Is New Jersey Joining the Crowd on Independent Contractors?

Mortgage lenders with individuals working in New Jersey should pay close attention to a new rule finalized by the New Jersey Department of Labor and Workforce Development (“NJDOL”) regarding worker classification.

The rule formally adopts detailed regulations interpreting what the NJDOL calls New Jersey’s “longstanding” ABC test for determining whether a worker is an employee or independent contractor. NJDOL repeatedly emphasizes that the ABC test itself is not new, but that the rule increases clarity around how the Department intends to enforce misclassification.

In fact, the results under the new final rule in NJ are likely similar to the results for similar analyses under a number of other federal and state laws and regulations. 

NJ’s regulations become operative on October 1, 2026.

Should Mortgage Companies Care?

Under the ABC test, a worker is presumed to be an employee unless the company proves all three prongs:

• the worker is free from control,

• the work is outside the company’s usual course of business or outside all places of business of the company, and

• the worker operates an independently established business.

The burden is on the company, and failing any one prong means the worker is classified as an employee.

For mortgage lenders, Prong B often creates the biggest challenge. If your business is mortgage origination, individuals performing origination, recruiting, lead generation, branch management, marketing, or similar functions may be viewed as operating squarely within your core business.

Importantly, the regulations also expressly state that a remote worker’s residence does not become the company’s “place of business” simply because the individual works from home. That clarification may provide some comfort to companies with remote work arrangements, but it does not entirely eliminate the broader Prong B analysis regarding whether the worker is performing services within the company’s usual course of business.

That puts many independent contractor models potentially in the crosshairs.

What Will NJDOL Actually Examine?

The new regulations provide somewhat of a roadmap for the types of questions NJDOL will ask when evaluating worker classification.

Under Prong A, NJDOL indicates it will look closely at control-related issues, including:

• Does the company set hours or schedules?

• Does the company control how the work is performed?

• Is the individual required to personally perform the services?

• Does the company set compensation?

• Is the worker restricted from working for others?

• Is the worker required to attend company training?

• Is the worker expected to remain available or on-call?

Under Prong B, NJDOL indicates it will focus on whether the worker performs services within the company’s usual course of business or at the company’s places of business. For mortgage companies, that analysis becomes difficult when independent contractors are performing core revenue-generating activities tied directly to origination operations.

Under Prong C, NJDOL says it will examine whether the individual truly operates an independent business. The Department makes clear that simply having an LLC, insurance coverage, or a 1099 agreement is not enough by itself.

The broader theme throughout the rule is unmistakable: NJDOL will evaluate the “substance, not the form” of the relationship.

What’s the Bottom Line?

Mortgage companies operating in New Jersey should use the next several months to assess independent contractor relationships.

The Department’s message: labels matter far less than operational reality.  Lender’s beware.

For more information, contact troy@garrishorn.com.