How to Do Payroll in Alabama: What Every Employer Needs to Know

The payroll process is complex, time consuming and costly in terms of both money and resources. Any business owner or manager who has ever had to deal with it can attest to that. That said, there are a few things any employer should know before they start the payroll process: what information the IRS requires for an employee tax filing; how many hours you need your employees to work per week; when employers must provide their employees’ W-2 forms.;

The “state payroll taxes for employers” is a process that every employer needs to know. The state of Alabama has different payroll taxes that are involved in the process of doing business.

Although processing payroll and computing Alabama payroll taxes is mostly easy, there are a few subtleties to be aware of when handling payroll. Local taxes are imposed in certain parts of Alabama, which might affect payroll tax computations. Alabama, on the other hand, follows federal requirements and has just one state payroll form, making it one of the simplest states in which to administer your company’s payroll.

Using an all-in-one payroll provider like Gusto may make handling your Alabama payroll even simpler. Gusto assists you in ensuring that your payroll is right every time, from electronically onboarding new workers to calculating and reporting Alabama payroll taxes. For a 30-day free trial, sign up now.

Gusto is a great place to visit.

A Step-by-Step Guide to Payroll Processing in Alabama

Alabama makes payroll simple for companies by following federal requirements in general. Attempting to compute Alabama payroll taxes or Alabama withholding tax by hand, on the other hand, might lead to expensive mistakes. The following are the fundamental stages to running payroll in Alabama.

Step 1: Register your company as an employer. To get a new Federal Employer Identification Number (FEIN), new businesses may need to use the federal Electronic Federal Tax Payment System (EFTPS) (FEIN). To pay federal taxes, you’ll need your FEIN.

Step 2: Register your company with the Alabama Department of Commerce. If your company is brand new, you must create an account on the Alabama Secretary of State’s website. Any business in Alabama that pays workers must register with the Alabama Department of Revenue.

Step 3: Set up your payroll system. This includes selecting how frequently and when you’ll pay workers, as well as what method you’ll use to issue their paychecks (paper checks versus direct deposit), how you’ll handle onboarding, and how you’ll keep track of employee information. To assist you with your Alabama payroll, you may process payroll by yourself (not advised), create an Excel payroll template, or use a payroll provider.

Step 4: Have staff complete the necessary paperwork. During the onboarding process, every firm that employs workers in Alabama is required to gather specific paperwork. Each employee must complete I-9 verification and have a completed W-4 on file, with the state equivalent of the W-4, called Employee’s Withholding Tax Exemption Certificate, in particular (Form A4).

Step 5: Go through the time sheets and approve them. You should begin processing your company’s payroll many days ahead of time. You must gather and evaluate recorded work hours from hourly and nonexempt workers during this period in order to talk with anybody who may have committed a mistake. Employee time tracking may be done in a variety of methods, some of which are free.

Step 6: Work out the gross compensation and taxes for each employee. It is not advisable to calculate Alabama payroll by hand. Alabama has a progressive income tax that strikes the highest income level swiftly. On the great majority of their earnings, most workers will pay the highest state tax rate. If you need additional information, look into how to calculate payroll.

Step 7: Reimburse employees for their salary, benefits, and taxes. The majority of businesses now pay all workers through direct deposit. However, you may pay with cash (which isn’t the greatest choice) or a paper check. Because Alabama does not have a state minimum wage, ensure sure you are paying at least the federal minimum wage of $7.25 per hour to your workers. You may pay your federal and state taxes online in Alabama. If you utilize a benefits provider, they should collaborate with you to make deductions as straightforward, automated, and electronic as possible.

Step 8: Make a backup of your payroll data. There are no regulations in Alabama that require firms to retain employee payment or payroll records. Keeping your company’s business records, on the other hand, is an excellent idea. Check out our post on maintaining payroll records for further information on which documents to preserve.

Step 9: Register with the federal and state governments to file payroll taxes. All Alabama state taxes must be paid on time, generally quarterly, to the appropriate state agency, which you may do online at the Alabama Department of Revenue website. You may pay your federal taxes online using the EFTPS on one of the two schedules shown below:

When the IRS sets you a monthly schedule, you must deposit employment taxes on payments received during that calendar month by the 15th of the next month.
When the IRS assigns you a semiweekly schedule, you must deposit employment taxes by the following Wednesday for payments made Wednesday, Thursday, and Friday, and payments made Saturday, Sunday, Monday, and Tuesday by the following Friday.

Please keep in mind that the reporting and depositing of employment taxes are two separate things. You must submit taxes quarterly on Form 941 or yearly on Form 944, regardless of your payment schedule.

Step 10: Finish your payroll reports for the year. You’ll need to file payroll reports every year, including all W-2 and 1099 forms. These forms must be sent to workers by January 31 of the following year.

In this tutorial on how to conduct payroll, you may learn more about how to do payroll yourself. You may obtain a free checklist to ensure you don’t miss any tasks.

Payroll Laws, Taxes, and Regulations in Alabama

It’s critical to know how to compute Alabama payroll taxes and how to apply the relevant rules to ensure correct payroll. Review the relevant rules and requirements for making payroll in Alabama below to help you stay in compliance with payroll regulations.

Most employers in the United States are required to pay Federal Insurance Contributions Act (FICA) taxes, with a few exceptions. FICA tax rates for Social Security and Medicare are now 6.2 percent and 1.45 percent, respectively. These taxes will be paid by both the employer and the employee, with each contributing 7.65% of the total Social Security and Medicare taxes.

Taxes in Alabama

Alabama, like other states, has a set of taxes that businesses must pay.

Unemployment Taxes for Employers

In Alabama, all companies are required to pay taxes under the State Unemployment Tax Act (SUTA). The current wage base is $8,000, with rates ranging from 0.65% to 6.8%. For the first year, all new employers in Alabama will pay an SUTA rate of 2.7 percent. Businesses may receive a tax credit of up to 5.4 percent on their Federal Unemployment Tax Act (FUTA) payments if they pay SUTA in full and on schedule.

Compensation for Employees

Alabama businesses with five or more employees must carry Compensation for Employees insurance. Compensation for Employees insurance provides benefits to employees who suffer on-the-job injuries. The state usually starts to pay these benefits a week or two after a worker is out of work because of their injuries and only covers their lost income and medical bills. There are, however, exceptions to this requirement. If your company employs workers who fall into one of the following categories, you may not need to carry Compensation for Employees insurance:

Workers at the home
Agricultural employees
Employees that work on a contract basis

Companies always have the option to offer Compensation for Employees insurance if they want to do so.

Taxes on income

For income tax purposes, Alabama has no reciprocal agreements with any other state. This implies that workers who reside in another state but work in Alabama may wind up paying double taxes.

Local taxes are levied in several areas of Alabama. If you’re conducting your payroll calculations by hand, this may make things more complicated. As a result, pay close attention to the locations where employees live and work.

Minimum Wage in Alabama

The federal minimum wage is followed in Alabama. Alabama’s minimum wage was last increased in 2008, to $7.25 per hour. Tipped workers must be paid at least $2.13 per hour if their gratuities bring them up to the hourly minimum wage. If this is not the case, the corporation will be required to make up the shortfall.

Overtime Calculation

The standards of the Fair Labor Standards Act (FLSA) are followed under Alabama overtime regulations. For hours worked beyond 40 in a workweek, all businesses are required under the FLSA to pay workers 1.5 times their usual hourly rate.

Use our overtime calculator to guarantee that your overtime estimates are correct.

Employee Remuneration

There is no regulation in Alabama that requires companies to pay workers on a certain schedule or at a set frequency. It is, nevertheless, best practice to establish a consistent pay plan, such as every other week, and adhere to it.

The state of Alabama has no provisions for how workers must be compensated. The following are the most prevalent methods of payment:

Use one of our free pay period calendars if you need assistance keeping track of your payroll periods.

Pay Stub Regulations

Although there is no legislation in Alabama mandating employers to send pay stubs to their workers, we encourage that they do so. If you don’t have access to a payroll provider, utilize one of our free pay stub templates to get started.

Paycheck Deductions in Alabama

There is no legislation in Alabama that prohibits an employer from taking pay from an employee, nor does it specify what deductions are permitted. It is legal to remove wages from an employee’s paycheck for the following reasons:

Money shortages
Company property that has been damaged, lost, or stolen
Work attire or tools are required.

Please keep in mind that, according to the Department of Labor, a corporation cannot deduct from an employee’s salary if doing so would result in the person earning less than the federal minimum wage ($7.25 per hour) for the pay period.

Final Paychecks for Terminated Employees

There is no legislation in Alabama that specifies when or how an employee must receive their last payment. So, on the next normal payroll run, pay any employee who has quit, been laid off, or been dismissed. Use one of our suggested methods to generate a free payroll check if you need to pay an employee right away and aren’t presently utilizing a service.

HR Laws in Alabama That Affect Payroll

There aren’t many state-specific HR regulations in Alabama. You’ll still need to make sure you’re obeying the federal rules, which are mainly followed by Alabama law.

Reporting of New Hires in Alabama

The Alabama Department of Labor New-Hire program requires all employers to record new hires and rehired workers. This report, which must contain the employee’s name, address, and Social Security number, is used to enforce child support obligations.

Breaks and Meals

There is no regulation in Alabama that requires companies to give lunch times or breaks to workers who are 16 years old or older. This implies that the federal regulation applies, which states that no lunch times or breaks are required.

Employers in Alabama are required by law to give lunch intervals and breaks to underage employees. If employees aged 14 and 15 are scheduled to work for at least five hours in a row, they must be given a 30-minute break. These breaks may or may not be compensated.

Child Labor Laws in Alabama

Children aged 14 and 15 may work up to 40 hours each non-school week under Alabama law. They are limited to working no more than 18 hours per week and no more than three hours per day throughout the school year. During the school week, they are also not permitted to work before 7 a.m. or after 7 p.m.

Minors aged 16 and 17 are not limited to a certain amount of hours (they cannot work after 10 p.m. or before 6 a.m. during the school week), but they are limited by industry. In Alabama, 16 and 17-year-olds are not permitted to work in any of the following sectors or professions:

Mines and quarries
Shipbreaking, wrecking, and destruction
Roofing, scaffolding, and sandblasting are just a few of the services available.
Logging
Sawmill
Railroad
Firefighter
Distillery
Explosive manufacturing

Requirements for time off and leave

Alabama does not have any state-specific time off or leave regulations, for the most part. You may be required to observe federal regulations.

Family Leave in Alabama

Alabama abides under the Family and Medical Leave Act (FMLA), which mandates that all qualified companies give up to 12 weeks of unpaid leave to workers with a qualifying ailment. Pregnancy and caring for a sick family member are examples of this. The FMLA does not compel businesses to pay workers for time off, but it does require employers to maintain the employee’s position, or one that is substantially comparable, open when they return. State legislation in Alabama does not allow for any extra leave.

Paid Vacation

Alabama has no laws requiring employers to provide employees with Paid Vacation (PTO). Companies in Alabama are free to create PTO policies and may include whether they pay out accrued and unused PTO when an employee leaves. Alabama does not require that companies do, so it’s a good practice to have this clearly defined in your company policy. The important thing is to follow the guidelines in your policy, or you can be held liable.

Use our free PTO calculator if you provide paid time off and need assistance calculating your workers’ PTO accumulation.

Leave of Absence

There is no regulation in Alabama that requires private enterprises to pay workers for holidays or to pay them a higher rate for working on a holiday. A business may choose to do so, but it must abide with the FLSA.

Sick Leave with Pay

There is no legislation in Alabama that requires companies to give paid or unpaid sick leave to their workers. Employers are entitled to develop their own sick leave policies and should follow them.

Voting Is Over

Employers in Alabama are required by law to offer workers with up to one hour of unpaid voting leave if the employee provides the company sufficient notice. If polls open two hours before an employee is expected to report to work or close one hour after an employee leaves work, the employer is not required to offer leave.

Jury Duty Time Off

Employers in Alabama must pay employees who are on Jury Duty Time Off; Alabama is one of only eight states to require this. A company cannot make the employee take PTO or unPaid Vacation to comply with a jury summons.

Leave of Absence for Bereavement

There is no requirement in Alabama for businesses to provide employees with Leave of Absence for Bereavement. Companies are free to create a policy if they choose and must abide by it.

Forms for Payroll

Forms for Payroll can vary from state to state, and some have their own W-4, like Alabama. Fortunately, that’s the only one.

Alabama Forms for Payroll

Federal Forms for Payroll

Here is a complete list and location of all the federal Forms for Payroll you should need.

W-4 Form: Provides information on employee withholdings so you can properly calculate and withhold federal and state Taxes on income
W-2 Form: This form is used to record each employee’s total yearly pay.
W-3 Version: A summary form of the W2 that is used to report total yearly salaries for all workers.
Form 940 is used to compute and submit unpaid unemployment taxes to the Internal Revenue Service (IRS).
Form 941 is used to submit quarterly income tax returns.
Form 944 is used to submit annual income tax returns.
Non-employee contract work 1099 forms: Provides information for non-employee contract work.

For a more detailed discussion of federal forms, check out our guide on the federal Forms for Payroll you may need.

Payroll Tax Resources in Alabama

Many forms, information on the most recent rules and regulations, and other employer-specific information are available from the Alabama Department of Revenue.
Alabama Department of Labor offers support and resources to help businesses ensure compliance with unemployment and Compensation for Employees plus other labor laws.

Conclusion

Alabama is one of the easiest states in which to manage payroll. While you must deal with various municipal taxes, there is just one state-specific payroll form.

Despite the fact that it is one of the simplest states in which to process payroll, errors may nonetheless occur. You can avoid these blunders by utilizing payroll software like Gusto, which guides you through Alabama payroll step by step. Consider using Gusto to assist you in filing correctly and on time. It even offers free direct deposit to workers. Sign up for a free 30-day trial.