HR August 31, 2023

9 Critical Steps When Hiring a New Employee in Kentucky

Hiring a new employee is often a cause for optimism; it’s a sign that your business is thriving and more growth is on the horizon. It’s important, though, not to overlook any of the numerous legal obligations triggered by hiring. Read on for some of the steps you should take to keep up with the responsibilities imposed on employers by both the federal government and the state of Kentucky.

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1. Obtain your Employer Identification Numbers

When you become an employer, you need to register as an employer with the Internal Revenue Service (IRS) and the Kentucky Department of Revenue (DOR). You can obtain a federal employer identification number (FEIN) from the IRS by submitting Form SS-4, “Application for Employer Identification Number.”

The state DOR provides a Kentucky Tax Registration Application that you can use to register for the most common tax types for Kentucky businesses, as well as your 10-digit Commonwealth Business Identifier (basically, your state employment identification number). The Kentucky Business One Stop allows you to file the form online. You can also download a paper application and submit it to:

Kentucky Department of Revenue
Division of Registration
501 High Street, Station 20
Frankfort KY 40602-0299

2. Verify employee eligibility

You must require every employee to complete the U.S. Citizenship and Immigration Services’ Form I-9, “Employment Eligibility Verification.” The employee must fill out Section 1 of the I-9 form by their first day of employment. You’ll need to complete Section 2 by the end of the third business day after the employee begins work. Keep it on file for three years after the date of hire or one year after the employment ends, whichever is later.

Kentucky doesn’t require private employers to use the federal E-Verify system to prove that employees are authorized to work in the United States.

3. Prepare for your Kentucky unemployment insurance obligations

For-profit businesses in Kentucky (other than agricultural) generally are liable for unemployment insurance if they 1) pay at least $1,500 in gross wages in a single calendar quarter, or 2) have at least one worker performing service in any part of 20 different weeks out of a calendar year. Note that it doesn’t have to be the same workers in each week, and the weeks needn’t be consecutive.

Most kinds of work must be reported for unemployment insurance purposes, including full- and part-time, temporary, and seasonal. Exceptions to this general rule include work performed by the spouse, parent, or child under the age of 21 of a sole proprietor. Such work also isn’t included for a partnership if the family member is related to each partner (for example, as the parent of one partner and the spouse of another).

Once you satisfy a criterion to be liable, you should establish an unemployment insurance account so you can file quarterly reports and make payments.

The tax rate is based in part on the amount of taxes paid into your reserve account less the amount of benefits paid. In addition, a reserve ratio is calculated that compares the size of your account balance with the size of the total amount of taxable wages you reported in the 12 preceding calendar quarters. Construction employers may have higher rates despite their reserve ratio and account balance.

The rate is determined from a rate schedule. Under the schedule in effect for 2023, rates range from 0.30% up to 9.0% of the taxable wage base of $11,100. That means you’re only required to pay unemployment insurance taxes on the first $11,100 of an employee’s wages.

You must file your quarterly wage reports (Form UI-3, “Quarterly Unemployment Tax and Wage Report”) online, but you’re not required to pay electronically. You can mail a check payment with a payment coupon and your employer’s account number on the check to:

Office of Unemployment Insurance
P.O. Box 2003
Frankfort, KY 40602-2003

4. Determine your state payroll withholding responsibilities

Kentucky law requires employers to withhold state income tax from the wages of both resident and nonresident employees unless an employee is exempt by law. To determine if an employee qualifies for an exemption, you’ll need to collect a completed Form K4, “Kentucky’s Withholding Certificate.”

You must withhold taxes from the wages of employees without exemptions according to either withholding tax tables or the withholding tax formula. Employers report and pay Kentucky withholding tax annually, quarterly, monthly, or twice monthly:

Employers withholding less than $400 Kentucky income tax a year will be required to file a return and remit the tax annually. The annual return (Form K-3, “Employer’s Return of Income Tax Withheld (Annual Reconciliation)”) must be filed with DOR by January 31, following the close of the calendar year. The tax due is to be paid in full when the return is filed.

Employers withholding $400-$1,999 Kentucky income tax a year must file and pay on a quarterly basis. They must submit the quarterly return (Form K-1, “Employer’s Return of Income Tax Withheld”) for the first three quarters of the calendar year, on or before the last day of the month following the end of the quarter. Payment of the withheld tax for the quarter should be submitted with the return. For the fourth quarter, quarterly filers should submit Form K-3.
Employers withholding $2,000-$49,999 Kentucky income tax a year must file and pay on a monthly basis. They file Form K-1 for each of the first 11 months of the calendar year, on or before the 15th day of the following month and with payment of the tax withheld. Monthly filers submit Form K-3 for the last month of the calendar year.
Employers withholding $50,000 or more in Kentucky income tax a year must file and pay on a twice-monthly basis. Form K-1 must be filed for the first through the 15th of the month and is due on or before the 25th of the month. The 16th through the end of the month is due on or before the 10th of the following month. Payment of tax withheld for the reporting period must be submitted with the return. They file a Form K-3 for the last reporting period of the calendar year.

If you accumulate $100,000 or more tax during any reporting period, you must remit payment within one banking day. Regardless of your assigned reporting and payment frequency, you must file returns even when you’ve withheld no Kentucky income tax during the period.

All employer filing frequencies must electronically file and pay the income tax withheld through WRAPS (Kentucky’s Withholding Return and Payment System).

5. Prepare for federal payroll taxes

In addition to Kentucky state income tax, you generally must withhold federal income tax from an employee’s paycheck. You’ll need to collect IRS Form W-4, “Employee’s Withholding Certificate,” from each new hire, on or before the day they start work. The form is used to determine how much of an employee’s paycheck should be withheld for federal income taxes. Urge your employees to review the instructions and complete it properly.

You don’t have to submit Form W-4 to the IRS, but you must keep a copy on file for at least four years. It provides verification that you’re withholding federal income tax according to the employee’s directions and must be available for IRS inspection upon request.

You must also withhold each employee’s share of Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA). FICA is a federal tax that employers and employees split.

The 2023 tax rates for both employees and employers are 6.2% of the first $160,200 of an employee’s earnings for Social Security (for a total tax of 12.4%) and 1.45% of all wages for Medicare (a total of 2.9%).

You also may be required to withhold an Additional Medicare Tax. Employers must withhold the 0.9% on an individual’s wages paid in excess of $200,000 in a calendar year.

You must deposit federal income tax withheld and both the employer and employee portions of Social Security and Medicare taxes. You’re required to determine which schedule you must use (monthly or weekly) before the beginning of each calendar year.

In addition, you’ll need to pay federal unemployment taxes (FUTA) if you:

Paid wages of $1,500 or more to employees in any calendar quarter during the current or previous tax year, or
Had one or more employees for at least some part of a day in any 20 or more different weeks in the previous year or 20 or more different weeks in the current tax year, counting all full-time, part-time, and temporary employees.

The tax due is 6% of the first $7,000 of an employee’s wages during the year.

Deposits for the federal unemployment tax are required for the quarter within which the tax due exceeds $500. Deposits must be made by the end of the month following the end of the quarter.

You’ll want to stay current on your reporting, as well as your deposits, on all of these types of taxes. You do that on IRS Form 940, “Employer’s Annual Federal Unemployment Tax Return,” and IRS Form 941, “Employer’s Quarterly Federal Tax Return.”

Form 940 is due by January 31, but, if you deposited all FUTA taxes when due, you have until February 10 to file.

File your initial Form 941 for the quarter in which you first paid wages that are subject to Social Security and Medicare taxes or subject to federal income tax withholding. The form is due by the last day of the month that follows the end of the quarter.

If you made timely deposits in full payment of your taxes for the quarter, you can file Form 941 by the 10th day of the second month that follows the end of the quarter. For example, you may file it by May 10 for the first quarter (as opposed to April 30 if you didn’t).

After your first Form 941, you must file for every quarter, regardless of whether you have any taxes to report—unless you’re a seasonal employer or are filing your final return.

Also, employers must furnish a completed wage and tax statement (IRS Form W-2, “Wage and Tax Statement”) to each employee by the last day of January each year. Form W-2 shows the amounts of income, Social Security, and Medicare taxes you withheld in the prior year. You’re also required to send copies to the Social Security Administration and the Kentucky DOR (using Form K-5).

6. Comply with the new hire reporting requirements

Federal law and state law require employers to provide basic information on new hires or anyone who’s rehired or returns to work after a separation of employment of 30 days or more. This information is used to identify individuals who may owe child support or recipients of unemployment compensation who fail to report earnings.

You must submit new hire reports within 20 days after an employee is hired or re-hired or returns to work. You can submit your reports online or set up an automatic File Transfer Protocol using FTP client software.

Paper new hire reports can be faxed or mailed, using the Kentucky new hire reporting form, IRS Form W-4, or another list providing the required information. The mailing address is:

The Kentucky New Hire Reporting Center
P.O. Box 1130
Richmond, VA 23218-1130

7. Secure workers’ compensation insurance

Under Kentucky law, employers with one or more employees are required to obtain and maintain a policy of workers’ compensation insurance unless they have been authorized by the Commissioner of the Department of Workers’ Claims (the DWC, part of the Kentucky Labor Cabinet) to directly pay compensation to injured employees (in other words, to self-insure). Family members who work for the business, temporary workers, and part-time workers are considered employees.

You may purchase workers’ compensation insurance from any insurance carrier authorized to write workers’ compensation insurance in Kentucky. If the Commissioner approves you to self-insure, you must deposit a bond or letter of credit to secure the compensation liability incurred during your period of self-insurance. Employers must meet multiple criteria before being authorized to self-insure (for example, your assets must exceed your liabilities by $10 million, making this option unavailable for many businesses).

If you don’t have workers’ compensation insurance, you can be fined $100 to $1,000 for each of your employees for every day you lack coverage. If an employee is awarded benefits paid by the Uninsured Employers’ Fund (UEF), you must reimburse the UEF for any money paid and may be subject to legal action to collect these funds. Additionally, you’ll no longer be protected by the “exclusive remedy” provision of the workers’ compensation statute. That means injured employees can take you to court to seek pain and suffering, punitive damages, and any other relief allowed by law.

You may be able to reduce the cost of your workers’ compensation insurance by as much as 5% by maintaining a drug-free workplace. To qualify, you must have a written alcohol and drug policy distributed to employees, alcohol and drug testing, and an employee assistance program (EAP)—among other requirements.

8. Satisfy labor poster requirements

The federal and Kentucky governments require employers to post a variety of employment posters in a conspicuous location in the workplace.

Federally-mandated posters may include:

The U.S. Department of Labor has an online “poster advisor” to help employers determine which employment law posters they need to display.

Kentucky employers must also display the following posters:

9. Review the relevant employment laws

The required posters generally refer to federal and state employment laws that can trip up employers who aren’t up to speed on them. You should take the time to familiarize yourself with labor laws.

On the federal level, they include:

State laws include:

We get it—these steps can seem like a lot to handle. The good news is that automated tools and services like the ones Gusto offers can ease the burden. We’re here to help!