the test is well established, and its definitions and requirements are familiar to employers. It is also consistent with New Jersey Supreme Court precedent. In 2015, the Court ruled in favor of the use of the ABC test to determine whether a worker is an employee or an independent contractor for purposes of resolving a wage payment or wage and hour claim.
A decade later, this proposed rule provides additional clarity on New Jersey’s existing ABC test and codifies its use into law at a time when many states—caving to relentless attacks from industry groups—have weakened or eliminated formerly strong ABC tests. As of 2022, 18 states and D.C. had ABC tests, but only six states (including New Jersey) had ABC tests covering all workers and pertaining to benefits beyond unemployment insurance (see Table 2). And in the past decade, seven states have weakened or repealed their ABC tests (see Figure E). Amid these dangerous national trends, New Jersey has continued to show important leadership by standing up to powerful employers when they violate workers’ rights and ensuring that state labor agencies have necessary enforcement tools and resources to crack down on misclassification.
Strong state-level ABC tests are especially important given the repeated failure of the federal government to adopt consistent policies to prevent misclassification, illustrated most recently by a decision to stop enforcing a new federal rule that had made it harder for employers to misclassify workers as independent contractors under the Fair Labor Standards Act. At a time when some other states and the federal government have bowed to industry pressure and backtracked on commitments to combating misclassification, we support New Jersey’s proposed rule, which exemplifies the state’s continued leadership in preventing exploitative labor practices, protecting state social insurance systems, and leveling the playing field for responsible businesses. The proposed rule will result in significant benefits both for workers and the state. Thank you.
Sincerely,
Nina Mast
Policy and Economic Analyst
Economic Policy Institute
1. 57 N.J.R. 894(a), Vol. 9 (May 5, 2025) (interpreting N.J.S.A. § 43:21-19(i)(6)(A) – (C)).