diff --git a/test/unit/config.fixture.ts b/test/unit/config.fixture.ts
new file mode 100644
index 0000000..0fa6c3a
--- /dev/null
+++ b/test/unit/config.fixture.ts
@@ -0,0 +1,54 @@
+export const emptyConfig = {};
+
+export const basicConfig = {
+  policy: [
+    {
+      section: [
+        {
+          id: ['type'],
+          label: [
+            { name: 'bug 🐛', keys: ['Bug Report'] },
+            { name: 'RFE 🎁', keys: ['Feature Request'] },
+          ],
+        },
+      ],
+    },
+  ],
+};
+
+export const templateConfig = {
+  policy: [
+    {
+      template: ['bug.yml', 'feature.yml'],
+      section: [
+        {
+          id: ['type'],
+          label: [
+            { name: 'bug 🐛', keys: ['Bug Report'] },
+            { name: 'RFE 🎁', keys: ['Feature Request'] },
+          ],
+        },
+        {
+          id: ['severity'],
+          label: [
+            { name: 'high', keys: ['High'] },
+            { name: 'medium', keys: ['Medium'] },
+            { name: 'low', keys: ['Low'] },
+          ],
+        },
+      ],
+    },
+    {
+      template: ['custom.yml'],
+      section: [
+        {
+          id: ['type'],
+          label: [
+            { name: 'custom1', keys: ['Custom 1'] },
+            { name: 'custom2', keys: ['Custom 2'] },
+          ],
+        },
+      ],
+    },
+  ],
+};
diff --git a/test/unit/config.test.ts b/test/unit/config.test.ts
index 6d36c92..e56bfe2 100644
--- a/test/unit/config.test.ts
+++ b/test/unit/config.test.ts
@@ -2,55 +2,10 @@ import { describe, expect, test } from 'vitest';
 
 import { Config } from '../../src/config';
 
-const emptyConfig = {};
-
-const basicConfig = {
-  policy: [
-    {
-      section: [
-        {
-          id: ['type'],
-          label: [
-            { name: 'bug 🐛', keys: ['Bug Report'] },
-            { name: 'RFE 🎁', keys: ['Feature Request'] },
-          ],
-        },
-      ],
-    },
-  ],
-};
-
-const templateConfig = {
-  policy: [
-    {
-      template: ['bug.yml', 'feature.yml'],
-      section: [
-        {
-          id: ['type'],
-          label: [
-            { name: 'bug 🐛', keys: ['Bug Report'] },
-            { name: 'RFE 🎁', keys: ['Feature Request'] },
-          ],
-        },
-      ],
-    },
-    {
-      template: ['custom.yml'],
-      section: [
-        {
-          id: ['type'],
-          label: [
-            { name: 'custom1', keys: ['Custom 1'] },
-            { name: 'custom2', keys: ['Custom 2'] },
-          ],
-        },
-      ],
-    },
-  ],
-};
+import { basicConfig, emptyConfig, templateConfig } from './config.fixture';
 
 describe('Test Config class', () => {
-  test('Config class is defined', () => {
+  test('smoke test', () => {
     const config = new Config(basicConfig, '.github/issue-labeler.yml');
 
     expect(config.policy).toMatchInlineSnapshot(`
@@ -201,6 +156,32 @@ describe('Test Config class', () => {
                 },
               ],
             },
+            {
+              "block-list": [],
+              "id": [
+                "severity",
+              ],
+              "label": [
+                {
+                  "keys": [
+                    "High",
+                  ],
+                  "name": "high",
+                },
+                {
+                  "keys": [
+                    "Medium",
+                  ],
+                  "name": "medium",
+                },
+                {
+                  "keys": [
+                    "Low",
+                  ],
+                  "name": "low",
+                },
+              ],
+            },
           ],
           "template": [
             "bug.yml",
diff --git a/test/unit/issue-form.fixture.ts b/test/unit/issue-form.fixture.ts
new file mode 100644
index 0000000..38b9ad7
--- /dev/null
+++ b/test/unit/issue-form.fixture.ts
@@ -0,0 +1,14 @@
+export const emptyForm = {};
+
+export const basicForm = {
+  title: 'Test issue',
+  body: 'Test body',
+};
+
+export const dropdownForm = {
+  title: 'Test issue',
+  body: 'Test body',
+  severity: 'High',
+  type: 'Bug Report, Feature Request, other, none',
+  checkList: ['one', 'two', 'three'],
+};
diff --git a/test/unit/issue-form.test.ts b/test/unit/issue-form.test.ts
index 2a4352b..0239d69 100644
--- a/test/unit/issue-form.test.ts
+++ b/test/unit/issue-form.test.ts
@@ -1,24 +1,10 @@
 import { describe, expect, test } from 'vitest';
 
 import { IssueForm } from '../../src/issue-form';
-
-const emptyForm = {};
-
-const basicForm = {
-  title: 'Test issue',
-  body: 'Test body',
-};
-
-const dropdownForm = {
-  title: 'Test issue',
-  body: 'Test body',
-  severity: 'high',
-  multiDropdown: 'one, two, other, none',
-  checkList: ['one', 'two', 'three'],
-};
+import { basicForm, dropdownForm } from './issue-form.fixture';
 
 describe('Test IssueForm class', () => {
-  test('IssueForm class is defined', () => {
+  test('smoke test', () => {
     const issueForm = new IssueForm(basicForm);
 
     expect(issueForm.parsed).toMatchInlineSnapshot(`
@@ -43,7 +29,7 @@ describe('Test IssueForm class', () => {
       `"Test issue"`
     );
     expect(issueForm.getSafeProperty('severity')).toMatchInlineSnapshot(
-      `"high"`
+      `"High"`
     );
     expect(issueForm.getSafeProperty('nonexistent')).toBeUndefined();
   });
@@ -53,17 +39,17 @@ describe('Test IssueForm class', () => {
 
     expect(issueForm.listKeywords('severity', ['none'])).toMatchInlineSnapshot(`
       [
-        "high",
+        "High",
       ]
     `);
 
-    expect(issueForm.listKeywords('multiDropdown', ['other', 'none']))
+    expect(issueForm.listKeywords('type', ['other', 'none']))
       .toMatchInlineSnapshot(`
-      [
-        "one",
-        "two",
-      ]
-    `);
+        [
+          "Bug Report",
+          "Feature Request",
+        ]
+      `);
 
     // Checklists are unsupported at the moment
     expect(issueForm.listKeywords('checkList', [])).toBeUndefined();
diff --git a/test/unit/labeler.test.ts b/test/unit/labeler.test.ts
new file mode 100644
index 0000000..e5e31c2
--- /dev/null
+++ b/test/unit/labeler.test.ts
@@ -0,0 +1,196 @@
+import { afterEach, beforeEach, describe, expect, test, vi } from 'vitest';
+
+import { Config } from '../../src/config';
+import { IssueForm } from '../../src/issue-form';
+import { Labeler } from '../../src/labeler';
+
+import { basicConfig, emptyConfig, templateConfig } from './config.fixture';
+import { basicForm, dropdownForm } from './issue-form.fixture';
+
+describe('Test Labeler class', () => {
+  afterEach(() => {
+    vi.unstubAllEnvs();
+  });
+
+  test('smoke test', () => {
+    const labeler = new Labeler(
+      new IssueForm(basicForm),
+      new Config(basicConfig, '.github/issue-labeler.yml')
+    );
+
+    expect(labeler).toBeInstanceOf(Labeler);
+  });
+
+  describe('input based labeling', () => {
+    let labeler: Labeler;
+
+    beforeEach(() => {
+      vi.stubEnv('INPUT_SECTION', 'type');
+      vi.stubEnv('INPUT_BLOCK-LIST', 'other\nnone');
+
+      labeler = new Labeler(
+        new IssueForm(dropdownForm),
+        new Config(emptyConfig, '.github/issue-labeler.yml')
+      );
+    });
+
+    test('initialization', () => {
+      expect(labeler.isConfig).toBe(false);
+      expect(labeler.isInputs).toBe(true);
+
+      expect(labeler.section).toBe('type');
+      expect(labeler.blockList).toMatchInlineSnapshot(`
+        [
+          "other",
+          "none",
+        ]
+      `);
+
+      expect(labeler.outputPolicy).toMatchInlineSnapshot(`
+        {
+          "section": {},
+          "template": "",
+        }
+      `);
+    });
+
+    test('gatherLabels()', () => {
+      const keywords = labeler.gatherLabels();
+
+      expect(keywords).toMatchInlineSnapshot(`
+        [
+          "Bug Report",
+          "Feature Request",
+        ]
+      `);
+    });
+
+    describe('inputBasedLabels()', () => {
+      test('get labels', () => {
+        const keywords = labeler.inputBasedLabels();
+
+        expect(labeler.outputPolicy).toMatchInlineSnapshot(`
+          {
+            "section": {
+              "type": [
+                "Bug Report",
+                "Feature Request",
+              ],
+            },
+            "template": "",
+          }
+        `);
+        expect(keywords).toMatchInlineSnapshot(`
+          [
+            "Bug Report",
+            "Feature Request",
+          ]
+        `);
+      });
+
+      test('empty section or blocklist', () => {
+        labeler.section = '';
+
+        expect(() => labeler.inputBasedLabels()).toThrowError(
+          'Section or block list is undefined!'
+        );
+
+        labeler.section = 'type';
+        labeler.blockList = undefined;
+
+        expect(() => labeler.inputBasedLabels()).toThrowError(
+          'Section or block list is undefined!'
+        );
+      });
+
+      test('empty section field', () => {
+        labeler.section = 'nonexistent';
+
+        const keywords = labeler.inputBasedLabels();
+
+        expect(labeler.outputPolicy).toMatchInlineSnapshot(`
+          {
+            "section": {},
+            "template": "",
+          }
+        `);
+        expect(keywords).toBeUndefined();
+      });
+    });
+  });
+
+  describe('policy based labeling', () => {
+    let labeler: Labeler;
+
+    beforeEach(() => {
+      vi.stubEnv('INPUT_TEMPLATE', 'bug.yml');
+
+      labeler = new Labeler(
+        new IssueForm(dropdownForm),
+        new Config(templateConfig, '.github/issue-labeler.yml')
+      );
+    });
+
+    test('initialization', () => {
+      expect(labeler.isConfig).toBe(true);
+      expect(labeler.isInputs).toBe(false);
+
+      expect(labeler.outputPolicy).toMatchInlineSnapshot(`
+        {
+          "section": {},
+          "template": "bug.yml",
+        }
+      `);
+    });
+
+    test('gatherLabels()', () => {
+      const labels = labeler.gatherLabels();
+
+      expect(labels).toMatchInlineSnapshot(`
+        [
+          "bug 🐛",
+          "RFE 🎁",
+          "high",
+        ]
+      `);
+    });
+
+    describe('configBasedLabels()', () => {
+      test('get labels', () => {
+        const labels = labeler.configBasedLabels();
+
+        expect(labeler.outputPolicy).toMatchInlineSnapshot(`
+          {
+            "section": {
+              "severity": [
+                "high",
+              ],
+              "type": [
+                "bug 🐛",
+                "RFE 🎁",
+              ],
+            },
+            "template": "bug.yml",
+          }
+        `);
+        expect(labels).toMatchInlineSnapshot(`
+          [
+            "bug 🐛",
+            "RFE 🎁",
+            "high",
+          ]
+        `);
+      });
+
+      test('no policy provided', () => {
+        labeler.config.policy = undefined;
+
+        expect(() =>
+          labeler.configBasedLabels()
+        ).toThrowErrorMatchingInlineSnapshot(
+          `[Error: Missing configuration. Please setup 'Advanced Issue Labeler' Action using '.github/issue-labeler.yml' file.]`
+        );
+      });
+    });
+  });
+});