Workers’ compensation insurance in Alabama is basically a must for those doing business in the state. 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.
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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.
Does Alabama require workers’ compensation insurance?
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.
Who is exempt from workers’ comp in Alabama?
According to the Alabama Department of Labor, employers of domestic employees, farm laborers, casual employees, and municipalities with fewer than 2,000 residents (based on the most recent federal census) are not required to carry workers’ compensation insurance. However, they may elect to provide coverage under the Alabama Workers’ Compensation Law.
Source: Alabama Department of Labor – Workers’ Compensation Division
Even if you’re exempt, you can elect to provide coverage voluntarily. It’s often a smart way to protect both your business and your employees.
How much does workers’ comp cost in Alabama?
There’s no set price, as premiums depend on your payroll, the number of employees, and the type of work your team does. But according to the National Academy of Social Insurance’s Workers’ Compensation: Benefits, Costs, and Coverage (2018–2022) report, employers in Alabama spent an average of $0.86 per $100 of payroll on coverage in 2022.
That adds up to around $70 to $120 per month for many small businesses, although rates can be higher for industries with a higher on-the-job risk. Insurers base premiums on payroll per $100 and the job’s risk classification, so your exact cost will vary. For current rates or to confirm your coverage requirements, check with your insurance carrier or the Alabama Department of Labor’s Workers’ Compensation Division.
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.
Here’s also a table that covers the rules we’re outlining in this article to keep track of it all.
| Topic | Details employers should know |
| Who must carry coverage | Employers with five or more employees must have workers’ comp insurance. |
| Exemptions | Domestic employees, farm laborers, and casual workers are not required to have coverage but can choose to opt in. |
| Self-insurance option | Businesses with $5M+ net worth, positive income over three years, and assets/liabilities ratio are greater than or equal to one can self-insure (must apply through the Alabama Department of Labor). Application to self-insure |
| Noncompliance penalties | Fines of $1,000 per employee, per day, possible jail time, and potential business closure until coverage is in place. |
| Where to buy a policy | Alabama has a private market — coverage can be purchased from any licensed carrier or agency.
High-risk employers can apply through the Assigned Risk Pool. |
Now that we have a handle on the basics, let’s now move onto the topic of how to purchase a policy for your business.
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
- Self-insurance requirements
Workers’ compensation insurance Alabama: Make it part of your action plan
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.