A new proposal from the US Department of Labor (DOL) to loosen how workers are classified as independent contractors is poised to reshape workforce strategies and create fresh insurance considerations for employers navigating an already complex regulatory landscape.
Announced on Feb. 26, the proposed rule would make it easier for businesses to classify workers, including freelancers and gig workers, as independent contractors rather than employees under the Fair Labor Standards Act (FLSA). The move signals a shift back toward a more business-friendly framework after several years of tighter scrutiny.
According to Chris Gingue (pictured), executive vice president at Amwins Specialty Casualty Solutions, the proposal represents the latest turn in a regulatory “seesaw” that has swung between stricter and more flexible interpretations of worker classification.
“Over the last five or six years, we’ve seen a back-and-forth between federal and state approaches,” Gingue said. “This latest proposal moves closer to an independent-contractor-friendly model, which creates more certainty for many industries that rely on that structure.”
It also comes as independent contractors are becoming a significant part of the US workforce. The Bureau of Labor Statistics reported in 2023 that approximately 10.1 million workers (about 6.9% of total employment) are classified as independent contractors, a figure expected to grow alongside the gig economy. A 2024 McKinsey report estimated that up to 36% of US workers engage in some form of independent work.
The DOL’s proposed rule does not override state-level laws, leaving intact stricter frameworks such as California’s AB5 legislation, which uses the so-called “ABC test” to determine employment status.
This law, replicated in states like Illinois and New Jersey, has made it significantly harder for businesses, particularly in transportation and logistics, to classify workers as independent contractors.
The fragmented regulatory environment continues to challenge employers. While federal guidance may become more permissive, companies must still comply with state-specific rules, creating a dual compliance burden.
From an insurance perspective, the distinction between employee and independent contractor is critical. “The biggest difference is the statutory requirement for workers’ compensation,” Gingue explained. “If someone is classified as a W-2 employee, employers are required to provide workers’ comp. Independent contractors, on the other hand, typically rely on occupational accident coverage.”
Unlike workers’ compensation, which is regulated at the state level and provides standardized benefits, occupational accident policies are more flexible, with customizable limits, deductibles, and benefit structures. However, that flexibility can create gaps.
“Coverage may apply for similar injuries, but the scope of benefits can be very different,” Gingue said. “That’s where employers often overlook the nuances.”
Employers relying heavily on independent contractors may assume they are insulated from traditional employee-related insurance obligations. Misclassification can expose them to significant financial and legal risks.
One of the most immediate risks arises during workers’ compensation audits. Insurers routinely review payroll records and contractor documentation at the end of a policy term. If independent contractors are found to be uninsured or misclassified, employers may face substantial additional premiums, Gingue warned.
Beyond insurance, misclassification can trigger wage-and-hour violations, unpaid tax liabilities, and litigation. The US Department of Labor has previously estimated that worker misclassification costs governments billions annually in lost tax revenue, while exposing workers to reduced protections.
Legal challenges often intensify following workplace injuries, particularly catastrophic ones.
“Plaintiff attorneys will often push for reclassification because employees are entitled to broader benefits. That can open the door to much larger claims,” said Gingue.
Insurers are already adapting to the growth of contract labor. Carriers offering occupational accident coverage are tightening underwriting standards and clarifying policy language to ensure there is no ambiguity about worker status.
Applications increasingly require explicit confirmation that workers are not employees, while policies emphasize that occupational accident coverage is not a substitute for workers’ compensation.
At the same time, insurers are beginning to expand product offerings beyond traditional sectors like transportation. The rise of gig platforms, ranging from ridesharing to food delivery, has created demand for tailored insurance solutions.
“The future generation seems to enjoy the freedom of being their own employer. So, I think the independent-contractor model is only going to grow and expand, and the coverage will grow and expand alongside it,” said Gingue. “That will probably entail more products that are bundled together.”
Despite its rapid expansion, the independent contractor workforce remains underinsured in many respects. Gingue pointed to emerging exposures, such as cyber risks, that are often overlooked by contractors focused on basic coverage.
“There’s a bit of a gap at the moment,” he said. “We haven’t even gotten into things like cyber or other exposures they might want to address in the future. (Independent contractors) often buy bare-minimum coverage, but they’re not getting the entirety of the coverage they should get.”
The evolving regulatory environment underscores the importance of proactive risk management among employers. Gingue advised businesses to conduct a thorough review of their workforce classifications and insurance programs, particularly in states with stricter rules.
Clear documentation, proper verification of contractor coverage, and close collaboration with experienced wholesale brokers such as Amwins are essential. Employers and retail agents alike should be prepared for continued regulatory shifts.
“It’s largely a matter of waiting for the market to mature to an established level. Once retailers recognize this as a distinct segment they can focus on and specialize in, the insurance market will begin to respond more meaningfully,” said Gingue.
“Our goal is to assemble comprehensive coverage solutions so that when that shift occurs, we’re ready with a competitive, fully developed product.”
Learn more about Amwins Specialty Casualty Solutions.
This article was written in partnership with Amwins.
