When is workers' compensation required for an Alabama business?

Alabama requires workers compensation once a business regularly employs five or more people, full-time or part-time. Below five, it is not required by state law. Contractors are excluded from the count, and construction of new single-family homes has its own carve-out. Going without it when required is not optional - it carries penalties and personal exposure.

What does Alabama law actually say?

The threshold is set under Code of Alabama Sec. 25-5-50. The Alabama Department of Labor states it directly: "Any business that has five (5) or more employees, other than contractors, is required by law to have workers' compensation coverage." A business with four employees is not covered by the requirement; a fifth employee, even part-time, brings it under the law.

Are there exceptions?

Construction of new single-family residential dwellings carries its own carve-out under Alabama law - the ADOL treats this class of construction work differently from the general five-employee rule. A business unsure whether its work falls under this carve-out should confirm its specific classification rather than assume either way.

How is this different from Georgia?

Alabama's threshold is five employees; Georgia's is three. A business operating in both states cannot apply one state's number to the other - Georgia requires coverage at a lower headcount than Alabama does, and carrying the wrong state's threshold in mind is an easy, costly mistake for a multi-state employer.

What happens if a covered business skips coverage?

Workers compensation is a trade: the employer carries coverage, and in exchange gets the exclusive-remedy protection that limits an injured employee to the workers-comp system rather than a personal-injury lawsuit. A business that is required to carry coverage but does not loses that protection - it can be sued directly for a workplace injury, with no cap tied to the workers-comp schedule.

Example: a Montgomery shop with four full-time staff sits below the threshold and is not required to carry workers comp. Hiring a fifth person, even part-time, brings the business under the law - exactly which roles count toward that fifth is its own question, covered separately.

See Alabama commercial insurance, who counts toward the five-employee threshold, or how Georgia's three-employee rule differs. See also Alabama insurance requirements. A coverage review can confirm whether a specific Alabama business is currently required to carry workers comp.