Rolling With the ‘Tide’: A Look at Alabama’s New Overtime Law

By PrismHR

By Chris Babigian and James Tehrani 

As Alabama heads to the Bowl Championship Series looking for yet another national college football title, you might be hearing “Roll Tide” quite a bit in the coming weeks. But when it comes to payroll, you might be hearing something quite the opposite—that Alabama is “rolling against the tide.” 

Starting Jan. 1, 2024, Alabama hourly wage earners will not have to pay state income taxes on “overtime” wages through June 30, 2025. That means someone making $15 per hour could make an additional $2,900 per year working just five hours of overtime per week, which would be welcomed by both blue- and grey-collar workers. Alabama has one of the highest blue-collar workforces in the country, with an average salary of $35,000 per year/$17 per hour. Not surprisingly, Birmingham leads the way in blue-collar employment in the state. 

The legislation is good for employers in the state, too. With state unemployment rates at just 2.3% as of October 2023 (seventh-best in the country), down from 2.6% the previous October, businesses are struggling to find workers during a “booming” Alabama economy that has a labor force participation rate of just 57.2% (third worst in the country), according to the Alabama Department of Commerce. For people working in neighboring states, namely Florida, Georgia, Mississippi and Tennessee, this could entice them to cross the state border in search of greener pastures, helping them and the state labor shortage. 

What’s unique about this new legislation, which Gov. Kay Ivey signed into law in June, is that it was passed unanimously with bipartisan support even during one of the most politically divided times in recent memory. It’s also a fairly straightforward piece of legislation, comprising just a 30-line addition to Alabama’s existing income tax rules. And, although the exemption carries with it a number of employer reporting requirements, the Alabama Department of Labor has tried to keep it simple. For instance, tax reporting was modified to add just two new data elements—overtime wages and number of employees with those wages. 

The bill was co-sponsored by Alabama House Minority Leader Anthony Daniels (D-Huntsville) and state Sen. San Givhan (R-Huntsville).  

In a news conference, Daniels said, “We know that with the rate of inflation and the things that are going on with high costs, rising costs and all of these items across the state of Alabama, Alabamians need to be able to take home more money.” He added, “This gives us that opportunity.” 

Could other states follow suit? 

Similar legislation has stalled in North Carolina and South Carolina. But, based on historical trends in both red and blue states, copycat legislation might not be too far behind. For example, Florida, a red state, mandated E-Verify for onboarding, and Illinois, a blue state, adopted pay transparency legislation earlier this year after seeing similar initiatives in other states. 

Of course, when the new law goes into effect in Alabama, PrismHR will be ready to provide you and your clients the updates you need to stay in compliance, and, as always, we’ll keep an eye out for what other states might be planning to ensure that all of our customers keep rolling no matter what the “tide” brings in. 

Chris Babigian is PrismHR’s compliance strategy manager. A graduate of Boston University School of Law with a focus in taxation, Chris spent five years handling motions, appellate briefs and trial discovery for a civil litigation firm. In 2014, Chris transitioned to PrismHR, where he translates regulatory requirements into software solutions.  

James Tehrani is PrismHR’s digital content marketing manager. He is an award-winning writer and editor based in the Chicago area.