Alabama Employee or Independent Contractor Determination

On April 19, 2021, Alabama Governor Kay Ivey signed legislation (HB 408) requiring employers to do both of the following to determine whether an individual is an employee or independent contractor for unemployment benefits and tax liability:

• Use the IRS 20 Factor Common Law Test; and
• Apply the Section 530 Safe Harbor Rule, which provides employers with relief from federal employment tax obligations if three requirements are met:
  • 1) reporting consistency;
  • 2) substantive consistency; and
  • 3) reasonable basis.

This law does not apply to, or have any impact on, whether a worker is an independent contractor or employee for the state’s workers’ compensation laws.

The law is effective July 1, 2021.