Gig Economy Worker Classification

Topics: Small Business Advice

Are Gig Workers Independent Contractors?

The gig economy. It’s a term that’s gained a lot of attention in recent years as “nontraditional” type of work continues to grow. It’s based on flexible, temporary and freelance jobs performed by independent and knowledge-based workers. These workers provide a variety of services including ridesharing, home repair, food delivery, marketing, accounting, consulting and more. Gig workers, whether employed part-time or full-time, represent a diverse pool of professional skills, entrepreneurial ideas, backgrounds and experiences.

Employment Classification & its Impact on Gig Economy Workers

In the insurance world, gig economy workers can have a direct impact on how much coverage small business owners need, depending on how these workers are classified. Are gig workers considered independent contractors or employees? Several recent decisions both at the state and federal level have a direct impact on this question.

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Matt Zender, Senior Vice President and Workers’ Compensation Product Manager at AmTrust Financial Services was recently interviewed by Insurance Business Magazine about the gig economy in relationship to workers’ compensation insurance. “The entire foundation of the gig economy, or the gig workers as we thought of them traditionally, is really under a lot of change right now. There are a lot of definitional changes that are taking place, and there are states that are trying to address this issue in a very wholesale manner.”

Here’s what agents and small businesses need to know.

Independent Contractor vs. Employee Classification

Historically, most gig economy workers have been considered independent contractors and not employees. Independent contractors are paid only for the services that they provide to the company. They do not receive benefits, insurance options, a retirement plan and payroll taxes are not taken out of their checks. Employees, on the other hand, receive the aforementioned benefits, and the company must cover them with workers’ compensation insurance, unemployment and health insurance as well as social security and Medicare benefits.

Small businesses need to look at the IRS classification rules to decide, which, if any, apply to their workers. The main factor in classifying a worker as an independent worker versus an employee is the amount of control the employer has over the worker. The more control the employer has over the worker, the more likely he or she would be considered an employee.

The Department of Labor (DOL) released an opinion letter on the status of gig economy workers under the Fair Labor Standards Act (FLSA), concluding that gig workers are independent contractors under FLSA. Therefore, they are not protected under the FLSA’s wage and hour protections.

The letter considered if “service providers using a ‘virtual marketplace company’ platform to offer services to consumers are the company’s employees or independent contractors.” The DOL stated that the platform acts as a referral system and the gig workers are working for the end consumer, not the company providing the work platform. Under the Obama administration, the DOL issued guidance reaching the opposite conclusion – that gig workers were likely employees – but this was rescinded under the Trump administration.

Impact of Gig Economy Changes on Workers’ Compensation Insurance

The National Council on Compensation Insurance (NCCI) recently studied the gig economy to see if there was an impact on workers’ compensation insurance. They found that the number of individuals in nontraditional employment as their primary job has not increased in the last 15 years, but people relying on nontraditional work as a secondary source of income is on the rise.

Zender noted that the Dynamex California Supreme Court decision hasn’t impacted workers’ compensation yet, but the legislation that is currently being debated in the California State House could bring new risks and challenges.

“It’s good in as much as that individual who’s injured now has the ability to be taken care of. It’s bad in as much as some of the businesses who are operating may not have been doing that particular contract, if you will, with eyes wide open,” said Zender, adding that a business’s workers’ comp premium could then increase if a gig worker, now an employee, gets injured. “That raises some issues, and there’s going to be lots of examples of that for all sorts of different companies that [hire people who] previously would’ve been considered independent contractors and now will be considered employees.”

30%25 of US Adults work in non-traditional work as a secondary income source

State Laws Impacting Gig Economy Workers

The DOL’s opinion letter is limited to the FLSA and not expected to apply to areas with specific state determinations. States such as California, Florida, Illinois and New York each have different tests to determine if a worker can be classified as an independent contractor or an employee.


Last year, California’s Supreme Court wrote the landmark Dynamex decision, which established an “ABC test” to determine if a person is an independent contractor in the state. The three factors are:
  1. Whether the worker is free from the control and direction of the business.
  2. Whether they perform work outside the entity’s business.
  3. Whether they decide to do so independently.

The California State Assembly and Senate recently passed Assembly Bill 5 to make the Supreme Court’s Dynamex decision into law. The bill is awaiting the governor’s signature and will go into effect on January 1, 2020. According to CNBC, “The measure could result in thousands of independent contractors getting classified as employees, making them eligible for minimum wages, overtime pay and workers’ compensation protections.” The current legislation would grant exemptions to certain professionals if they set or negotiate their own rates, communicate directly with customers and make at least twice the minimum wage.

Professions that are exempted include insurance agents, real estate agents, hairstylists, lawyers, accountants, graphic designers, marketing professionals, veterinarians, dentists and physicians. The law, if passed, could be a model for laws in other states. Also, photographers, photojournalists, freelance writers, editors or newspaper cartoonists who make 35 or fewer submissions a year are exempted from the employee classification.


In 2017, Florida enacted a law classifying most ride-sharing drivers as independent contractors and not employees of the “transportation network companies.” The state law overrules any previous and future local municipality legislation that is contrary to the state’s decision.


The Illinois Employee Classification Act addresses the improper classification of persons working as independent contractors specifically in the construction industry. The Act created an “ABC test” that is also being used to establish the definition of independent contractors versus an employee in Illinois.

New York

The New York Department of Labor has defined factors that will help companies determine if their workers are employees or independent contractors. These factors include if they are free from supervision, direction or control. New York City also introduced a law in early 2019 to assist gig workers that requires ride-hailing operators to pay drivers a $17.22 per hour minimum wage.

New York lawmakers have introduced the “Dependent Worker Act” to provide gig workers with certain rights that were previously only available to workers deemed as employees. The law would define a new class of workers under the New York Labor Law called the “Dependent Worker.” Dependent workers provide personal services to a consumer of such personal services through a private-sector third party that includes any combination of the following:
  • Establishes the amounts charged to the consumer.
  • Collects payment from the consumer.
  • Pays the individual.

Small Business Insurance Solutions from AmTrust

If you’re hiring a contract worker, look for an insurance provider who offers general liability insurance. This protects your small business if the contractor delivers lower quality work, doesn’t complete an assignment on time or makes a mistake that ultimately costs you. If you are an independent contractor representing yourself as your own business, we encourage you to carry some form of liability or small business insurance.

Agents can also work together with their small business clients and AmTrust underwriters to ensure they have proper workers’ compensation coverage in place.

AmTrust Financial is a multinational property and casualty insurer specializing in coverage for small businesses. To learn more about our small business solutions, please contact us today.

This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.

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