Misclassification

Misclassification happens when an employer calls someone who is an employee a “subcontractor” or an “independent contractor” to avoid providing benefits such as Unemployment Insurance, or to avoid withholding and remitting payroll taxes.

Fraud

Fraud happens when someone intentionally lies about a material fact to affect unemployment insurance or workers compensation obligations or benefits, whether their own or someone else’s.

The misclassification of employees as independent contractors is illegal.

When employees are misclassified as independent contractors or subcontractors, employers avoid paying required unemployment coverage, worker’s compensation insurance, and other employer-paid taxes and withholdings. There are serious consequences for employers that misclassify workers, including:

• Tax penalties and interest
• Labor law and workplace safety violations
• Back unemployment insurance premiums
• Costly lawsuits if a worker is injured on the job

Per KRS 341.990(6)(a) (opens in a new tab), “[a]ny person who knowingly makes a false statement or representation, or who knowingly fails to disclose a material fact to prevent or reduce the payment of benefits to any worker entitled thereto, or to avoid becoming or remaining subject to this chapter, or to avoid or reduce any payment required of an employing unit under this chapter shall be guilty of a Class A misdemeanor unless the liability avoided or attempted to be avoided is one hundred dollars ($100) or more, in which case he shall be guilty of a Class D felony.”

We need your help. Your identity will be kept confidential.

If you know a business is intentionally misclassifying its employees, contact us immediately. You may report worker misclassification or fraud by either of the methods identified below:

• Online report (preferred method): select one of the report buttons below and complete the online form.
• Email: print, complete, and email the document linked below to UiAuditors@ky.gov.
• Fax: print, complete, and submit the document linked below to (502) 564-5590.
• Phone: call (502) 564-6838 and be prepared to provide specifics about the business you are reporting for investigation.
• Mail: print, complete, and submit the document linked below to Office of Unemployment Insurance, Tax Audit Branch, P.O. Box 948, Frankfort, KY 40601.

Investigation outcomes

Specific details about investigations must remain confidential by law.

Related IRS resources

• Reporting suspected tax fraud activity to the IRS: Information Referral Form 3949-A (PDF, opens in a new tab)
• Determination of worker status for purposes of federal employment taxes and income tax withholding: Form SS-8 (PDF, opens in a new tab)

Other resources

• Misclassified Worker Web Reporting Document (PDF, opens in a new tab)
• Misclassified Worker Brochure (PDF, opens in a new tab)