How the Regulatory Environment Is Shaping the Workers' Compensation Market in 2025

Workers' Compensation insurance is broadly defined as providing "cash benefits and/or medical care for workers who are injured or become ill as a direct result of their job."¹ But, what happens when the definition of what qualifies as "work" changes?

That change has been happening over the last several years, as jobs across the country have evolved in the wake of the COVID-19 pandemic, embracing more remote and hybrid options, less formal structures and other changes from the traditional 9-to-5 job. This work includes gig economy work, in which workers provide on-demand services or goods on a temporary, contract basis, such as driving for ride services such as Uber and Lyft, handling on-demand deliveries for companies such as DoorDash, or completing tasks for clients through online freelance marketplaces such as Fivvr.

Whatever the definition, the relationship between employers and their employees has changed, becoming looser and less structured. As the lines have blurred, qualifications for Workers' Compensation insurance have changed.

"Both during and after COVID, companies benefited from having their employees work from home," says Patrick Edwards, RPS area senior vice president, Workers' Compensation practice leader. "However, as companies now encourage employees to return to the office and resume face-to-face business activities, there is potential for increased risk from a Workers' Compensation perspective. This shift in how business is conducted today could lead to additional claims and loss development."

State-Level Movements

On the gig economy front, a number of states have been working to better define who should be classified as an employee who qualifies for Workers' Compensation coverage and who is an independent contractor who doesn't qualify for insurance through their employers.

In 2024, California Assembly Bill (AB) 1928 repealed its ABC test² that defined gig workers as an employee unless they're fully independent of the hiring company, as previously defined under 2019's AB 5, which required employers to give benefits such as sick pay and overtime to workers.

Representative Kevin Kiley, co-sponsor of the repeal bill, said, "While some of us disagree on the best remedy for AB 5, all of us agree the status quo is unacceptable and changes are needed. AB 1928 would simply put AB 5 on hold while we consider what those changes should be."³

However, many other states currently use ABC tests to determine worker status, though similar repeal efforts are underway in some states. New York, Pennsylvania, Rhode Island and West Virginia all have pending legislation related to their criteria for determining employment, and Massachusetts is looking to pass similar legislation regarding the status of app-based workers. Washington is working to extend survivor death benefits to the families of gig workers killed on the job.

On the whole, progress has been slow. Area President L.J. Battagliese reports that, in California, the last few years have been relatively quiet on the legislative front. "Everything has been around the edges," he says, mentioning changes to the medical fee schedule and the medical review process. "Nothing like a wholesale change to the system."

Federal Regulations in Flux

These changes are happening against the backdrop of broad changes at the Department of Labor (DOL), including the end of non-discrimination rules. In January 2025, the Trump administration rescinded the DOL's Executive Order 11246, which had been in place since 1965 and outlined the non-discriminatory practices and affirmative action standards related to federal government hiring.⁴ Similar changes could be coming to rules related to employer-employee relationships.

For instance, the DOL updated its Fair Labor Standards Act with a final rule in March 2024 to use the same "economic reality" test the courts used to determine whether a worker is an employee or a contractor.⁵ However, the US District Court for the Eastern District of Texas vacated the DOL's final rule on November 15, 2024, and five lawsuits related to the 2024 rule are currently pending in other federal district courts. The DOL had been scheduled to defend these regulations in February but secured a postponement to determine the best path forward. Updates on the status of these cases are expected later this year.

In the meantime, labor attorneys caution that even a rollback to earlier worker classification rules may not provide a clear solution.

"The 2021 Independent Contractor Rule was generally viewed as simpler and more employer friendly, but it was no free pass, either," writes labor attorney Katelynn Williams. "It made clear that actual practice dictates whether a worker is properly classified, not contractual labels or the parties' preference."⁶

Taken together, the evolving regulatory landscape is reshaping the Workers' Compensation market in real time. As states refine worker classification laws and federal agencies grapple with shifting policies, businesses must stay agile. With remote work, gig economy roles and new legal challenges all in play this year, the future of Workers' Compensation will be defined by how quickly employers and insurers adapt to these ongoing changes.

Learn more about what's next for the Workers' Compensation market in the RPS 2025 Workers' Compensation Market Outlook.

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