In Kentucky, the distinction between an independent contractor and an employee hinges on several key factors that affect legal rights, responsibilities and protections. This distinction is crucial for businesses and workers because it results in various legal and financial implications, including tax liabilities, workers’ compensation eligibility and employment benefits.
Determining a worker’s status isn’t solely at the discretion of a business or the individual. Kentucky law and guidelines from the Internal Revenue Service (IRS) and the Fair Labor Standards Act (FLSA) provide frameworks for this determination.
Criteria for distinguishing an independent contractor from an employee
The primary factor that distinguishes an independent contractor from an employee in Kentucky is the business’s degree of control over the work being performed. Independent contractors typically operate under their direction, deciding how and when to complete the job, but employees are subject to the business’s control regarding hours, methods and tasks.
Another factor is the nature of the work and how it fits into the business’s operations. Employees generally perform duties that are integral to the business’s core services, but independent contractors are often hired for specific projects or specialized tasks that are outside the business’s usual scope of operations.
The financial arrangement between the parties also plays a key role. Independent contractors are more likely to be paid on a project basis and responsible for their business expenses and taxes. Employees are typically paid a salary or hourly wage. They may be eligible for benefits like health insurance, retirement plans and paid leave, which aren’t usually offered to independent contractors.
Workers misclassified as independent contractors may miss essential benefits and protections, such as minimum wage and overtime pay, unemployment insurance and workers’ compensation coverage. They can take legal action to receive those benefits if they’ve been wrongfully misclassified.
