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It’s rather simple to process payroll and calculate Kentucky payroll taxes. Kentucky, unlike some other states, has no local taxes and just one state payroll tax form, making it one of the most straightforward states in which to administer your company’s payroll.
How to Run Payroll in Kentucky: A Step-by-Step Guide
Kentucky makes payroll simple for companies by following federal requirements in general. Attempting to compute Kentucky payroll taxes or Kentucky withholding tax by hand, on the other hand, might lead to expensive errors. The following are the fundamental stages of running payroll in Kentucky.
Step 1:
Register your company as an employer. To get a new Federal Employer Identification Number (FEIN), new businesses may need to use the federal Electronic Federal Tax Payment System (EFTPS) (FEIN). To pay federal taxes, you’ll need your FEIN.
Step 2:
Register your company with the Kentucky Department of Commerce. If your company is brand new, you must create an account on the Kentucky Secretary of State’s website. The Kentucky Department of Revenue requires every firm that pays workers in Kentucky to register.
Step 3:
Set up your payroll system. This includes selecting how frequently and when you’ll pay workers, as well as what method you’ll use to issue their paychecks (paper checks versus direct deposit), how you’ll handle onboarding, and how you’ll keep track of employee information. To assist you with your Kentucky payroll, you may process payroll by yourself (not advised), create an Excel payroll template, or use a payroll service.
Step 4:
Have staff complete the necessary paperwork. During the onboarding process, any firm that recruits workers in Kentucky are required to gather specific paperwork. On their first day on the job, every employee must undergo I-9 verification. New workers must also have a completed W-4 on file, especially the Kentucky Withholding Certificate or Form K-4, which is the state counterpart of the W-4.
Step 5:
Go through the timesheets and approve them. You should begin processing your company’s paycheck many days before the due date. You must gather and evaluate recorded work hours from hourly and nonexempt workers during this period in order to talk with anybody who may have committed a mistake. Employee time tracking may be done in a variety of methods, some of which are free.
Step 6:
Work out the gross compensation and taxes for each employee. It is not advisable to calculate Kentucky payroll by hand. Kentucky has a statewide flat income tax of 5%. The flat tax makes payroll planning easier for workers and simplifies your computations. If you need additional information, look into how to calculate payroll.
Step 7:
Reimburse employees for their salary, benefits, and taxes. The majority of businesses now pay their staff through direct deposit. However, you may pay with cash (which isn’t the greatest choice) or a paper check. Make sure your workers are paid at least $7.25 per hour since Kentucky’s state minimum wage reflects the federal minimum wage. You may pay your federal and state taxes online in Kentucky. If you utilize a benefits provider, they should collaborate with you to make deductions as straightforward, automated, and electronic as possible.
Step 8:
Make a backup of your payroll data. It’s a good idea to keep track of your company’s finances. Employers must also preserve the following records for at least one year under Kentucky law:
- Name and number of the employee
- The number assigned by the Social Security Administration
- Address of your residence
- Year of birth
- Sex
- Occupational title
- Working hours for each workday, week, and pay period
- Average hourly wage and total earnings
- Overtime wage in total
- Each pay period’s bonus payouts and deductions
- Total earnings received for each pay cycle and pay date
Step 9:
Register with the federal and state governments to file payroll taxes. All Kentucky state taxes must be paid on time, generally quarterly, to the appropriate state agency, which you may do online at the Kentucky Department of Revenue website. You may pay your federal taxes online using the EFTPS on one of the two schedules shown below:
- When the IRS sets you a monthly schedule, you must deposit employment taxes on payments received during that calendar month by the 15th of the next month.
- When the IRS gives you a semiweekly schedule, you must deposit employment taxes by the following Wednesday for payments made Wednesday, Thursday, and Friday, and by the following Friday for payments made Saturday, Sunday, Monday, and Tuesday.
It’s important to note that the reporting and depositing of employment taxes are not the same things. You must submit taxes quarterly on Form 941 or yearly on Form 944, regardless of your payment schedule.
Step 10:
Finish your payroll reports for the year. You’ll need to file payroll reports every year, including all W-2 and 1099 forms. Employees and contractors must receive these forms by January 31 of the following year.
Payroll Laws, Taxes, and Regulations in Kentucky
Of course, you must observe federal law when it comes to Taxes on income, Social Security, Medicare, and the Federal Unemployment Tax Act (FUTA). In the United States, most companies are required to pay Federal Insurance Contributions Act (FICA) taxes. FICA tax rates for Social Security and Medicare are now 6.2 percent and 1.45 percent, respectively. Both the employer and the employee will be responsible for these taxes, with each paying 7.65% of the total.
It’s critical to know how to compute Kentucky payroll taxes and how to apply the relevant rules to ensure correct payroll. Review the various rules, taxes, and regulations associated with handling payroll in Kentucky below to help you stay in compliance with payroll requirements.
Taxes in Kentucky
Kentucky, like other states, has specific taxes that businesses must pay. Kentucky, on the other hand, does not impose municipal taxes, so you just have to worry about state taxes.
Unemployment Taxes for Employers
In Kentucky, all companies are required to pay State Unemployment Tax Act (SUTA) taxes. The current salary base is $10,800, with rates ranging from 0.3% to 9.0%. For the first year, all new employers in Kentucky will pay a SUTA rate of 2.7 percent. Businesses who pay SUTA on time and in full might get a 5.4 percent tax credit on their FUTA taxes.
Compensation for Employees
Kentucky businesses with one or more employees must carry Compensation for Employees insurance. Compensation for Employees insurance provides benefits to employees who suffer on-the-job injuries. The state usually starts to pay these benefits a week or two after a worker is out of work because of their injuries and only covers their lost income and medical bills. There are, however, exceptions to this requirement. If your company employs workers who fall into one of the following categories, you may not need to carry Compensation for Employees insurance:
- Workers at the home
- Agricultural employees
- Employees of religious and charity organizations
Companies always have the option to offer Compensation for Employees’ insurance if they want to do so.
Taxes on income
Kentucky has reciprocity agreements with Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin, unlike several other states. Employees may be taxed in their home state rather than the state where they receive their salary under these regulations. Employees will no longer be subject to double taxation.
Let’s pretend you own a company in Covington, Kentucky, and one of your employees resides in Cincinnati, Ohio. Your Ohio employee is paid in Kentucky, but due to a reciprocity agreement between the two states, you just have to deduct Ohio taxes from their payment. Employees may pay 0 percent to 3.688 percent in income tax in Ohio while working in Kentucky, depending on their earnings.
Minimum Wage in Kentucky
Kentucky has a simple minimum wage that is the same as the federal minimum wage. Kentucky’s minimum wage was last increased in 2008, to $7.25 per hour. Tipped workers must be paid at least $2.13 per hour if their gratuities bring them up to the hourly minimum wage. If this is not the case, the corporation will be required to make up for the shortfall.
Overtime Calculation
Kentucky’s overtime regulations adhere to the standards of the Fair Labor Standards Act. For hours worked beyond 40 in a workweek, all businesses are required under the FLSA to pay workers 1.5 times their usual hourly rate.
Employee Remuneration
Employers must pay workers at least twice a month, according to Kentucky law. Employees must be paid within 18 days after the end of the pay period in which they received the salary.
Pay Stub Regulations
Companies with ten or more workers are required by Kentucky law to give each employee a pay stub. The entire payment as well as any deductions for that pay period must be included on each pay stub.
Deductions from Kentucky Paychecks
Employers in Kentucky are prohibited from taking any of the following from an employee’s pay:
- Fines
- Money shortages
- Company property that has been damaged, lost or stolen
The legislation goes on to declare that an employer cannot deduct an employee’s salary unless the following conditions are met:
- A government agency has given you permission to do so.
- The employee has given his or her written approval.
Please keep in mind that, according to the Department of Labor, a corporation cannot deduct from an employee’s salary if doing so would result in the person earning less than the federal minimum wage ($7.25 per hour) for the pay period.
The Final Paycheck of a Terminated Employee
Whether an employee quits, gets fired, or is dismissed for any other reason, Kentucky law requires employers to pay an employee’s last paycheck on the next normal payday after their last day of work, or within 14 days of separation, whichever comes first.
Use one of our suggested methods to generate a free payroll check if you need to pay an employee right away and aren’t presently utilizing a service.
HR Laws in Kentucky That Affect Payroll
There isn’t much state-specific HR legislation in Kentucky. That doesn’t mean you can skip through the next several parts; you’ll still need to make sure you’re following federal requirements, which Kentucky law mostly follows.
New Hire Reporting in Kentucky
Every employer in Kentucky must report new hires and any rehired employees to the New Hire Reporting in Kentucky Center. Every employer must report new hires within 20 days of the date of hire. This report is used to enforce child support orders and must include the employee’s name, address, and Number assigned by the Social Security Administration.
Breaks and Meals
Every company in Kentucky is obligated to provide workers with at least 10 minutes of rest for every four hours of work. This rest time is a paid break, according to the Kentucky Labor Cabinet.
Companies must also allow employees to take a fair amount of time for a meal break, no earlier than the third hour of a work shift and no later than the fifth hour. So long as the employee is totally freed of their job tasks, the lunch break does not have to be compensated.
Child Labor Laws in Kentucky
When school is not in session, Kentucky law enables minor children aged 14 and 15 to work up to 40 hours per week. They may only work three hours per day and 18 hours per week while school is in session for the whole week.
Minors between the ages of 16 and 17 are allowed to work up to six hours each school day and 30 hours per week. When their children work more than 40 hours per week while school is in session, they must request that the school submit a Certificate of Satisfactory Academic Standing Form and a Parent/Guardian Statement of Consent Form. There are no limitations on working hours while school is not in session.
Requirements for time off and leave
Varied states have different rules for giving workers time off and leave to care for themselves following an accident or a sick family member. You’ll have to observe certain federal regulations. Kentucky follows these standards in general, making your work easier than if your company was based in another state.
Kentucky adheres to the Family and Medical Leave Act (FMLA), which mandates that all qualified companies give up to 12 weeks of unpaid leave to workers with a qualifying ailment. Pregnancy and caring for a sick family member are examples of this. The FMLA does not compel businesses to pay workers for this time off, but it does require employers to maintain the employee’s position or one that is substantially comparable, open when they return. Kentucky’s state legislation does not allow for any further leave.
Kentucky has no regulations mandating companies to give paid time off (PTO), including sick leave, to its workers. Companies in Kentucky have the freedom to set their own PTO rules, which may include whether or not they pay out accumulated and unused PTO when an employee quits. Because organizations in Kentucky are not required to do so, it’s a good idea to have this explicitly outlined in your company policy. It’s critical to follow your policy’s instructions to avoid being held accountable.
There is no regulation in Kentucky that requires private enterprises to pay workers for holidays or to pay them a higher rate for working on a holiday. A business may choose to do so, but it must abide by the FLSA.
Employers are required by Kentucky law to offer workers at least four hours of paid time off in order to vote or get a vote-by-mail ballot. An employee must request this time at least one day ahead of time, and the employer may tell the employee when they should vote. Employers are not required to compensate workers for time spent under Kentucky law, so as long as their job is protected for at least four hours and the employee really votes, they should be allowed to return to work as usual.
In Kentucky, an employer is not compelled to compensate an employee for time spent on a jury. However, Kentucky law prohibits an employer from firing, penalizing, threatening, or coercing an employee to skip jury duty.
Businesses in Kentucky are not required to give bereavement leave to their workers. Companies are free to set a policy and must follow it if they do so.
Forms for Payroll
Forms for Payroll can vary from state to state, and some have their own W-4, like Kentucky. Fortunately, that’s the only one.
Here is a complete list and location of all the federal Forms for Payroll you should need.
- W-4 Form: Provides information on employee withholdings so you can properly calculate and withhold federal and state taxes on income.
- W-2 Form: This form is used to record each employee’s total yearly pay.
- W-3 Version: A summary form of the W2 that is used to report total yearly salaries for all workers.
- Form 940; is used to compute and submit unpaid unemployment taxes to the Internal Revenue Service (IRS).
- Form 941; is used to submit quarterly income tax returns.
- Form 944; is used to submit yearly income tax returns.
- 1099 Forms: Provides details for contract work performed by non-employees.
Conclusion
Kentucky is one of the easiest states to manage payroll in since it simply has one state-specific payroll form and no municipal taxes to compute. The majority of Kentucky’s payroll and human resources rules are aligned with federal requirements, so you won’t have to worry about overlapping restrictions.
Frequently Asked Questions
What information do employers need for payroll?
Employers need to know your social security number, how many hours you work per week, and what day of the month you were hired. The employer also needs to know if they will be withholding taxes from your paycheck or not.
How do I set up payroll in Kentucky?
The process for setting up payroll in Kentucky is simple, though it will vary from state to state. If you are a business owner or an employee who does not work as part of an organization with its own administrator then you should be able to set your company up yourself.
