How to Do Payroll in Alabama: A Step-by-Step Guide

Last reviewed: July 2026

Alabama does not make payroll especially complicated compared to other states, but there is still a specific order of operations to follow. Skip a registration step and you can find yourself unable to file a return you owe money on, which is its own kind of headache. Here is the sequence in the order most new employers actually need it.

Step 1: Get a Federal EIN

Before you touch any Alabama paperwork, get an Employer Identification Number from the IRS. It is free, the application takes a few minutes online, and the IRS issues the number immediately once you submit the form. You will use this EIN on every subsequent registration, on your bank account, and on every federal and state filing you make going forward.

Apply at IRS.gov. Sole proprietors, partnerships, LLCs, and corporations all need one to legally run payroll; the only exception is a sole proprietor with no employees, which is not the situation you are in if you are reading this.

Step 2: Register With Alabama's Tax Agencies

With an EIN in hand, you need two Alabama accounts before you can legally withhold or deposit state payroll taxes.

Register for a withholding tax account with the Alabama Department of Revenue. This account lets you collect state income tax from employee paychecks and remit it back to the state; you will receive an account number that goes on every withholding return you file.

Register for an unemployment insurance account with the Alabama Department of Workforce (the agency formerly known as the Alabama Department of Labor, renamed in a 2025 state reorganization). This is your SUI account, and it is separate from your withholding account with the Department of Revenue.

Step 3: Collect Form A-4 and Set Up Withholding

Every Alabama employee must complete Form A-4, the Employee's Withholding Tax Exemption Certificate, at the time of hire. A federal Form W-4 will not substitute for it: Alabama's personal exemption amounts and filing categories (single, married, married filing separately, and head of family) are set up differently than the federal form, so the two documents do different jobs.

Keep the completed A-4 in the employee's personnel file. You will use the exemption category and any additional amount the employee requests withheld to calculate state income tax on each paycheck, alongside federal income tax, Social Security, and Medicare.

Step 4: Understand Your SUI Obligation

State Unemployment Insurance (SUI) is a tax you pay as the employer, not something withheld from wages. New Alabama employers start at a rate of 2.7% on the first $8,000 of each employee's wages for the year. That rate applies until you build up enough claims history for the state to calculate an experience rate specific to your business, which usually takes a couple of years.

You'll file quarterly wage reports and pay SUI through the Alabama Department of Workforce. Set aside the tax as you run payroll rather than treating it as an afterthought at quarter-end; it adds up faster than most new employers expect once you have a few people on the payroll.

Step 5: Choose a Pay Frequency and Final-Pay Rules

Alabama has no state law dictating how often you must pay employees. You can run weekly, biweekly, semimonthly, or monthly payroll, whichever fits your cash flow and administrative capacity. Whatever you choose, apply it consistently and put it in writing in your employee handbook or offer letters, since federal FLSA rules still require you to pay wages promptly and regularly once you set a schedule.

Alabama also has no statute specifying exactly when a final paycheck is due after termination or resignation. In practice, most employers pay out final wages on the next regular payday, which keeps you aligned with common wage-and-hour expectations and avoids disputes over unpaid time worked. Include any earned but unused paid time off according to your written policy, since Alabama treats PTO payout as a matter of employer policy rather than state mandate.

Deposit and Filing Calendar

Once payroll is running, you're managing two separate deposit and filing tracks: federal and state.

• Federal income tax, Social Security, and Medicare withholding get deposited through EFTPS on a monthly or semi-weekly schedule based on your IRS lookback period, then reconciled quarterly on Form 941.
• Alabama withholding tax gets remitted to the Department of Revenue on a schedule tied to the size of your withholding liability, ranging from monthly to quarterly depending on volume.
• SUI wage reports and payments go to the Department of Workforce each quarter, typically due the month after each quarter closes.
• New hires get reported to the state within 7 days of their start date, a requirement that applies to every employer regardless of size.

Missing any one of these deadlines can trigger penalties independent of the others, so build a shared calendar rather than tracking federal and state obligations separately in your head.

Year-End: W-2s and Reconciliation

At year-end, you'll issue a W-2 to every employee showing total wages, federal withholding, Social Security and Medicare withholding, and Alabama state withholding. Employees need their copies by January 31, and you'll also transmit copies to the Social Security Administration and to the Alabama Department of Revenue by the same deadline.

Before you finalize W-2s, reconcile your total withholding deposits against what you actually reported across the year's quarterly filings. Catching a mismatch in December is far less painful than catching it after employees have already filed their personal returns using numbers that don't match what you sent the state.

Frequently Asked Questions

Do I need an EIN before I can pay employees in Alabama?

Yes. You need a federal Employer Identification Number from the IRS before you register with either Alabama agency or run your first payroll. The EIN is free and the IRS issues it immediately when you apply online.

Which state agencies do I register with to run payroll in Alabama?

You register for withholding tax with the Alabama Department of Revenue and for unemployment insurance (SUI) with the Alabama Department of Workforce, the agency formerly known as the Alabama Department of Labor. Both accounts are required before your first payroll run.

What form do Alabama employees fill out for state withholding?

Alabama employees complete Form A-4, the Employee's Withholding Tax Exemption Certificate. A federal W-4 is not an acceptable substitute, since Alabama's exemption amounts and filing categories differ from the federal form.

How often do I have to pay employees in Alabama?

Alabama has no state law setting a required pay frequency, so you may choose weekly, biweekly, semimonthly, or monthly pay periods. Whatever schedule you pick, you still have to pay on time under federal FLSA rules and stick to it consistently.

When do I have to report a new hire in Alabama?

Alabama law requires you to report every new or rehired employee within 7 days of their start date. Reports go to the Alabama Department of Workforce's new-hire unit and can be filed online.

Handling all of this by hand is possible for a one- or two-person payroll, but the deposit and filing calendar gets unforgiving fast once you add employees or run into an SUI rate change. Payroll software built for small business, such as Gusto, calculates federal and Alabama withholding automatically, files your quarterly and annual returns, and handles W-2 delivery at year-end so you are not tracking five deadlines in a spreadsheet.