Kentucky Contract Labor Laws
State and National Employee Misclassification as Independent Contractor instead of an Employee
Employee Misclassification is a Crime
When you conduct business within the Commonwealth of Kentucky, you are subject to its laws, administrative regulations, and the governor's executive orders.
Part of the Commonwealth's effort includes providing critical information to all stakeholders. The Office of Unemployment Insurance, the Department of Revenue, the Department of Workers' Compensation Insurance (a division of the Labor Cabinet), or the Kentucky Office of Attorney General. Both state and federal law, not contractual agreements, determine which workers can be classified as independent contractors.
Kentucky Contractor Labor Laws
Kentucky Legislature Kentucky Revised Statutes KRS Chapter 341: http://www.lrc.ky.gov/Statutes/chapter.aspx?id=38902
- KRS 341.990 Penalties (6)(a) "Any person who knowingly makes a false statement or representation, or who knowingly fails to disclose a material fact to prevent or reduce the payment of benefits to any worker entitled thereto, or to avoid becoming or remaining subject to this chapter, or to avoid or reduce any payment required of an employing unit under this chapter shall be guilty of a Class A misdemeanor unless the liability avoided or attempted to be avoided is one hundred dollars ($100) or more, in which case he shall be guilty of a Class D felony."
Kentucky Worker Misclassification as Contract Labor is a Felony
This practice of misclassifying workers is illegal because it often leads to employers avoiding required workers' compensation insurance, unemployment coverage, or other employer-paid taxes and withholdings. There are severe consequences for employers that misclassify workers, including:
- fines;
- interest;
- labor law and safety violations;
- back payment of wages for both the offending company and its customers;
- back unemployment insurance premiums; and
- costly lawsuits if a worker is injured on the job.
- We need your help; Your identity will be kept confidential.
If you know a business is intentionally misclassifying its employees, please get in touch with us immediately.  You have a duty to report worker misclassification fraud. You may also be fined if you knew about it and took no action.
Who is a Kentucky Employee vs. a Kentucky Independent Contractor?
Employee
- Suppose you hire an individual who does NOT have employees 99% of the time. In that case, they are YOUR employee for Unemployment Insurance reporting, Kentucky withholding tax purposes, or Kentucky Workers' Compensation reporting purposes.
- If you're an employer with one or more employees and hire another "individual," that individual is YOUR employee.
- You're considered an employer when an individual performs work for you that would otherwise have to be performed by yourself or an employee; the individual is your employee.
- If an employer has any doubt about the proper classification of a worker, the Kentucky Office of Unemployment Insurance, the Department of Revenue, the Department of Workers' Compensation Insurance (a division of the Labor Cabinet), or the Kentucky Office of Attorney General.
Kentucky Contractor Labor Laws / Independent Contractor
An independent contractor is someone you hire who:
• Performs a job that is not similar or connected to your business, and
• Whose work you have no direction or control over.
States in a trade pack, also known as "reciprocal states" with Kentucky (Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Ohio), use multiple tests to determine if a worker is an employee or an independent contractor.
RIGHT TO CONTROL EMPLOYEE TEST / KENTUCKY CONTRACT LABOR LAWS
- The "Right to Control" test demonstrates that an employer "controls" the worker. This test does not require an employer actually to exercise control; it merely requires that an employer could exercise control over the worker if it chooses to do so.
- Questions: The following list of sample questions can assist in the determination of an employer-employee relationship. This list of questions is not exclusive and may be modified by the Cabinet Secretary:
- Who controls the means and methods of work performance?
- Does the worker hold his services out to the general public?
- Does the worker perform the task without supervision?
- Does the worker possess the required permits, licenses, and certificates?
- Is the worker doing business as a corporation or under an assumed business name?
- Does the work require extensive skill, education, or experience?
- Who establishes the routine or schedule?
- What is the duration of the relationship?
- What is the payment method, whether by time or by the job?
- Are taxes deducted or withheld from the worker's check?
- Who determines the hours of work?
- Does the worker receive fringe benefits or bonuses?
- Who provides the equipment necessary to complete the work task(s)?
Suppose the response to these questions concludes that an employer "controls" its worker. In that case, the analysis concludes the worker is an employee, and compensation paid for services to these workers should be reported to the Office of Unemployment Insurance, the Department of Revenue, and the Department of Workers' Compensation Insurance (a division of the Labor Cabinet).
NATURE OF BUSINESS TEST / KENTUCKY CONTRACT LABOR LAWS
The "Nature of Business" test determines whether the work performed by an alleged independent contractor is the work that an employer's employee would otherwise perform.
- Is the work being performed of the type that normally could be carried out by an employee in the usual course of business?
- Are the activities being performed by the workers an integral part of the employer's regular business?
- If the answer is yes, then the analysis concludes the worker is an employee, and compensation paid for services to these workers must be reported to the Office of Unemployment Insurance, the Department of Revenue, and the Department of Workers' Compensation Insurance (a division of the Labor Cabinet).
U.S. DEPARTMENT OF LABOR LAWS (as of February 02, 2023):
On October 13, 2022, the U.S. Department of Labor published a Notice of Proposed Rulemaking (NPRM) to revise the Department's guidance on how to determine who is an employee or independent contractor under the Fair Labor Standards Act (FLSA).
The NPRM proposed to rescind a prior rule, Independent Contractor Status Under the Fair Labor Standards Act (2021 IC Rule), that was published on January 7, 2021 and replace it with an analysis for determining employee or independent contractor status that is more consistent with the FLSA as interpreted by longstanding judicial precedent.
The Department believes that its proposed rule would reduce the risk that employees are misclassified as independent contractors while providing added certainty for businesses that engage (or wish to engage) with individuals who are in business for themselves.
The comment period closed on December 13, 2022. The Department is currently reviewing all timely submitted comments. The full text of the NPRM can be found at Federalregister.gov.
Myths About Misclassification
The FLSA applies only to employers whose annual sales total $500,000 or more or who are engaged in interstate commerce.
The misclassification of employees as independent contractors is a serious problem. Here we dispel some of the pervasive myths about misclassification.
Kentucky Field Auditors
Phone: (502) 564-6838
Fax: (502) 564-5590