Employer of record in Alabama: PEO rules, payroll registration and what the client still owns (2026)

Alabama does not license "employers of record" as such. What it regulates is the professional employer organization (PEO): as of October 2026, anyone who provides professional employer services in Alabama must first register with the Alabama Department of Workforce under the Alabama Professional Employer Organization Registration Act, Ala. Code §§ 25-14-1 to 25-14-11, "regardless of its use of the term" PEO, employee leasing company or any other name. A registered PEO is "deemed an employer" of the workers it co-employs, reports their unemployment contributions by client under its own account and rate, and must prove workers' compensation coverage, while the client keeps the right to direct the work and every employer duty the contract does not move.

This page is for a company outside Alabama, or a staffing firm, deciding whether to employ someone in Alabama through an employer of record (EOR) or PEO, or to register itself. The general difference between an EOR, a PEO, a staffing agency and payrolling is in what is an employer of record and payrolling services explained. The registration fees, the penalties and the 1965 employment agency statute are in staffing agency license in Alabama, and the full state checklist is in hiring employees in Alabama. This page adds who reports the wages, who insures the worker, what the contract must say and what stays with you.

Alabama employer of record and PEO rules at a glance

Does Alabama license employer of record companies or PEOs?

It registers PEOs, and the definition is wide enough to catch most employer of record services. Section 25-14-3(7) says a person in the business of providing professional employer services "shall be subject to registering under this chapter regardless of its use of the term professional employer organization, PEO, staff leasing company, registered staff leasing company, employee leasing company, or any other name." The arrangement is one in which the worker's assignment "is intended to be of a long-term or continuing nature, rather than temporary or seasonal," and in which "all or a majority of the employees providing services to a client or to a division or work unit of clients are covered employees" (§ 25-14-3(8)-(9)). A covered employee has signed a written employment agreement with the PEO and is a co-employee of both the PEO and the client.

The department's rule, Ala. Admin. Code r. 480-5-7-.01, says registration must happen "prior to commencement of operations within this state" and cannot be approved retroactively. The application includes financial statements audited or reviewed by a CPA, "a complete and current listing of all client employers" with workers in Alabama, proof of workers' compensation insurance for each covered employee in Alabama, and every name the PEO has used in the past five years. A certificate lasts one year. Commonly owned PEOs can file a consolidated registration if each member guarantees the others' workers' compensation and unemployment tax obligations, and each still pays its own fee.

To check a provider, search the department's list of registered professional employer organizations, linked from its PEO registration page along with the limited registration form, the temporary help affidavit and the list of state-approved temporary help services. The department keeps the program in its Workers' Compensation Division, which is why the pages sit under workers' compensation rather than unemployment.

What if the provider calls itself an employer of record but is not a registered PEO?

Ask which exclusion in § 25-14-3(7) it relies on. There are three:

• Temporary help services that recruit and hire their own employees, assign them to support or supplement a client's workforce, and "customarily" try to reassign them when each assignment ends. They must file the annual certification and appear on the department's temporary help list.
• Outsourcing in which the provider "assumes responsibility for the product produced or service performed" and "retains and exercises primary direction and control over the work." That rarely fits a worker you chose and supervise.
• Commonly owned companies sharing employees, where the provider's principal business is not PEO services and it does not hold itself out as a PEO.

A global EOR that hires one Alabama worker for you, on an open-ended basis, and lets you direct the work looks like a co-employment arrangement, not a temporary assignment. If it has neither a registration nor a fitting exclusion, the protections the act gives a registered PEO's client, such as the clear split of unemployment and workers' compensation duties, may not be there. Get the provider's answer in writing before the start date.

Who pays Alabama unemployment tax on an EOR or PEO worker?

The PEO, under its own number. Section 25-14-9(f)(5) says that "For purposes of unemployment compensation, covered employees of a professional employer organization are considered the employees of the professional employer organization," which is responsible for contributions, penalties and interest on the wages it pays during the contract. It "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 professional employer organization."

Two consequences for the client follow from the same subsection. First, your own Alabama experience rating does not build while the PEO reports the wages. Second, when the contract ends, or if the PEO fails to file reports or pay, "the client shall be treated as a new employer without a previous experience record unless that client is otherwise eligible for an experience rating." The department can require a PEO that falls short of the $100,000 net worth test to post security for unpaid unemployment taxes and workers' compensation claims (r. 480-5-7-.01(7)).

If you also employ people in Alabama directly, you need your own unemployment account once you are liable: $1,500 in wages in a calendar quarter, or at least one worker in 20 different weeks, per the Department of Workforce's liability page.

Who carries workers' compensation in Alabama?

The contract decides, and the PEO answers for it. Section 25-14-9(a)(4) says the responsibility to obtain coverage "shall be specifically allocated to either the client or the professional employer organization in the professional employer agreement," from a carrier licensed in Alabama. Whoever buys it, § 25-14-9(f)(6) requires the PEO to "assure to the satisfaction of the secretary that workers' compensation coverage is provided for all covered employees employed in this state," with a $1,000 civil penalty for failing to provide proof. The PEO must also:

• notify the department and its carrier within 30 days when it starts or ends a relationship with an Alabama client;
• notify the department and its clients within 10 days of any notice that coverage is being cancelled, with a $100 a day administrative penalty for late notice; and
• if it holds the coverage, give the client its workers' compensation loss records at the end of the agreement on request.

"Both the client and the professional employer organization shall be considered the employer for the purpose of workers' compensation coverage," and each gets the exclusive remedy protection. Alabama's coverage threshold, five or more regularly employed people, is on the department's insurance compliance page, but the act requires the PEO to show coverage for all covered employees in Alabama, whatever the size of the client. Ask for the certificate and check the class code against the actual work.

Which Alabama registrations, reports and notices still apply?

• Income tax withholding. Any employer with employees working in Alabama needs a withholding account with the Department of Revenue, and each employee completes Form A-4. The act makes the PEO collect, report and pay employment-related taxes on the wages it pays "to the extent that the client employer has funded those obligations" (§ 25-14-9(f)(4)).
• New-hire reporting. Within seven days of the hire or rehire date, to the Department of Workforce. That is shorter than the 20 days most states allow, so agree which party files it.
• E-Verify. Section 31-13-15 reaches every business entity or employer, so decide in the contract who enrolls and runs each case; see E-Verify requirements in Alabama.
• Co-employment notice. The PEO gives each covered employee "written notice ... of the general nature of the co-employment relationship" (§ 25-14-9(b)).
• Posters. The workers' compensation notice and the unemployment and child labor posters listed in the Alabama hiring checklist; ask how a remote worker gets them.
• City taxes. Some Alabama cities levy their own taxes; Birmingham's Tax and License Division, for example, lists an occupational tax among the taxes it collects. Ask whether the provider registers and withholds any city tax where the worker actually works.
• Paid leave programs. We found no Alabama paid family leave or disability insurance program that needs a separate employer registration.

What does the client company still own in Alabama?

The act is unusually explicit. "Except as specifically provided in this chapter or in the professional employer agreement, the client shall be entitled to exercise all rights, and shall be obligated to perform all duties and responsibilities otherwise applicable to an employer" (§ 25-14-9(c)(1)). The client is "solely responsible for directing, supervising, training, and controlling the work of the covered employees" and for the quality and safety of what its business produces (§ 25-14-9(c)(3)-(4)). In practice:

• Pay beyond base wages. The PEO's duty to pay wages does not include bonuses, commissions, severance, deferred compensation, profit sharing, vacation, sick leave or other paid time off "unless the professional employer organization has expressly agreed" to it (§ 25-14-9(a)(2)). If your offer letter promises a bonus or PTO, check who owes it.
• Hiring and firing. Both the PEO and the client have "a right to hire, terminate, and discipline the covered employees" under the agreement (§ 25-14-9(a)(3)). You still run the search and the interviews: Alabama is a one-party consent state for recording (see Alabama recording consent law for interviews), you may ask about pay history but may not refuse to hire someone for declining to give it (see salary history in Alabama), and background checks and drug tests follow Alabama background check laws and Alabama drug testing laws.
• Licensed work. A covered employee who must hold a license "is solely an employee of the client" for that licensing requirement, and the client has "the sole right to direct and control the professional or licensed activities" of covered employees unless it agrees otherwise (§ 25-14-4(c), (e)).
• Tax credits and certifications. For state tax credits and economic incentives, full-time covered employees working in the client's operations are "deemed employees solely of the client," and a small, minority, disadvantaged or woman-owned business keeps its certification (§ 25-14-4(f)-(g)).
• Benefit plans. The agreement must say whether the client or the PEO sponsors each health plan; the act forbids treating one as jointly sponsored (§ 25-14-9(f)(3)).
• Restrictive covenants and joint liability. Check whose name is on any non-compete; see Alabama non-compete law. Wage and discrimination claims can still name both parties; see joint employer liability for staffing agencies.
• Federal payroll taxes. The IRS says the client "generally remains responsible" for employment taxes unless the PEO is IRS-certified; check the CPEO public listings.

When is registering your own company in Alabama the better route?

• You want to build your own unemployment rating. Under a PEO your wages sit on its account, and you start again as a new employer when the contract ends.
• You plan several Alabama hires. Your own setup is an unemployment account, a Department of Revenue withholding account, Form A-4, E-Verify, seven-day new-hire reports and, at five employees, workers' compensation; the PEO model assumes it covers all or a majority of your workforce there.
• The work is a short, defined project. A state-approved temporary help service may fit better than a co-employment contract meant to be long-term.
• The provider is not on the registered list and cannot name its exclusion. Then you may carry the employer's duties anyway, without the act's allocation of them.

Questions to ask an employer of record or PEO before signing for Alabama

1. Are you on the Department of Workforce's list of registered PEOs, under a full or limited registration, and when does your certificate expire?
2. If you are not registered, which exclusion in § 25-14-3(7) applies, and are you on the state-approved temporary help list?
3. Will our Alabama wages be reported under your unemployment account and rate, and what happens to our rating when we leave?
4. Who holds the workers' compensation policy under our agreement, which class code applies, and will you notify us within 10 days of any cancellation notice?
5. Who opens the Department of Revenue withholding account, collects Form A-4 and reports the hire within seven days?
6. Who enrolls in E-Verify and runs the case for this worker?
7. Do your wage obligations cover the bonus, commission and paid time off in our offer, or do those stay with us?
8. Which party sponsors the health plan, as the agreement must state?
9. Are you an IRS-certified PEO, and who is liable for federal employment taxes if you miss a payment?
10. Can we move the worker to our own payroll later, and is there a fee?

Employer of record rules in other states: Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Mississippi, Nebraska, New Hampshire, New York, North Carolina, Ohio, Rhode Island, South Carolina and Texas.