How Is an Independent Contractor Defined in Kentucky?
The workplace landscape continues to evolve in Kentucky and across the country. Businesses rely more than ever on freelancers, gig workers, and consultants to meet operational demands without the obligations of hiring employees.
However, as the use of independent contractors increases, so does the scrutiny around their classification.
Understanding how Kentucky defines independent contractors is essential for workers and businesses to avoid legal pitfalls and ensure compliance with labor laws. That includes workers’ compensation claims.
Independent Contractor vs. Employee
Kentucky’s distinction between an employee and an independent contractor carries real consequences.
Employees are entitled to a number of benefits like minimum wage, overtime, workers’ compensation, and unemployment insurance. Independent contractors, on the other hand, generally don’t receive these protections.
Misclassifying employees as independent contractors can lead to serious financial and legal consequences for a business. This classification also affects taxes. Employers must withhold Social Security and Medicare taxes for employees but not for independent contractors.
Contractors are also responsible for their own tax filings and estimated payments. The issue often arises when businesses want to save on payroll taxes or sidestep regulations, but such cost-cutting can lead to audits, back taxes, fines, and even lawsuits.
Kentucky’s Legal Framework for Classification
In Kentucky, different state agencies may use slightly different variables to determine whether workers are employees or independent contractors. However, the Kentucky Department of Workers’ Claims and the Kentucky Labor Cabinet generally look at the nature of the relationship rather than just the label applied by the parties.
A key framework used by Kentucky agencies is the common law “control test,” which focuses on the employer’s right to control the details of how, when, and where the work is done.
If a business has the right to control not just the results but also the method and means of accomplishing the work, the worker is likelier to be an employee.
The Control Test in Practice
Let’s say a company hires someone to install flooring. If the company tells the worker which tools to use, where to buy supplies, and what hours to work, that suggests a high level of control.
These details indicate an employment relationship. However, if the worker sets their own schedule, uses their own equipment, negotiates their fees, and takes on other clients, they may be considered an independent contractor.
The control test looks beyond a contract’s language. A written agreement that calls someone an “independent contractor” does not automatically make it so.
Courts and agencies will consider how the relationship operates in practice. This approach ensures that substance takes precedence over form.
Federal Tests Also Apply
Kentucky businesses and workers should also be aware of federal standards, particularly those from the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL).
The Internal Revenue Service uses a three-category analysis: behavioral control, financial control, and the nature of the relationship. Meanwhile, the DOL focuses on the “economic reality” test, which asks whether the worker is economically dependent on the employer or truly operates an independent business.
While these federal tests may not align perfectly with Kentucky’s standards, courts often consider them persuasive.
Sometimes, a worker could be classified differently under state and federal law, adding more complexity to an already confusing situation.
New Gig Economy Challenges
The rise of app-based gig work and remote freelance arrangements has further blurred the lines.
Platforms like Uber, DoorDash, and TaskRabbit list workers as independent contractors. However, legal challenges nationwide, including in Kentucky, continue to question whether these workers should receive employee protections.
For example, if a delivery driver relies exclusively on one platform for income, follows company guidelines, and has limited control over their work terms, they may not be truly independent. Courts are increasingly considering whether gig workers function more like employees, even if their contracts say otherwise.
What Workers Should Know
For those who work as independent contractors in Kentucky, it’s important to understand your rights and responsibilities. You won’t receive benefits like unemployment insurance or workers’ comp coverage. You’ll need to handle your own taxes, keep detailed records, and maintain business licenses if applicable.
If you suspect you’ve been misclassified, you have the right to file a complaint with the Kentucky Labor Cabinet or seek legal advice to protect your rights.
At Work Injury Advisor, we understand that the definition of an independent contractor in Kentucky hinges largely on control, independence, and the economic reality of the working relationship.
While businesses often prefer the flexibility that comes with contractor arrangements, they must ensure they’re not stepping outside the law. Workers, too, need to know where they stand and what protections they’re entitled to.
As employment models evolve, staying informed is the best way to stay compliant and protected.
