Alabama: Portable Benefits for Independent Contractors

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APPLIES TO

All Employers with Independent Contractors in AL

EFFECTIVE

December 31, 2025

QUESTIONS?

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Quick Look

  • SB 86 provides for new portable benefit accounts for independent contractors.
  • A portable benefit account is defined as an account owned by the independent contractor for the “purpose of funding the purchase of one or more benefit plans, including, but not limited to, plans that provide health benefits, income replacement insurance, life insurance, or retirement benefits.”

Discussion

Effective December 31, 2025, SB 86 provides for new portable benefit accounts for independent contractors. A portable benefit account is defined as an account owned by the independent contractor for the “purpose of funding the purchase of one or more benefit plans, including, but not limited to, plans that provide health benefits, income replacement insurance, life insurance, or retirement benefits” and is administered by a portable benefit account provider. The provider can be a bank, investment firm, or technology or program manager that offers these services through a bank or investment firm.

 

This is a voluntary system that encourages businesses to provide more support to vendors and gig workers. Most importantly, participation does not change the worker’s independent contractor status. Any entity, even an app-based entity, can make contributions to a portable benefit account. Contributions are tax deductible as a business expense against Alabama income tax. An independent contractor can also deduct the contribution as an adjustment to income on the individual Alabama income tax return, which means it is excluded from gross income.

 

Both the hiring party and independent contractor can agree that the contribution is either a form of income or, subject to a written agreement, a percentage of funds withheld from compensation owed to the independent contractor. The written agreement must state:

 

  • the withholding of compensation is expressly agreed to by both parties;
  • the withholding of compensation is voluntary and requires the independent contractor to opt in;
  • the requirements must be clearly, unambiguously, and prominently stated within the services contract or in a separate notice; and
  • the independent contractor can opt out at any time.

 

The new law is a rare benefit for both businesses and independent contractors.

 

Action Items

  1. Review and update independent contractor agreements with legal counsel, if voluntarily complying with the law.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2025 ManagEase