An Alabama independent contractor agreement is a legal document an employer uses 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.
- Worker Classification: Common Law Test
- Tax Structure: Graduated-Rate Income Tax
- Definition: § 25-7-41(5)
- At-Will Employment: Yes
Independent Contractor Definition
Any individual who owns a business or receives payment for services.
Worker Classification Test
In 2021, Governor Kay Ivey signed Act 2021-226, formally adopting the IRS “common law” classification test for independent contractors [1] . This helped remove the confusion regarding the various laws previously used in Alabama.
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 the likelihood the worker is to be an employee. [2]
Rights and Responsibilities
There are 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.
State Taxes
Independent contractors pay their own state taxes.
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 [3] .
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.
Sample
