Worker Classification in the Gig Economy: What Employers Need to Know in 2025

As the gig economy continues to expand—now encompassing over 50% of the U.S. workforce by some estimates—states and federal agencies are tightening the rules around how gig workers are classified. For business owners, brokers, and workers’ compensation professionals, these changes carry significant implications for liability, benefits eligibility, and insurance obligations.

Why Classification Matters

At the heart of the issue is whether a worker is an independent contractor or an employee. Employees are entitled to protections like minimum wage, overtime, unemployment insurance, and workers’ compensation. Independent contractors are not. Misclassification can lead to lawsuits, back pay, penalties, and retroactive benefits costs.

Recent Developments in 2025

1. Federal Shift: DOL Rescinds Biden-Era Rule

In May 2025, the U.S. Department of Labor (DOL) announced it would no longer enforce the Biden-era “economic realities” test, which had made it easier to classify gig workers as employees. Instead, the DOL reinstated older guidance from 2008 and 2019 that favors a more flexible, contractor-friendly standard.

This move was welcomed by gig platforms but criticized by labor advocates, who argue it weakens protections for millions of workers.

2. State-Level Crackdowns Continue

Despite the federal rollback, states are moving in the opposite direction:

• New York and Illinois have passed laws requiring gig platforms to provide minimum wage guarantees and portable benefits for certain workers.
• New Jersey has stepped up enforcement of its strict “ABC test,” which presumes workers are employees unless the employer can prove otherwise.
• California’s Proposition 22, which allows app-based drivers to remain independent contractors while receiving limited benefits, was upheld by the state Supreme Court in July 2024.

These state-level actions are creating a patchwork of rules that vary widely by jurisdiction—posing compliance challenges for multi-state employers and brokers.

Workers’ Comp Implications

If a gig worker is reclassified as an employee, the employer may become responsible for:

• Workers’ compensation coverage
• Retroactive premiums
• Medical and wage replacement benefits for past injuries

For example, a July 2025 case in Pennsylvania involved a food delivery platform being sued by a driver who was injured on the job. The court allowed the case to proceed under the state’s workers’ comp statute, citing the platform’s control over work assignments and pay structure.

What Employers Should Do Now

1. Audit Worker Classifications Review how your business classifies gig or freelance workers. Use state-specific tests like the ABC test where applicable.
2. Update Contracts and Onboarding Ensure independent contractor agreements clearly define the scope of work, autonomy, and lack of employer control.
3. Monitor State Legislation Stay informed about new laws in states where you operate. Some states are introducing portable benefits mandates and minimum earnings floors for gig workers.
4. Review Workers’ Comp Policies Employers should ask brokers for help if they need help identifying an uninsured exposure due to misclassified workers. Consider stop-gap or voluntary coverage options where appropriate.

Final Thought

The gig economy is no longer a legal gray zone—it’s a regulatory minefield. As states tighten classification rules and courts scrutinize employer practices, businesses must adapt or risk costly consequences.

In this issue:

This Just In ... WCIRB Report: California Workers’ Comp Losses Exceed Premiums in 2024

WCIRB 2025 Annual Conference: Key Takeaways for California Workers’ Comp Stakeholders

Mid-Year Check-In: IRMI’s 2025 Workers’ Comp Watchlist Highlights Key Shifts

Worker Classification in the Gig Economy: What Employers Need to Know in 2025

What Is the ABC Test?

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