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Payroll management in Kentucky

Kentucky has a diverse economy supported by industries such as manufacturing, agriculture, healthcare, and logistics. With a relatively low cost of doing business and competitive tax rates, Kentucky offers a favorable environment for employers. However, businesses must comply with payroll regulations, including minimum wage laws, unemployment insurance taxes, and workers’ compensation requirements. Understanding these regulations ensures compliance and smooth payroll operations.

Payroll breakdown in Kentucky

Employers in Kentucky must adhere to both federal and state payroll regulations regarding wages, taxes, and benefits. Below is an overview of key payroll components:

Minimum wage and overtime

  • Minimum wage: Kentucky’s minimum wage is $7.25 per hour, aligning with the federal minimum wage.
  • Overtime rules:
    • Kentucky follows federal overtime laws, requiring employers to pay 1.5 times an employee’s regular rate for hours worked beyond 40 hours in a workweek.
    • Kentucky does not mandate daily overtime.

State income tax

  • Kentucky has a flat state income tax rate of 4.5% for all employees.
  • Employers must withhold state income tax and remit it to the Kentucky Department of Revenue.

Unemployment insurance (UI) tax

  • Employers must contribute to Kentucky’s Unemployment Insurance (UI) program, managed by the Kentucky Office of Unemployment Insurance.
  • The wage base for UI tax in Kentucky is $11,400.
  • UI tax rates vary based on an employer’s experience rating and range from 0.3% to 9.0%.

Workers’ compensation

  • Kentucky law requires most employers to carry workers’ compensation insurance to cover medical expenses and lost wages for employees injured on the job.

Payroll tax filing and payment deadlines

  • Employers must register for a Kentucky Withholding Tax Account Number with the Kentucky Department of Revenue.
  • State withholding tax returns must be filed monthly, quarterly, or annually, depending on employer classification.
  • UI tax reports must be submitted quarterly to the Kentucky Office of Unemployment Insurance.
  • Payroll tax payments can be made electronically through the Kentucky Department of Revenue’s online system.

Quick facts: Important considerations for employers

  • State minimum wage compliance: Kentucky follows the federal minimum wage, and employers must comply with federal regulations.
  • Final paycheck rules:
    • If an employee is terminated, employers must provide the final paycheck by the next scheduled payday or within 14 days, whichever is earlier.
    • If an employee resigns, the final paycheck must be provided by the next scheduled payday.
  • New hire reporting: Employers must report new hires to the Kentucky New Hire Reporting Center within 20 days.
  • Paid sick leave: Kentucky does not mandate paid sick leave, but employers may voluntarily provide this benefit.
  • Payroll recordkeeping: Employers must maintain payroll records for at least three years to comply with state and federal laws.
  • Right-to-work state: Kentucky is a right-to-work state, meaning employees cannot be required to join or pay dues to a labor union as a condition of employment.

Run payroll in Kentucky with Remote

Managing payroll in Kentucky requires careful attention to state-specific regulations, including minimum wage compliance, UI tax requirements, and workers’ compensation laws. Employers must stay informed about tax rates, wage laws, and reporting deadlines to ensure smooth payroll processing and avoid penalties.

To see just how easy global payroll can be, book a demo today.