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If you are looking for information on workers’ compensation requirements in Alabama, find more information below on why employers need to carry it and how to purchase a policy.
Why is workers’ compensation important?
Should an employee get hurt or sick while on the job (and be unable to work for a period of time), workers’ compensation can provide medical treatment and even partial wages while they recover. In addition, this insurance also protects employers from litigation related to workplace injuries. That’s because employees are generally unable to sue employers for damages related to their injuries or illnesses when they are covered by workers’ compensation.
What are the workers’ compensation requirements in Alabama?
If you regularly employ five (5) or more employees, you must obtain coverage, with some exceptions. Generally, you should be able to purchase insurance from private carriers, or, if you’re a high-risk company and cannot buy the policy from a private company, you should be able to purchase a plan from the Alabama Assigned Risk Pool.
Alabama employers can also self-insure, meaning they can pay their own workers’ compensation claims instead of submitting them to an insurance company. To qualify, your business must have
- a net worth of at least $5 million
- positive income over the last three years
- assets/liabilities ratio of one or greater.
More information about self-insurance is available in the Alabama Department of Industrial Relations Administrative code
The Alabama Department of Labor outlines the five different options for electing coverage.
The state’s website also lists some exemptions. For example, “employers of domestic employees, farm laborers, or casual employees are not required to provide coverage but can elect to provide coverage.”
What can happen if an employer does not have coverage?
Penalties for noncompliance include fines of $1,000 per employee, per day, for each day that coverage isn’t provided. Penalties could result in jail time, or the closing of business until they are compliant and have a policy in place.
How does an employer purchase a policy?
Because Alabama has a private market, employers are able to purchase workers’ compensation insurance from any private insurance carrier or agency that is licensed to write in the state.
When getting into the specifics, policies generally break down in one of two ways.
Traditional coverage
With traditional plans, premiums are calculated based on an estimate of a company’s annual gross wages. After the insurer calculates the premium, employers are required to pay this amount in a lump sum upfront. This is typically followed by monthly or quarterly premium payments over the course of the year.
Pay-as-you-go
On the other hand, pay-as-you-go premiums are calculated each payroll, which ensures that businesses are paying exact amounts for their coverage. In addition, these plans eliminate the need for upfront lump sum payments and the year-end audits that come with them. Learn more about pay-as-you-go workers’ comp.
After learning about workers’ comp requirements, you may find some other resources we provide useful. For example, as your team grows (or if you are just starting your business), you may want to know how much Alabama payroll taxes are as you look at budgets and plan for the coming year.
More resources for Alabama employers
- More information is available from Alabama’s Department of Labor
- Here is additional information from Alabama’s Workers’ Compensation Division
- Alabama’s claim handling form
Workers’ comp to prevent worries
Because on-the-job incidents can be unpredictable, worker’s compensation insurance can provide peace of mind for both employees and employers. Moreover, because carrying coverage is a legal requirement in most states, businesses should take a closer look to avoid any issues related to compliance.
Please note all material in this article is for educational purposes only and does not constitute tax, benefits or legal advice. You should always contact a qualified tax, legal or financial professional, in your area for comprehensive tax or legal advice.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.