Guide to Kentucky employee benefits and HR rules

Is your organization compliant with Kentucky's employment laws?

If your company is Kentucky-based or you employ Kentucky workers, learning everything you need to know about HR compliance in the state is vital. This guide will provide a basic overview of Kentucky's employment and benefits regulations for small and medium-sized businesses.

Topics covered in this guide include:

• What are employment laws in Kentucky?
• What are employees’ rights in Kentucky?
• Required and non-required employee benefits in Kentucky
• Health insurance in Kentucky
• Wage laws in Kentucky

What are employment laws in Kentucky?

The federal government sets minimum benefits and HR requirements for employers nationwide. But many states create their own employment laws that are an addition to federal regulations—and Kentucky is no exception.

Before opening or expanding your business in Kentucky, you should familiarize yourself with state employment laws.

In Kentucky, employers must follow several state-specific laws in addition to federal employment laws, such as:

• At-will employment
• Kentucky is an “at-will” employment state, meaning employers and employees can end an employment agreement at any time, with or without cause (provided there is no written contract stating otherwise).
• According to the Kentucky Civil Rights Act, employers can’t terminate an employee based on discrimination or other illegal factors. Employees who believe their employer fired them illegally can file a complaint to the Kentucky Commission on Human Rights.
• Kentucky Civil Rights Act (KCRA)
• The Kentucky Civil Rights Act (KCRA) prohibits discrimination, harassment, and retaliation based on protected characteristics, including race, color, national origin, age, religion, mental or physical disability, sex, and pregnancy-related medical conditions.
• The KCRA applies to all public and private employers with eight or more employees. But for disability and pregnancy discrimination purposes, the Act applies to employers with 15 or more employees.
• Right-to-Work Laws
• As a right-to-work state, Kentucky employers can’t deny or refuse an individual a job based on if they’re a member (or not a member) of any labor union or organization. They also can’t refuse employment based on an individual’s payment (or lack of payment) of labor dues or other related fees.
• Kentucky Pregnant Workers Fairness Act
• Employers must provide reasonable accommodations to employees with medical conditions relating to pregnancy, childbirth, and other health-related situations. Accommodations may include more frequent rest periods, additional time off, creating safe and private spaces for expressing breast milk, and more.
• This Act applies to employers who’ve had at least 15 employees in 20 or more calendar weeks in the current or previous calendar year.
• Kentucky Child Labor Laws
• Child labor laws in Kentucky outline the ages of minors that are eligible to work, their prohibited jobs, the number of hours they can work, the time they can work, regulations regarding lunches and breaks, and other employer requirements.
• Kentucky Equal Pay Law
• This law prohibits wage discrimination between two employees doing similar work based solely on sex. Wage differences are acceptable if determined by seniority or merit.
• Workplace Drug Testing Laws
• As long as they follow specific regulations, employers can drug test current and prospective employees once the employer extends a job offer.​
• If an employer implements a drug testing policy, it must include drug and alcohol testing. They aren’t allowed to test based on discriminatory factors like age, race, sex, religion, etc. They can also terminate employees who test positive on random drug tests.
• Organizations certified as drug-free workplaces can receive a discount on their workers' compensation insurance premiums.
• Kentucky Whistleblower Act
• This Act protects employees from retribution for reporting abuses of authority, mismanagement, law violations, public health or safety dangers, and fraud as long as they make the report in good faith.
• Reporting Laws
• Employers must provide the Cabinet for Health and Family Services with a report containing the names, addresses, and Social Security numbers of all new hires and employees returning to work after a furlough or layoff.
• Business owners must submit the report within 20 days of a new hire’s start date, date of hire, or date of an employee’s return to work.

Now that we’ve reviewed a few Kentucky-specific laws, we’ll review the state’s employee rights.

What are employees’ rights in Kentucky?

Employees in Kentucky have many rights under state and federal law. Regardless of your organization's size, you must know your employees' rights if you have or plan to hire employees in the state.

Some state rights include:

• Fair wages
• Employers must pay the federal minimum wage and overtime pay.
• Meal periods
• Employees must have a meal break, or lunch period, as close to the middle of their shift as possible. The break must be a reasonable period of time, and it can’t be before three hours into their shift or five hours after their shift starts.
• Employers can offer unpaid meal breaks if the employee doesn’t conduct any work during their break.
• Rest periods
• Employees must receive a ten-minute paid rest break for every four hours they work. The rest break is in addition to their meal break.
• Weapons in the Workplace
• Employees may keep concealed weapons, including firearms and ammunition, in their locked personal vehicle while on their employer’s property. They can retrieve their weapon only to defend themselves, others, or company property.
• The law doesn’t apply to company vehicles or employees who move their firearms to another location outside the vehicle for non-defensive purposes.
• Medical examinations
• Employers can’t require potential or current employees to pay for medical examinations or the cost of providing medical records as part of their conditions of employment.
• The Kentucky Safety and Health (OSH) Program
• Alongside the Occupational Safety and Health Administration (OSHA), The Kentucky Safety and Health (OSH) Program enforces standards, training, and services related to workplace safety and health to prevent harmful conditions or practices at places of work.
• The OSH program applies to all employees in the public and private sectors except those working in federal government positions.
• State continuation of health coverage under Kentucky law
• Employees with fully-insured health plans that aren’t eligible for the Consolidated Omnibus Reconciliation Act of 1986 (COBRA) may qualify for group coverage continuation if their employer has fewer than 20 employees.
• Under the state continuation law, employees and their eligible dependents can extend their coverage up to 18 months after no longer being a group member. After 18 months, they must switch to an individual health plan or get coverage through an employer to continue to have health coverage.

Health insurance coverage in Kentucky

Like in many other states, if you’re a business owner in Kentucky with fewer than 50 workers, you aren’t required to provide health insurance benefits. But if you employ 50 or more full-time equivalent employees (FTEs), you must offer health insurance that meets minimum essential coverage (MEC) to satisfy the Affordable Care Act’s (ACA) employer mandate.

Even if you don’t have to offer health benefits by law, it’s a great way to help your business stay competitive and attract talented employees. But traditional group health insurance can come with high premiums, annual rate hikes, and strict participation requirements that many businesses may be unable to manage.

Let’s look at the numbers. Small group health plan premiums in some Kentucky counties can cost as much as $652 per employee per month. In comparison, the average monthly premium for a 40-year-old with a silver individual health plan can be as low as $479. This makes covering the cost of individual health plans in Kentucky more affordable for small to medium size businesses.

If you find that individual health insurance premiums are more affordable than group premiums in your county in Kentucky, you can leverage a health reimbursement arrangement (HRA) or a health stipend to cover the cost of individual health plan premiums instead of offering a group health insurance plan.

Health reimbursement arrangement (HRA)

An HRA is a flexible health benefit owned and funded by the employer. It allows you to reimburse your employees, tax-free, for their individual health insurance premiums and eligible out-of-pocket expenses.

With an HRA, your employees choose the individual health insurance plan that suits their medical needs and budget. They can shop for a plan using a private exchange or through Kentucky’s health insurance marketplace, Kynect.

HRAs offer many advantages for employers. They’re more customizable than group health insurance plans, have no annual rate hikes or participation requirements, and can help you control your budget by allowing you to choose your preferred monthly allowance amount.

Some HRAs, like the qualified small employer HRA (QSHERA), are only for employers with fewer than 50 FTEs. But others, such as the individual coverage HRA (ICHRA), are made for employers of all sizes and can even satisfy the federal regulations for applicable large employers (ALEs). This flexibility makes an HRA suitable for all categories of employers.

Learn more about each HRA

Health and wellness stipends

With a health stipend, you can offer your employees a fixed amount of money they can use on healthcare items, services, and insurance premiums. A health stipend isn't a formal group health plan, so you have complete control over which expenses are eligible for reimbursement and aren’t subject to many IRS compliance regulations.

You can offer as much stipend allowance as your budget allows, and employees can purchase the medical items that work for them and their families. This makes stipends a more personalized option than group health insurance and flexible enough to accommodate all your employees’ needs.

Stipends are a taxable health benefit, but they’re also customizable. For example, small to medium-sized companies looking for a benefit that covers other expenses, like mental health counseling and gym memberships, can do so with a wellness stipend.

Offering a health and wellness stipend together gives your employees greater coverage for their overall well-being and happiness.

Wage laws in Kentucky

Wages in Kentucky are subject to various state laws. We've compiled the most important requirements to know below.

Minimum wage laws

The minimum wage in Kentucky is $7.25 an hour, which is also the federal minimum wage. Should the federal minimum wage rate rise in the future, Kentucky will raise its minimum wage to match it.

All employers must meet the minimum wage rate. It’s illegal for employers to pay employees with disabilities, trainees, apprentices, and student learners and workers a lower wage rate the standard minimum wage.

Tipped wages

Employers can pay their tipped employees $2.13 per hour. However, they must ensure the employee’s hourly wage plus tips equals the minimum wage rate of $7.25 per hour. If the combined amount doesn’t reach the minimum wage rate, the employer must make up the difference.

Additionally, employers can’t require their employees to participate in tip pooling or sharing, which distributes a worker’s tips among other employees. An employer may inform employees that tip sharing is an option and explain how it works. After that, employees can choose if they want to participate.

Workweek

Kentucky defines a workweek as a recurring period of 168 hours or seven consecutive 24-hour periods. Individual employers can decide when their workweek begins and set different workweeks for different employee groups. They aren’t required to align their workweek with the calendar week.

Employers are also free to determine how many hours an individual must work to be a full-time or part-time employee.

Hours worked

According to Kentucky wage and hour laws, employees must pay their employees based on their total hours worked. This includes a variety of instances, such as work performed during an employee’s regular shift, outside their regular shift, or away from the employer’s workplace.

Hours worked include the following situations:

• Waiting time: Depending on the situation, employers must pay for the time employees spend waiting to work. Some examples are a truck driver waiting for their coworker to load their delivery vehicle or a factory worker waiting for vital machinery repairs.
• On-call time: Employers must pay on-call employees if they must stay near the employer’s premises and can’t conduct personal business. On-call employees who leave the premises and have time to themselves are off-duty for compensation purposes, so employers aren’t required to pay them.
• Sleeping time: Employers must count sleeping time as hours worked if the employee is on-call while sleeping. Individuals in these positions may be domestic services workers like nannies or caregivers. Because it’s difficult to separate on- and off-duty hours in these cases, the employer and employee must come to a mutual agreement beforehand to determine how they will calculate sleeping time.
• Travel time: Employers must pay employees that travel as part of their regular job, such as business trips and traveling between job sites or offices during the day. This excludes regular commuting to and from work.
• Meeting, lecture, and training time: Employers must pay for employees' time at meetings, training, and other similar activities. Employers are exempt from paying if the meeting or training takes place outside the employee’s regular shift, attendance is voluntary, the event isn’t role-specific, and the employee can’t work during the event.

Employers aren’t required to pay employees for showing up for their shifts if they perform no work, or the employer dismisses them before their scheduled shift ends.

Regular pay rate

Employers can change an employee’s regular pay rate. But they must inform the employee of the change before they complete any work at the new rate. The change can’t be retroactive or made without notifying the employee.

Overtime pay

Similar to federal overtime rules, Kentucky law requires employers to pay their employees 1.5 times their regular rate when they work in excess of 40 hours in a given workweek and for any hours worked on the seventh day if an employee works seven days in a workweek.

There are no laws prohibiting employers from requiring their employees to work overtime and no limit to the number of hours they can require them to work in a day.

Some employees exempt from overtime laws are those working in sales or retail stores, administrative workers, salaried professional employees with specialized skills, and employees working in restaurants, hotels, or motels.

Prevailing wages

While Kentucky doesn’t have a prevailing wage law, Kentucky employees may be eligible to receive prevailing wages if they work on government-funded projects or perform certain government services. Prevailing wages may differ from the federal minimum wage depending on the employment contract or project.

Pay deductions

Employers are only allowed to make pay deductions in certain situations.

Eligible deductions Kentucky employers may make include from an employee’s paycheck include:

• Deductions required by local, state, or federal law, such as taxes, Social Security, court orders, and wage garnishments
• Deductions detailed in written agreements between the employer and employee, such as health and life insurance premiums, hospital and medical bills, and union dues.

Employers may not withhold or deduct wages from an employee’s paycheck for:

• Personal fines
• Cash shortages in a till, cash box, or register if used by two or more employees
• breakage
• Losses due to acceptance of a bad check
• Losses due to a defective item
• Lost, stolen, or damaged property
• Default or nonpayment to a customer for goods or services if the loss wasn’t intentional by the employee

Pay frequency

All Kentucky employers must pay their employees at least twice a month and no later than 18 days after the end of each pay period. Any employee who misses their scheduled payment, for whatever reason, must receive their unpaid wages within six days of requesting them.

Payment methods

Under Kentucky law, an employer may pay wages by:

• Cash
• Payable checks
• Direct deposit
• Employers can require direct deposit payments provided the employee can withdraw their entire paycheck without incurring a fee or penalty from their bank or financial institution.
• Payroll card account
• Employers aren’t allowed to charge the employee for the payroll card’s activation fee. Each pay period, they must allow the employee to make at least one withdrawal of any amount without penalty.

Pay statements and recordkeeping

Employers with ten or more employees must provide each employee with a pay statement at the end of each pay period. It must include an itemized list of all deductions and their general purpose.

Additionally, all employers must keep records showing the wages paid to each employee each pay period, the number of hours they worked each pay period, and other relevant information for authorized individuals upon request.

Final pay

Once an employee leaves an organization for any reason, employers must pay all their final wages and benefits no later than their next scheduled payday or within 14 days after separation, whichever is later.

Employers aren’t required to provide severance pay unless otherwise stated in the worker’s conditions of employers or contract.

Frequently asked questions