Alabama payroll taxes and calculator for employers (2026)

Alabama rules that trip up new employers

Alabama has few state payroll rules, which makes the ones it does have easy to miss.

• 7-day new hire reporting. Report each new hire or rehire within 7 days of the hire date. The federal maximum is 20 days, so a habit picked up in another state will make you late here.
• Workers comp starts at 5 employees. Coverage is required once you regularly employ 5 or more people. Builders of new single-family detached homes need it from the first worker. Domestic, farm and casual workers are exempt. You can buy from a commercial insurer, the assigned risk pool, a self-insurance group or self-insure.
• No state minimum wage law. The federal $7.25 applies, with a $2.13 tipped cash wage. Neighboring states are compared in the 2026 minimum wage table.
• No pay frequency or final pay statute. The US Department of Labor lists no Alabama payday rule, and we found no final paycheck statute, so wages are due on the regular payday.
• City and county occupational taxes. Some Alabama cities and counties levy occupational license taxes on wages. We have not verified the current list or rates, so check with the city where each employee works.
• No paid leave or disability tax. No state program was found.

Alabama employer payroll facts at a glance

How to start payroll in Alabama

Alabama runs business registration through the Department of Revenue's My Alabama Taxes portal. Unemployment tax law sits in Code of Alabama 25-4-52 and 25-4-54, administered by the Department of Workforce.

1. Get a federal EIN from the IRS.
2. Register in My Alabama Taxes. The Department of Revenue says all entities must register there; it does not say outright that the unemployment account is opened there, so confirm with the Department of Workforce if no UC account number appears.
3. Set up state income tax withholding with the Alabama Department of Revenue. We could not load its withholding page to confirm the 2026 tables, so use the tables your payroll software or the department publishes.
4. Report new hires to the Department of Workforce within 7 days.
5. Insure for workers comp when you reach 5 regular employees, or from day one if you build new single-family homes.
6. Ask the city or county where staff work whether an occupational tax applies.

An Alabama payroll tax example at $50,000

On a $50,000 salary, Alabama's own unemployment tax is the smallest line on the bill.

The employer total is $4,083, 8.17% on top of pay. Alabama UI accounts for $216 of it. If your rate later moves to the top of the DOL range, the state line rises to $432. Any local occupational tax is extra. For a salary of your own, use the calculator; it shows the federal lines and Alabama UI.

Workers comp is the other cost a small Alabama business needs to price; our workers comp cost guide explains how premiums are set, and pay-as-you-go workers comp spreads the cost across payrolls.

Alabama payroll software and PEOs

Pick a service that files Alabama withholding and unemployment returns and submits new hire reports within the 7-day window. Ask whether it handles the city occupational taxes where you operate. Gusto's single-state plan is $49 a month plus $6 per person (checked October 16, 2026). See our ranked payroll software list for others with published prices.

Harbor Compliance (a secondary source) lists Alabama among states with PEO licensing; we have not confirmed this with an Alabama agency. Compare PEOs in our PEO rankings and PEO vs payroll service.