Short answer: Alabama requires workers' compensation when a business regularly employs five or more people, counting full-time and part-time employees, corporate officers and LLC members. Businesses that build new single-family detached homes, or assist on-site, aren't covered by the under-five exemption. Domestic, farm and casual employers are exempt but may choose to be covered.
The five-employee test
The Alabama Department of Workforce's workers' compensation insurance page puts the rule as an exemption. If you regularly employ fewer than five employees in any one business, full-time or part-time and including corporate officers, the law doesn't require coverage, with one key exception for new residential construction. The department's FAQ states the same rule from the other direction: any business with five or more employees must have coverage, and "employee" includes officers of a corporation and members of an LLC.
The statute behind both is Ala. Code §25-5-50(a).
Who counts toward five
- full-time employees;
- part-time employees;
- corporate officers;
- LLC members.
Because officers and members count, a small company with two owners and three part-time staff is already at five.
The home-building exception
The under-five exemption doesn't apply to "the business of constructing or assisting on-site in the construction of new single-family, detached residential dwellings." A home builder, framer or on-site subcontractor on new houses can need coverage with fewer than five people. Remodeling and commercial work aren't named in that carve-out, so trade and job type matter.
Exempt employers
The department lists employers who aren't required to provide coverage but can elect to:
- employers of domestic employees;
- employers of farm laborers;
- employers of casual employees;
- municipalities with fewer than 2,000 residents under the most recent federal census.
Electing coverage brings the employer under the same exclusive-remedy protection as a required employer. If you plan to elect or later withdraw, ask the Workers' Compensation Division (1-800-528-5166) about the notice steps under §25-5-50.
Ways to cover the liability
The department says the choice of method is yours and describes these options:
- Commercial insurance, voluntary market. A policy through a licensed agent from an approved carrier.
- Assigned Risk Pool. If two carriers turn you down, your agent can apply to the pool, administered by NCCI, with proof of the declinations.
- Group self-insurance fund. Employers pool their liabilities and, per the department, share joint and several liability.
- Individual self-insurance. The FAQ lists a $5 million net worth, a current-assets-to-liabilities ratio of 1 or greater, and positive net income for the past three years; self-insurers must also belong to the state's self-insurers guaranty association.
The FAQ also says the State of Alabama doesn't sell workers' comp; you buy it through a local agency.
Who pays for it
Employers pay. The FAQ is explicit that an employer can't charge an employee for workers' compensation. A general contractor can, however, charge a subcontractor for coverage.
Why it matters even near the line
The department notes that coverage is the exclusive remedy for on-the-job injury and occupational disease. That limits the employer's civil liability and helps avoid what the department calls "double compensation," penalties and fines. Under Ala. Code §25-5-8, failing to secure coverage when required is a misdemeanor and can leave the employer liable for double the compensation otherwise payable.
Scenarios
A Huntsville software firm: two owner-officers and two part-timers. That's four. Hiring one more part-timer makes five.
A three-person crew framing new houses in Baldwin County. The new residential construction exception applies; coverage is required.
A family farm with seasonal laborers. Farm labor is exempt, though the farm may elect coverage.
A contractor turned down by two carriers. The Assigned Risk Pool is the route, through an agent.
What it pays
Benefits include medical treatment and wage-loss benefits for work injuries, and death benefits for dependents. See our workers' compensation insurance guide.
Questions to review
- Are we "regularly" employing five, counting officers, members and part-timers?
- Does any of our work involve new single-family homes?
- If we're exempt, would electing coverage help win contracts?
- Do our subcontractors carry their own coverage?
Bottom line
In Alabama, five is the number for most businesses, but officers, LLC members and part-timers count, and new-home construction is different. Check your headcount regularly, and get coverage before you hit the line.
Contact Alishahi Insurance or call (877) 711-4545. See insurance in Alabama and our contractor insurance page.
Frequently asked questions
How many employees before workers' comp is required in Alabama?
Five or more, regularly employed, counting part-time employees, corporate officers and LLC members.
Do Alabama home builders need workers' comp with fewer than five employees?
Yes, businesses constructing or assisting on-site with new single-family detached homes don't get the under-five exemption.
Does the State of Alabama sell workers' comp insurance?
No. Employers buy it from approved carriers, the Assigned Risk Pool, a group fund, or self-insure if qualified.
Can an Alabama employer charge employees for workers' comp?
No. A general contractor may charge a subcontractor, but no employer can charge an employee.
Are farm workers covered by workers' comp in Alabama?
Employers of farm laborers are exempt but may elect coverage.
Alishahi Insurance · 439 N Canon Dr, Penthouse, Beverly Hills, CA 90210 · (877) 711-4545 · CA License #4348151. General information only. This isn't legal, tax or financial advice or a coverage determination. Coverage depends on policy language and underwriting, and rules vary by state.