How to Hire Employees in Alabama: The Complete Compliance Sequence

The first time I helped a founder hire in Alabama, we lost two days to a single sentence in a state statute. Alabama requires every employer in the state to run every new hire through E-Verify. Not employers over a certain size. Not state contractors. Every employer. The offer was signed, the I-9 was ready, and there was no E-Verify account, while the three business day verification clock was already running.

Alabama looks like a light-touch state on paper. No state minimum wage law. No statute telling you how often to run payroll. No state deadline for a final paycheck. That surface simplicity is exactly what catches people out, because the obligations Alabama does impose are unusual, front-loaded, and spread across three different agencies before the first paycheck ever clears.

This guide runs the sequence in the order the work actually happens, from the federal EIN through the first ninety days on the job. I built FirstHR because this is a documents and deadlines problem rather than a knowledge problem. Founders almost always know the I-9 exists. What they miss is that Alabama wants the new hire report in seven days, not twenty.

Every Alabama Deadline in One Place

Alabama hiring compliance is a chain of eleven dated obligations, and the registrations alone run through four agencies: the IRS, the Alabama Department of Labor, the Alabama Department of Revenue and the Department of Homeland Security. The table below is the whole chain, in sequence, with what happens when a link breaks. Everything after it is detail.

Two items on that list are the ones that catch newcomers. E-Verify is mandatory for every employer in Alabama, which is unusual. And the new hire report is due in seven days, not the twenty days most national checklists quote. Get those two right and the rest of the sequence is ordinary federal work with a state account number attached.

Step 1: Get Your Federal EIN

Every state account in this guide depends on a federal Employer Identification Number, so it comes first. Apply online through IRS.gov and the number is issued immediately at the end of the session. It takes about ten minutes and costs nothing.

If you formed an LLC or corporation and already have an EIN, you do not need a second one. If you have been operating as a sole proprietor using your Social Security number, you need an EIN now, because you cannot report employment taxes under a personal SSN. Have the EIN in hand before you touch either Alabama registration, since both applications ask for it on the first screen.

Step 2: Open an Alabama Unemployment Tax Account

Unemployment compensation tax in Alabama is administered by the Alabama Department of Labor, and you register using Form SR-2, the Application to Determine Liability. File it as soon as liability is established rather than waiting for a notice, and manage the account afterward through the department eGov portal at adol.alabama.gov, where quarterly wage and tax reports and your annual rate notice both live.

Liability generally attaches when you pay $1,500 or more in wages in a calendar quarter, or when you employ at least one worker for some part of a day in each of twenty different weeks during the current or preceding calendar year. Most first hires trigger the wage test within a quarter or two, which is why registering proactively is the simpler path.

The taxable wage base matters more than the rate for a small employer. Because only the first $8,000 per person is taxed, unemployment cost is effectively a fixed amount per head rather than a percentage of total payroll, and it front-loads into the first months of the year.

Step 3: Open a Withholding Account and Collect Form A-4

Alabama has a state income tax, so you also need a withholding account from the Alabama Department of Revenue. Register through the My Alabama Taxes portal and read the employer requirements on the department withholding tax page before your first payroll run. This is a separate agency and a separate account number from the unemployment registration in Step 2.

Alabama income tax runs on three brackets, and because the thresholds are compressed at the bottom, nearly every full-time employee reaches the top rate. That has a practical consequence: the exemptions an employee claims on Form A-4 matter far more than the bracket math.

Form A-4 Is Due Before the First Shift

Form A-4 is the Alabama Employee's Withholding Tax Exemption Certificate. Every employee must furnish it on or before the date employment commences, not within some grace period afterward. If it is missing, the Department of Revenue tells the employer to withhold using zero exemptions, the highest rate, which produces a visibly wrong first paycheck for anyone with dependents.

Put Form A-4 in the same pre-start packet as the federal W-4, the I-9 and the direct deposit authorization. For the payroll side of this, including remittance schedules and the municipal layer, see the Alabama payroll guide.

Step 4: Enroll in E-Verify Before You Make an Offer

This is the step that makes Alabama different. The Beason-Hammon Alabama Taxpayer and Citizen Protection Act, codified at Ala. Code 31-13-15, has required every business entity or employer in Alabama to enroll in E-Verify and verify each new hire since April 1, 2012. There is no size exemption and no phase-in. If you employ anyone in Alabama, you are covered.

Enroll at e-verify.gov and sign the memorandum of understanding. Do it before you extend an offer, because a case cannot be created until an offer has been accepted and Form I-9 is complete, and the account cannot be stood up inside the three business day window.

Alabama law also contemplates help for the smallest employers. Ala. Code 31-13-25 directs the state to run a free E-Verify employer agent service for any employer with 25 or fewer employees, enrolling the business and creating its cases on its behalf. The section names an agency that has since been folded into the Alabama Law Enforcement Agency, and the program's old public sign-up addresses no longer resolve, so ask the state whether it is still operating before you count on it. Enrolling directly is the reliable path.

Step 5: Complete Form I-9 and Create the E-Verify Case

Form I-9 is federal and applies everywhere, but in Alabama it feeds directly into a second mandatory step, so the two deadlines run together. Section 1 is completed by the employee on or before the first day of work. Section 2 is completed by you, after examining the employee's original documents, by the end of the third business day after the start date.

The E-Verify case must be created no later than the third business day after the employee starts work for pay. Same clock, different system. You cannot create the case earlier than the accepted offer and the completed I-9, so in practice both land on day one or day two. Understanding what counts as work authorization before that conversation keeps it short.

Storage and Retention

Keep I-9 forms separately from personnel files. They are subject to government inspection, and co-storing them exposes unrelated confidential employee information to an inspector who never had a right to see it. Retain each I-9 for three years from the date of hire or one year after the employment ends, whichever is later.

Step 6: File the New Hire Report Within Seven Days

Alabama requires you to report every newly hired or recalled employee to the Alabama Department of Labor within seven days of the date of hire or reemployment. That is the deadline most employers get wrong, because the federal floor is twenty days and almost every national hiring checklist quotes the federal number.

Reports go to the Alabama New-Hire system. The department uses the data to detect unemployment fraud, identify claimants who refuse suitable work, and support child support enforcement. Failing to report can bring a penalty of up to $25 per violation.

The easiest way to never miss this is to attach it to something you already do on day one. File the report in the same sitting where you complete Section 2 of the I-9. Both tasks use the same facts and the same folder, and one of them has a seven-day fuse.

Step 7: Decide on Workers' Compensation Coverage

Alabama sets a headcount threshold rather than a universal mandate. Under Ala. Code 25-5-50, the Workers' Compensation Act does not apply to an employer who regularly employs fewer than five employees in any one business. At five or more, coverage is required.

There is one important carve-out. The exemption does not extend to the business of constructing, or assisting on site in the construction of, new single-family detached residential dwellings. A residential builder needs coverage regardless of how few people it employs, which is a trap for a two-person framing crew.

Watch the word "regularly." Part-time staff count toward the total, so a business can cross into mandatory coverage through a seasonal hire without anyone making a decision about it. Re-check headcount before every offer, not once a year.

Step 8: Post the Required State and Federal Notices

Alabama requires three state postings, and because every Alabama employer participates in E-Verify, two federal E-Verify posters are effectively mandatory statewide as well. All of them are free downloads. Do not buy a laminated poster kit for documents the agencies publish as PDFs.

Employing anyone under eighteen adds a licensing step, not just a poster. Alabama requires a Class I child labor certificate for fourteen and fifteen year olds and a Class II certificate for sixteen and seventeen year olds, at $15 per business location, posted in public view. You must also keep an employee information form, proof of age, and daily time records for every employee eighteen and under. The full detail sits in our guide to child labor law compliance.

Step 9: Onboard From Day One Through Day Ninety

Steps one through eight make the hire legal. Step nine makes it worth the money. Every form above should be signed before day one arrives, so the first day is about the person and the work rather than a stack of paper across a table.

This is the part of the sequence FirstHR was built for. The offer letter goes out with e-signature, the I-9, W-4 and Form A-4 come back before day one, the seven-day new hire report becomes a task with a due date instead of a memory, and the AI onboarding wizard turns a job description into a 30-60-90 day plan. A written employee handbook closes the loop, since Alabama leaves pay frequency and final pay to your own policy.

Alabama Rules That Surprise Employers From Other States

Alabama employment law is defined as much by what it does not regulate as by what it does. There is no state minimum wage law, no pay frequency statute, no final paycheck deadline and no state paid sick leave mandate. What Alabama does regulate, it regulates in ways that do not match neighboring states.

Two of those deserve extra attention when you write the offer letter. Alabama employment is at will unless a contract says otherwise, and the state has a codified restrictive covenant framework that gives you real, if bounded, enforceability.

City and County Requirements: The Occupational Tax Layer

Alabama preempts local wage and benefit mandates, so cities cannot set a minimum wage or a sick leave rule. What they can do is tax wages. About two dozen municipalities levy an occupational tax under Ala. Code 11-51-90, and the employer withholds and remits it.

The rule that trips people up is the situs rule: the tax attaches to where the work is physically performed, not where the employee lives and not where your business is registered. A crew working three job sites in a week can touch three jurisdictions.

The set of jurisdictions is small and it changes rarely, but that is where the comfort ends. Each city sets its own rate, its own filing cadence and its own definition of taxable earnings, and none of it is collected in one place. Confirm the rate and the remittance schedule with the city itself before you run payroll.

Employee or Independent Contractor: What Alabama Puts at Risk

Calling a worker a contractor does not make them one, and in Alabama a misclassification finding unwinds several of the steps above at once. Unemployment tax liability is reassessed retroactively, the new hire report was never filed, the E-Verify case was never created, and the person may count toward your workers' compensation threshold after all.

Alabama applies common-law control principles that track the federal test closely. The controlling question is not what the agreement says or how the person is paid. It is who directs the manner and means of the work. Our full breakdown of the employee versus contractor distinction covers the federal test in depth.

When the answer is genuinely unclear, classify as an employee. The cost of running someone through payroll correctly is always smaller than the cost of a reclassification with back contributions and interest attached. If you do engage contractors, do it deliberately using the process in our guide to hiring 1099 contractors.

The Mistakes That Cost Alabama Employers the Most

Every mistake below is a timing failure rather than a knowledge failure. The employer knew the requirement existed. It just did not happen on the day it needed to happen, because nothing was tracking it.

The pattern is consistent across every small employer I have worked with. Compliance does not break because a founder cannot read a statute. It breaks in week three, when a customer emergency eats the day the new hire report was supposed to be filed. Automated task reminders and a document checklist that will not close until every form is signed solve more of this than any amount of legal reading.

Frequently Asked Questions