Workforce Absence Landscape Faced Regulatory Rollbacks and Rising Employee Expectations in 2025

Employers faced a fundamentally reshaped workforce absence environment in 2025 as regulatory rollbacks, court rulings and employee expectations collided to create both compliance challenges and strategic opportunities, according to the Sedgwick 2025 Workforce Absence Trends and 2026 Outlook report.

The regulatory landscape underwent dramatic upheaval in 2025, with two major rules from the previous year overturned, Sedgwick said.

A U.S. District Court vacated most of the 2024 HIPAA Reproductive Health Privacy Rule in June, citing concerns about the rule’s political nature and its limitations on state reporting requirements. Meanwhile, strengthened Mental Health Parity and Addiction Equity Act rules faced immediate legal challenges after their September 2024 release, ultimately leading to a May 2025 court decision to stay enforcement, citing potential burdens on small businesses.

The Department of Labor provided new clarity on leave calculations under the Family and Medical Leave Act, confirming that employers can convert fractions of work weeks to hourly equivalents and that only mandatory—not voluntary—overtime counts toward leave entitlements. Additionally, the department restarted its Payroll Audit Independent Determination program in July, offering employers a pathway to self-report and correct wage-and-hour compliance issues without litigation.

Emerging Workforce Trends Reshaping Absence Management

Beyond regulatory changes, several operating realities are reshaping how employers approach disability and leave programs, Sedgwick said. Today’s workforce demands flexibility that traditional annual benefit packages cannot provide, the report noted. Younger workers expect personalized benefits packages that adapt to life changes and integrate financial wellness programs alongside traditional health care offerings.

Mental health impact on the workforce has become impossible to ignore. For workers aged 35 to 44, mental health-related claims now approach pregnancy claims in frequency and may soon surpass them, the report said. Mental health is also emerging as a factor in occupational injury claims, creating ripple effects across multiple absence categories.

Artificial intelligence has become a strategic priority in absence management, though adoption varies widely across organizations, the report said.

Early adopters are using AI for basic staffing forecasts and automated PTO approval, while advanced users leverage AI for benefits data analytics and enhanced employee experiences.

“AI is not just a buzzword; it’s a strategic business imperative,” said Diane Boyden, managing director of Workforce Absence at Sedgwick. “If you’re not finding ways to use AI to improve efficiency and tackle real-world challenges, you’re going to fall behind.”

However, AI implementation carries new compliance risks. California has already enacted regulations limiting AI use in benefit determinations to prevent discrimination, and other states may follow suit despite a December 2025 executive order seeking to restrict state AI regulation.

The traditional goal of full-capacity return to work is evolving. Court rulings and Americans with Disabilities Act compliance requirements clarify that employers can no longer mandate 100% recovery before employees return. Transitional work programs are gaining traction as a more nuanced approach to supporting recovery and productivity, Sedgwick said.

Preparing for 2026: Deregulation, Expansion and Strategic Evolution

The trajectory heading into 2026 suggests continued regulatory reduction as federal agencies face diminished judicial deference and as midterm election dynamics potentially shift legislative priorities.

However, one area is expanding: paid family and medical leave. Multiple states and municipalities are advancing PFML programs, establishing a baseline of benefits that employers must accommodate.

The Pregnant Workers Fairness Act faces renewed scrutiny, with the Equal Employment Opportunity Commission promising to revisit the controversial 2024 rule. Employers should prepare for potential changes to accommodation requirements that have already generated debate over compliance costs and definitional scope, Sedgwick said.

Obtain the full report here. &