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Payroll in Alabama: Unique Aspects of Alabama Payroll Law & Practice (2025 Guide)

Sarah Johnson

Alabama payroll involves several unique state-specific rules ranging from withholding and unemployment insurance to new regulations on overtime tax and new-hire reporting. This comprehensive 2025 guide covers the latest laws and best practices for payroll compliance in Alabama, including detailed insights into tax withholding, SUI rates, wage/hours rules, and child support withholding requirements.

1. State Income Tax Withholding & Reporting

Key Agency

Withholding Form

  • Alabama uses its own Form A-4 (Employee’s Withholding Exemption Certificate) in place of the federal W-4.

  • As of April 2025, Form A-4 allows employees to claim exemptions: “0” for maximum withholding, “S” or “MS” for filing singly, “M” or “H” for jointly/head of household with a spouse or dependents.

  • Employers administer withholding via the formula method or withholding tables.

  • The supplemental wage flat rate for bonuses/commissions is 5%.

Overtime Taxation Update (2025)

  • Effective July 1, 2025, Alabama no longer exempts overtime wages from state income tax. Employers must begin withholding on overtime just like regular earnings.

Filing

  • W-2s can be filed via magnetic media or electronically, subject to thresholds and ADR specifications.

2. State Unemployment Insurance (SUI)

Administering Agency

Taxable Wage Base (2025)

Rate Schedule

  • New employers’ rate: approximately 2.70% of wages.

  • Experienced employers’ rates: range from 0.20% to 5.40%, depending on experience rating and industry.

  • Additionally, an Employment Security Assessment of 0.06% applies.

Reporting & Recordkeeping

  • Quarterly reports (UC-CR-4 and UC-10R) must be filed timely, or late penalties (e.g., $25 or 10% of tax) may apply.

  • Magnetic media reporting is mandatory for employers with 250 or more employees.

  • Employers must retain unemployment records for at least five years, including hire/termination dates, wages, pay periods, and reasons for separation.

3. Wage and Hour Regulations

Enforcement Agency

Minimum Wage

Overtime Pay

  • No state-specific overtime provisions exist; federal FLSA standards apply.

  • As of mid-2025, overtime is taxable as regular income under state tax rules.

Pay Stub & Payment Timing

  • Alabama law does not require employers to provide pay stubs, but FLSA-covered employers must maintain payment records for three years.

  • The state imposes no statutory requirements on:

    • Pay frequency

    • Timing between work performed and payment

    • Final pay to terminated employees (voluntary or involuntary)

  • Deceased employee wages must still be paid on the regular pay schedule to the spouse or guardian.

  • Unclaimed wages escheat to the state after one year.

Rest Breaks

  • Only minors under 16 are guaranteed a 30-minute rest break after five hours of work. No other state provisions exist for breaks.

Record Retention

  • No state wage/hour record retention rules exist; following federal guidelines (FLSA) is recommended.

4. New Hire Reporting

Requirements

  • Employers must report new hires, rehires, or recalls to the Alabama Department of Labor within 7 days of hire.

  • Required data includes employee name, address, SSN, date of hire, and employer’s name, address, and FEIN.

Methods

  • Reporting may be done via mail, fax, or electronically, or twice monthly electronically (12–16 days apart).

Penalties

  • Late filings incur a $25 penalty per report.

5. Child Support Withholding

Administering Division

  • Alabama Department of Human Resources Child Support Enforcement Division

Employer Obligations

  • Begin withholding immediately upon receiving the order.

  • Payment must be sent within 7 days of payday.

  • If the employee terminates, notify the agency within 7 days of termination.

Limitations & Fees

  • A maximum administrative fee of $2/month is allowable.

  • Withholding limits follow federal CCPA rules (typically up to 50% of disposable earnings).

6. Best Practices & Strategic Notes for 2025

  1. Automate Compliance
    Use payroll systems (e.g., PaycheckCity, ADP, Paylocity) that include Alabama-specific withholding, overtime tax updates, and automated reporting for SUI and new hires.

  2. Stay Updated on Tax Changes
    The July 2025 shift to taxable overtime highlights the importance of monitoring regulatory updates.

  3. Retain Comprehensive Records
    Beyond state-mandated retention (5 years for unemployment), maintain full payroll audit files to protect against FLSA and withholding audits.

  4. Use Electronic Filings Whenever Available
    Where Alabama allows for SUI, new hires, child support opt for electronic methods to improve accuracy and reduce fees.

  5. Leverage Templates and Checklists
    Maintain HR and payroll checklists that incorporate A-4 withholding, SUI filings, new-hire submissions, and child support processes for quick reference.

Summary Table

Payroll Area 2025 Alabama Details
Withholding Form A-4, flat 5% on supplements, overtime taxable from July 2025
SUI Wage Base $8,000
SUI Rate (New/Experienced) 2.70%; 0.20%–5.40% + 0.06% assessment
Min Wage / Overtime Federal FLSA applies ($7.25/hr, overtime = 1.5×)
Pay Stub / Payment Timing No state requirements; federal recordkeeping required
New Hire Reporting Within 7 days; $25 penalty; can file electronically
Child Support Withholding Immediate withholding; pay/termination notices within 7 days; $2 admin fee; follow federal limits

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