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Alabama PEO Laws: Registration, Bonding and Payroll Requirements

Alabama requires PEOs to register annually with the Alabama Department of Labor's Workers' Compensation Division under Act 2006-229 and to maintain $100,000 net worth or security. Unemployment insurance applies to the first $8,000 of wages at a 2.7% new-employer rate. Minimum wage is $7.25; there is no state workers' compensation fund or paid-leave mandate.

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Alabama: PEO regulatory and payroll facts. Each populated field links to the statute, agency page or filing it came from.
PEO registration or licensing requiredYes - PEOs must register with the Alabama Department of Labor (Workers' Compensation Division) before operating in the state, under the Alabama Professional Employer Organization Registration Act, Act No. 2006-229; a limited registration exists for qualifying out-of-state PEOs source (opens in new window)
Regulating agencyAlabama Department of Labor, Workers' Compensation Division (formerly Department of Industrial Relations) source (opens in new window)
Bond or security requirementNo bond required; registrants must instead maintain a minimum net worth of $100,000 at all times, or post a cash deposit with the Alabama State Treasury or other security acceptable to the Director source (opens in new window)
Registration renewal cycleAnnual - certificates of registration remain valid for one year and PEOs must renew each year source (opens in new window)
SUI taxable wage base$8,000 per employee per calendar year source (opens in new window)
New-employer SUI rate2.7% (2.70%) on the first $8,000 of wages for each employee source (opens in new window)
State workers' comp fundNo - coverage is obtained from approved commercial carriers, the assigned risk pool, group self-insurance funds, or individual self-insurance; there is no state fund source (opens in new window)
State paid leave mandateNo - no state paid sick leave or other paid leave mandate source (opens in new window)
State minimum wage$7.25 (federal rate; Alabama has no state minimum above the federal rate) source (opens in new window)
PEO SUI reporting basisPEO-level - covered employees are considered the employees of the PEO for unemployment compensation; the PEO reports by client and pays contributions using its own state employer account number and contribution rate (Ala. Code 25-14-9) source (opens in new window)

Sources

What we know about Alabama

Alabama regulates professional employer organizations through the Alabama Professional Employer Organization Registration Act, enacted as Act No. 2006-229. The Alabama Department of Labor, acting through its Workers' Compensation Division, administers registration, and the Department's registration page states that registration is authorized by the act and that every PEO seeking to operate in the state must file before commencing operations. Administrative Code 480-5-7-.01 requires a financial statement audited or reviewed by an independent CPA, proof of workers' compensation insurance for each covered employee, a listing of Alabama client employers, and an organizational chart. Registrants must maintain a net worth of not less than $100,000 at all times, and a PEO that does not meet that threshold may instead be required to post a cash deposit with the Alabama State Treasury or other security acceptable to the Director. Certificates of registration remain valid for one year, so PEOs renew annually, and a PEO that operates without registering is liable for a civil penalty of $100 per day, according to the Department's guidance on the law.

Alabama's unemployment compensation law assigns covered employees of a PEO to the PEO for contribution purposes. Section 25-14-9 of the Alabama Code provides that covered employees of a professional employer organization are considered the employees of the PEO, which is responsible for the payment of contributions, penalties, and interest on wages it pays, and that the PEO shall report by client and pay all required contributions to the Unemployment Compensation Trust Fund using the state employer account number and the contribution rate of the PEO. The Alabama Department of Labor states that employers newly liable under the unemployment compensation law pay at the rate of 2.70 percent on the first $8,000 of wages for each employee, and the Department of Revenue separately describes the $8,000 taxable wage base.

The state minimum wage equals the federal rate of $7.25 per hour because Alabama does not set a state rate above it, as shown in the U.S. Department of Labor's consolidated minimum wage table. Alabama has no state workers' compensation fund; the Department of Labor's insurance requirement information describes coverage through approved commercial carriers, the assigned risk pool, group self-insurance funds, or individual self-insurance. PEO registration rules require a PEO to assure the Department that workers' compensation coverage is provided for all covered employees, and failure to provide proof subjects the PEO to a civil penalty of $1,000. Alabama has no paid sick leave or other paid leave mandate; the state does not appear among the jurisdictions with paid sick leave laws compiled in the Congressional Research Service report on paid sick leave in the United States. The PEO-level reporting model for unemployment insurance means the PEO reports client wages by client while remitting under its own account number and experience rate, a structure that keeps the PEO, rather than the client, as the contribution payer for covered workers.

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