# Bill Would Create New Misclassification Loophole, Critics Say  
**Published:** 2026-03-19T15:04:14.000Z  
**Source:** [KY Center for Economic Policy](https://kypolicy.org/worker-misclassification-hb-732/)  
**AI-generated:** yes (claude-haiku-4-5-20251001)  
**Canonical:** https://feeds.lexingtonky.news/article/bill-would-create-new-misclassification-loophole-critics-say

LEXINGTON, Ky. — [House Bill 732 would allow employers to provide limited benefits to workers while still classifying them as independent contractors](https://kypolicy.org/worker-misclassification-hb-732/), according to policy experts who say the measure would undermine hard-won labor protections in Kentucky.

The bill, which is currently before the state legislature, seeks to create a new category of "self-employed workers" who could receive employer-contributed benefits without triggering employee status. Critics argue this would create a two-tiered workforce, with some workers retaining traditional employee rights while others accept reduced protections for modest voluntary benefits.

Kentucky already struggles with worker misclassification. [An estimated 10% to 30% of employers misclassify their employees as independent contractors](https://kentuckylantern.com/2026/03/27/billionaire-inspired-bill-would-separate-ky-workers-from-their-rights/), and [a 2011 study of Kentucky's unemployment insurance audits found that 26.4% of construction employers misclassified their workers](https://kypolicy.org/worker-misclassification-hb-732/). The practice costs Kentucky millions annually in lost tax revenue and leaves workers vulnerable.

When workers are misclassified, they lose protections including minimum wage and overtime guarantees, unemployment insurance, workers' compensation coverage, and access to union representation. [Workers misclassified as independent contractors lose 17% to 34% of their compensation](https://kentuckylantern.com/2026/03/27/billionaire-inspired-bill-would-separate-ky-workers-from-their-rights/).

Under Kentucky's current law, [a worker is considered an employee if they perform work that is part of the company's regular course of business and that would otherwise have to be done by the employer or an employee](https://kypolicy.org/worker-misclassification-hb-732/). [Receiving fringe benefits from an employer is one indicator of employee status](https://kewes.ky.gov/Employertax/Misc_info.aspx).

HB 732 seeks to circumvent that protection. By allowing employers to offer voluntary benefits without triggering employee classification, the bill would create a perverse incentive for businesses to shift workers into this new tier rather than hire them as true employees.

The economic impact extends beyond individual workers. [The study of misclassification in Kentucky's construction industry found $11.3 million a year in lost revenue from lower income taxes, unemployment taxes and workers' compensation premiums](https://kypolicy.org/worker-misclassification-hb-732/). [A decade ago, the Kentucky Labor Cabinet reported the amount collected in restitution for wage theft, of which misclassification is one major type, exceeded the amount stolen in robberies across the commonwealth by more than double](https://kypolicy.org/worker-misclassification-hb-732/).

The bill also lacks safeguards that other states have included in similar legislation. Critics note that [the protections and benefits lost from employment status, which approximately equal 17% to 34% of compensation in commonly misclassified occupations, would far exceed any benefit employers may choose to provide voluntarily](https://kypolicy.org/worker-misclassification-hb-732/).

The effort comes as Kentucky navigates a broader legal landscape on worker classification. [In 2018, Kentucky became one of only 10 states with a broad "marketplace contractor" law that bars gig workers of app-based businesses like Uber and DoorDash from the right to be considered employees](https://kypolicy.org/worker-misclassification-hb-732/).

## Sources

- [KY Center for Economic Policy](https://kypolicy.org/worker-misclassification-hb-732/)
- [Kentucky Lantern reporting on worker misclassification impacts](https://kentuckylantern.com/2026/03/27/billionaire-inspired-bill-would-separate-ky-workers-from-their-rights/)
- [Kentucky Office of Unemployment Insurance misclassification information](https://kewes.ky.gov/Employertax/Misc_info.aspx)

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This article was generated by AI (claude-haiku-4-5-20251001) based on source material from KY Center for Economic Policy, enriched with 2 web searches. The original source is available at https://kypolicy.org/worker-misclassification-hb-732/.