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Misclassification Information

Who is an Employee vs. an Independent Contractor?

Employee

If you hire an individual who does NOT have employees, 99% of the time, they are YOUR employee for the purposes of Unemployment Insurance reporting.

If you’re an employer who has one or more employees and you hire another “individual”, most likely 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 as to the proper classification of a worker, the Division of Unemployment Insurance recommends that you contact the Division for clarification. This will minimize the risk of consequences to an employer.

Independent Contractor

The Division of Unemployment Insurance applies Kentucky Unemployment Compensation Laws and Regulations to the determination of covered employment.

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.

Kentucky Division of Unemployment Insurance uses multiple tests to determine if a worker is an employee or an independent contractor.

“Right to control test” The “Right to Control” test demonstrates that an employer “controls” the worker. This test does not require an employer to actually exercise control; it merely requires than an employer could, exercise control over the worker, if it chose 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. In addition, not one question is determinative.

1. Who controls the means and methods of the work performance?
2. Does the worker hold his services out to the general public?
3. Does the worker perform the task without supervision?
4. Does the worker possess the required permits, licenses and certificates?
5. Is the worker doing business as a corporation or under an assumed business name?
6. Does the work require extensive skill, education or experience?
7. Who establishes the routine or schedule?
8. What is the duration of the relationship?
9. What is the method of payment, whether by time or by job?
10. Are taxes deducted or withheld from the worker’s check?
11. Who determines the hours of work?
12. Does the worker receive fringe benefits or bonuses?
13. Who provides the equipment necessary for completion of the work task?

If the response to these questions leads to the conclusion that an employer “controls” its worker, then the analysis concludes the worker is likely an employee and compensation paid for services to these workers should be reported to Kentucky Unemployment Insurance as wages paid to an employee.

“Nature of Business Test” The “Nature of Business” test determines whether the work performed by an alleged independent contractor is work that would otherwise be performed by an employer’s employees.
1. Is the work being performed of the type that normally could be carried out by an employee in the usual course of business?
2. Are the activities being performed by the workers an integral part of the employer’s regular business?
If the responses to these questions is yes, then the analysis concludes the worker is likely an employee and compensation paid for services to these workers should be reported to Kentucky Unemployment Insurance as wages paid to an employee.

Division of Unemployment Insurance, Tax Audit Branch

For a detailed determination of whether your workers should be considered employees or independent contractors, you may contact the Division of Unemployment Insurance, Tax Audit Branch by
  Phone: 502-564-6838
  Fax: 502-564-5590
  Email: gary.upchurch@ky.gov
Or an UI Tax Auditor https://kewes.ky.gov/Contact/ui_tax_audit_and_enforcement.aspx


Additional Information

Kentucky Unemployment Insurance

►Employer Guide http://kcc.ky.gov/career/If-you-are-an-Employer/Documents/EmployerGuide.pdf

United States Department Of Labor

►Administrator’s Interpretation No. 2015-1
Subject: The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors https://www.dol.gov/whd/workers/misclassification/ai-2015_1.htm

►Wage and Hour Division (WHD)
Misclassification of Employees as Independent Contractors https://www.dol.gov/WHD/workers/Misclassification/

►News Brief announcing Memorandum of Understanding between the Kentucky Labor Cabinet and U.S. Department of Labor
https://www.dol.gov/newsroom/releases/whd/whd20151405

►Myths About Misclassification
https://www.dol.gov/whd/workers/Misclassification/myths-main.htm

►Get The Facts On Misclassification Under The Fair Labor Standards Act Employer or Independent Contractor?
https://www.dol.gov/whd/workers/Misclassification/misclassification-facts.pdf

►Fact Sheet 13: Am I an employee?: Employment Relationship Under the Fair Labor Standards Act (FLSA)
https://www.dol.gov/whd/regs/compliance/whdfs13.htm