Kentucky Household Employer Guide 2026
Your household employee — a nanny, caregiver, housekeeper, or anyone who works in your Kentucky home — is a W-2 employee. Kentucky is relatively light for household payroll: federal minimum wage, no statewide paid leave, a flat 3.5% state income tax if withholding is elected, KY unemployment filings, and local occupational taxes in some cities and counties.
Start Payroll Free →When the rules apply
Kentucky household employers mainly need to watch federal payroll thresholds and the $1,000 quarterly Kentucky unemployment threshold.
How Nest Payroll handles this
Each pay period, you pay your employee the net amount directly — through Venmo, Cash App, Zelle, your banking app, or by check. Nest generates the pay stub, calculates payroll taxes, and registers you with KY OUI once the $1,000 quarterly threshold applies.
Federal taxes — quarterly EFTPS payments
At the end of each federal quarter (March, May, August, December), Nest debits your bank account for the federal taxes owed — FUTA, employer + employee FICA, and any federal income tax withheld — and remits them to the IRS via EFTPS. You'll get a confirmation email a week beforehand. Your money stays in your account until taxes are actually due. We don't hold withholdings on your behalf. At year-end, Schedule H on your Form 1040 reconciles everything Nest already paid through the year; Nest produces a signature-ready version.
Kentucky state taxes — quarterly UI filings
Each quarter, Nest files the UI-3 with the Kentucky Office of Unemployment Insurance for state UI tax — an employer-paid contribution, not withheld from your employee.
Setup checklist (before they start)
Workers' Compensation Insurance — voluntary for single-employee households
Under KRS 342.650(2), Kentucky household employers are required to carry workers' compensation insurance only if they employ two or more household workers, each working 40 or more hours per week. Single-employee households (the typical situation) are exempt.
That said, voluntary coverage is still worth considering. Workers' comp can protect you if your employee is injured on the job and gives the employee a predictable benefits path without a lawsuit.
Two paths to coverage
- Homeowner's or renter's insurance rider — call your insurance company first. Many KY policies include or can add household-employee coverage as a low-cost rider.
- Standalone household-employer policy — available from KY-licensed private carriers if your homeowner's policy can't cover it.
Form I-9 (Employment Eligibility)
Federal law requires all employers to verify employment eligibility using Form I-9. Complete this before your household employee's first day of work.
Federal W-4 + Form K-4 (optional Kentucky withholding)
The federal W-4 determines how much federal income tax to withhold from each paycheck. Kentucky uses Form K-4 to set state withholding. KY has a flat 3.5% rate (down from 4.0% in 2025) with a $3,360 standard deduction.
Kentucky New Hire Reporting
Kentucky requires all employers to report newly hired and rehired employees to the Kentucky New Hire Reporting Center within 20 days of the hire date.
Required Employment Posters
Kentucky employers must provide several state-mandated notices to their workers:
Written Work Agreement
Kentucky state law doesn't require a written employment agreement, but a written contract prevents misunderstandings about hours, duties, PTO, and house rules.
Build a free contract with our editable template: Nest Payroll Household Employee Contract Builder — fill it out and download as a PDF.
Pay & compensation
Minimum Wage — federal floor of $7.25/hr
Kentucky has not enacted a minimum wage above the federal Fair Labor Standards Act floor of $7.25 per hour. Under KRS 337.275, the state minimum mirrors the federal rate. KY also preempts cities and counties from setting higher local minimum wages (Louisville and Lexington had attempted higher rates in past years; the KY Supreme Court struck them down in 2016).
Overtime
Kentucky follows the federal Fair Labor Standards Act (FLSA) standard: 1.5× the regular hourly rate for all hours worked over 40 in a 7-day workweek. KY also has an unusual state-only "7th-day premium": under KRS 337.050, employees who work 7 consecutive days in a workweek must be paid 1.5× their regular rate for the work performed on the seventh day, even if the weekly total is below 40.
| Condition | Rate |
|---|---|
| Live-out, more than 40 hours in a workweek | 1.5× hourly |
| 7th consecutive day worked (KRS 337.050) | 1.5× hourly |
| Live-in employees (any hours) | Exempt from overtime |
| Work performed on a holiday or weekend (otherwise routine) | No premium required |
"No Tax on Overtime" Deduction (2025–2028)
The federal overtime deduction may let household employees deduct the premium portion of qualifying overtime pay on their personal tax return. This is a federal income-tax rule; it does not change how you calculate overtime, FICA, Kentucky withholding, or payroll records.
Pay Frequency
Household employees are virtually always hourly under federal FLSA — even when you've agreed to pay a "salary," it's treated as a wage covering a fixed number of hours per week, with overtime owed on hours past 40. Under KRS 337.020, employers must pay employees as often as semi-monthly; weekly and bi-weekly are common alternatives.
Whatever cadence you pick, designate the regular paydays in writing at hire and stick to them.
Mileage Reimbursement
Kentucky does not require mileage reimbursement, but you must reimburse necessary work-related driving expenses if those costs would otherwise reduce your employee's wages below the minimum wage. Most KY employers use the IRS standard rate:
$0.725 per mile (2026)
Common reimbursable household-employee miles: driving children to activities, running household errands, taking a senior client to medical appointments. (Commuting to/from work doesn't count.)
Paystub Requirements
Under KRS 337.070, each pay period you must provide your employee with an itemized statement showing hours worked, rate of pay, gross wages, deductions itemized, and net wages. Records must be retained for at least 3 years.
Kentucky payroll is simpler than many states, but it still has to be done right.
Nest Payroll handles federal and Kentucky payroll, W-2s, and Schedule H — starting at $42/mo. 14-day free trial.
Time off & leave
Kentucky does not have a state-mandated paid sick leave law, paid family leave program, or required vacation time.
Paid Sick Leave
Kentucky has no statewide paid sick leave law. The state preempts local sick leave ordinances as well — so neither Louisville nor Lexington can mandate paid sick time for KY employers.
Even though it's not legally required, offering some sick leave is good retention practice. A typical household employer offers 3–5 paid sick days per year. Records should be maintained either way.
Frontloading is the easy way to handle paid time off
If you choose to offer paid sick or PTO time as a benefit, frontloading is the simplest approach: provide the full annual amount upfront at the start of each year (or pro-rated at hire), and let your employee draw against it as time is used. This avoids per-hour accrual tracking and unused-time reconciliation.
Vacation & PTO
Kentucky does not require paid vacation. If you offer it, document the policy in writing — under KY law, vacation pay is enforceable to the extent your written policy states it will be paid out at separation. Without a written policy, KY courts have treated accrued vacation as wages owed at separation.
Local occupational taxes (Louisville, Lexington, others)
Kentucky has broad local occupational license taxes. If your household employee works in a city or county with an occupational tax, the employee may owe local tax on those wages, and some localities may expect employer withholding.
Upon departure
Final wages: Under KRS 337.055, all wages owed to a separated employee — whether terminated or resigning — must be paid no later than the next regular payday or 14 days from the date of separation, whichever occurs later.
Unused vacation/PTO: Vacation pay is enforceable to the extent your written policy states it will be paid out at separation.
Final W-2: Provide the federal Form W-2 by the regular January 31 deadline (or earlier if requested by the former employee).
Year-end forms
Your responsibilities
- Hand the W-2 to your household employee by January 31 — Nest produces this; you deliver it
- Attach Schedule H to your Form 1040 by April 15 — Nest produces a signature-ready version
What Nest handles for you
- Quarterly federal tax payments to the IRS via EFTPS
- W-3 + Copy A of W-2 filed with the Social Security Administration
- Quarterly UI-3 filings with KY OUI once registration applies
Tax breaks for household employers
Paying your household employee legally unlocks meaningful federal tax breaks that often offset most of your employer-side payroll tax cost.
Dependent Care FSA (DCFSA)
For 2026, the federal max contribution is $7,500 (married filing jointly) — up significantly from prior years under the OBBBA. Note: your employer's specific plan may still cap at $5,000.
Child & Dependent Care Tax Credit
Up to 50% of qualifying care expenses for 2026 — up from 35% in 2025. Capped at $3,000 of expenses for one qualifying child or $6,000 for two or more.
Resources & free tools
Ready to pay your Kentucky household employee legally?
Nest Payroll handles EIN setup, KY OUI registration, payroll calculations, and quarterly tax filings — all automatically. 14-day free trial.
Disclaimer: The information on this page is general in nature. This is not tax, legal, benefits, financial, or HR advice. Rules and regulations change over time. Workers' compensation, the KY 7th-day premium rule, and local occupational tax requirements (Louisville OL-3, Lexington, etc.) can be complex — consult an attorney, financial advisor, or licensed insurance broker for your specific situation.