An Alabama independent contractor agreement is used by an employer to lay out the terms of a contractor’s work. Independent contractors should use a separate contractor agreement that clarifies their work status whenever they accept any work in Alabama.
Understanding Worker Classifications
In 2021, Governor Kay Ivey signed Act 2021-226, formally adopting the IRS “common law” classification for independent contractors  . This helped remove the confusion regarding the various laws previously used in Alabama.
Whenever a worker enters employment as an independent contractor, there needs to be a meeting of minds between them and their employer regarding their work status. The federal “common law” test uses 12 factors to establish whether a worker is an independent contractor or an employee.
Worker Classification Test
Alabama uses its own version of the 12-factor test to determine if a person is an employee or an independent contractor, but the most critical factors fall into three main categories:
- Financial: What degree of the worker’s expenses are paid by the employer, what tools and supplies are provided, and what operating costs are covered by the employer? For instance, a contractor usually provides their own tools and pays their own rent and utilities.
- Behavioral: Can the worker set their own hours, determine the start and end dates of the project, work in their own home or other location, or work for multiple entities? The greater the control exercised over the worker, the less likely they are to be an independent contractor.
- Relationship: Does the worker receive benefits, plan to continue working for the employer once the project is finished, or receive regular installment payments? Are they otherwise dependent on the employer? The greater the degree of dependence on the employer, the greater likelihood the worker is to be an employee. 
Employee vs. Independent Contractor
An employee is any individual mainly or wholly controlled by the hiring entity, as described above. Alabama considers any individual who owns a business or receives payment for services to be an independent contractor rather than an employee.
Rights and Responsibilities
Alabama has few protections for independent contractors in the workplace. Your safest course of action is to get all your legal rights spelled out in your independent contractor agreement before beginning work with the employer.
Independent contractors pay their own Alabama state taxes. The employer does not withhold income taxes on their pay.
Filing for Unemployment
According to Ala. Admin. Code r. 480-4-3-.24(1), independent contractors, gig workers, and self-employed workers cannot file for unemployment benefits since the end of the COVID-19 emergency.
Compensation for Work Injuries
Independent contractors are not covered by workers’ compensation if injured on the job. Workers’ compensation insurance only covers employees  . For this reason, independent contractors should review their independent contractor agreements carefully to ensure that they have not been misclassified.
The employer’s insurance may cover you if the agreement requires you to work at the employer’s office building or other job site. This should be spelled out in your independent contractor agreement or reviewed by an attorney before signing.
Below, you can download an Alabama independent contractor agreement sample in PDF or Word format: