As your business grows, you may need to hire employees. Another option is to establish a contract with another company or individual (independent contractor) to perform certain tasks for you.

Employee or Independent Contractor

An important first step is to determine whether someone doing work for you is an employee or an independent contractor, because the answer has tax as well as other implications. IRS Publication 15-A, Employee’s Supplemental Tax Guide, provides additional information on this topic. In addition, the IRS will determine for you whether a worker is an employee or independent contractor if you submit Form SS-8.


Employment Eligibility Verification

If you hire employees, you must have the employee fill out an Employment Eligibility Verification Form (I-9) and provide proof that he/she is a U.S. citizen or legal alien authorized to work in the United States. Employers must verify the information provided by new employees. Refer to the Handbook for Employers or the E-Verify Program for more information.


New Hire Reporting

Federal and state law requires employers to provide basic information on new hires or anyone that is rehired or returns to work after a separation of employment of 30 days or more. This information is used to identify individuals that may owe child support or recipients of unemployment compensation who fail to report earnings. Additional information is available from the Kentucky New Hire Reporting Center.


Federal and State Employee-related Taxes

Employers have tax obligations to the Internal Revenue Service and the Kentucky Department of Revenue. The IRS provides guidance on federal employment taxes including Publication 15, Employer’s Tax Guide and Publication 15-A, Employer’s Supplemental Tax Guide. Federal employer tax obligations include social security/Medicare taxes, unemployment taxes and federal income tax withholding from employee pay.

Kentucky employers are required to withhold state income taxes from employees. To start this process, complete a Kentucky Tax Registration Application. Additional withholding tax information is available from the Department of Revenue.


State Unemployment Insurance

Employers in the state must register with the Office of Employment and Training (OET) to establish a state unemployment insurance account. A good overview of employer obligations can be found in the Unemployment Insurance Employer Guide. Additional information can be found on OET’s unemployment insurance web page.


Workers’ Compensation

Any employer in Kentucky (except for certain exclusions) with one or more employees must provide Workers' Compensation insurance coverage for employees. Kentucky does not sponsor a state-run insurance program. Therefore, it is the employers’ responsibility to secure the insurance from a private insurance carrier or self-insure. You can obtain additional information from your insurance agent, from Kentucky Employers Mutual Insurance, or the Kentucky Department of Workers’ Claims. The Kentucky Department of Workers' Claims publishes a Guidebook to Workers Compensation.


Mandatory Posters

Kentucky employers are responsible for displaying required posters in a conspicuous location at the place of business. Required state posters can be downloaded from the Kentucky Labor Cabinet under the "Mandatory Posters" heading on the right. The unemployment insurance mandatory poster can be obtained from the Kentucky Division of Unemployment Insurance. Additional required posters can be obtained from the Kentucky Commission on Human Rights.

The U.S. Department of Labor provides information on federal poster requirements, including poster advisor and poster matrix websites.


Occupational Safety & Health

Employers should be aware of occupational safety and health regulations that may impact their business. This includes issues such as noise levels in the workplace, exposure to hazardous or toxic chemicals, job-related injury/illness recordkeeping and reporting requirements, etc. The Kentucky Labor Cabinet's Occupational Safety and Health Program can provide additional information and assistance on this topic.


Employers Engaged in Construction Work or the Severence, Preparation, or Transportation of Minerals

Employers involved in construction work or mineral severance, preparation, or transportation in Kentucky that haven't been doing business in the state for at least five consecutive years are required to post a performance bond with the Kentucky Labor Cabinet as per KRS 337.200.

Additional Resources

IRS web site for businesses with employees
http://www.irs.gov/businesses/small/article/0,,id=98862,00.html

IRS employment tax publications
http://www.irs.gov/businesses/small/article/0,,id=98868,00.html

Kentucky Labor Cabinet
http://labor.ky.gov/

U.S. Department of Labor FirstStep Employment Law Advisor
http://www.dol.gov/elaws/FirstStep/

Kentucky Chamber of Commerce bookstore (numerous resource publications on employment and personnel topics, including laminated sets of federal and state mandatory posters)
http://kycc.harvesthost.com/kycchw/hw.dll?page&t=store1