New Jersey: Reclassifying Rideshare Drivers as Employees
On Oct. 1, those working for Uber and Lyft will become W2 employees instead of independent contractors.
In a major development for the gig economy, the New Jersey Department of Labor and Workforce Development (NJDOL) has finalized new regulations that effectively reclassify most rideshare drivers—such as those working for Uber and Lyft—as W2 employees rather than independent contractors. This decision centers on the state’s strict “ABC Test,” which determines worker status based on the nature of their relationship with the hiring company.
The NJDOL officially finalized and adopted these rules on May 5, 2026. While the rules are technically adopted now, the state has implemented a 120-day delay to allow businesses to adjust. The new classification standards will officially become operative on October 1, 2026.
Why Now?
The initiative was championed by the administration of Governor Mikie Sherrill, building upon worker-protection efforts originally started by former Governor Phil Murphy. State labor officials, including Acting Labor Commissioner Kevin Jarvis, argued that these rules are necessary to prevent “misclassification,” which they claim deprives workers of benefits and gives some companies an unfair competitive advantage.
Labor unions and worker advocacy groups, such as the AFL-CIO, also strongly supported the move. Conversely, the change has faced heavy opposition from the New Jersey Business & Industry Association (NJBIA) and major tech platforms, who argue it will destroy the flexible nature of gig work. By which they mean, they might face a reduction in profits.
What does it mean for current rideshare drivers?
For drivers in New Jersey, the shift from 1099 independent contractor status to W2 employee status brings several fundamental changes:
Wage and Benefit Protections: Drivers will be entitled to New Jersey’s minimum wage, overtime pay (1.5x) for hours worked over 40 in a week, and access to unemployment insurance and workers’ compensation. That is currently $15.92/hour.
Tax Responsibility: Instead of being responsible for the full 15.3% self-employment tax, the rideshare company will now pay the employer’s portion of Social Security and Medicare. Income taxes will be withheld directly from paychecks.
The “ABC Test” Barrier: Drivers are now classified as employees primarily because they fail “Prong B” of the state’s test. This prong requires that an independent contractor’s work be “outside the usual course of business” of the company. Because providing rides is the core business of Uber and Lyft, drivers are legally viewed as employees.
What Do You Think?
We’d love to hear what drivers think of this rule change.
Sources:
New Jersey Vindicator Report on Gig Worker Rules
Littler Mendelson Analysis of Final ABC Rule
NJ Department of Labor and Workforce Development Press Release (May 5, 2026)