Highlights
- Federal banking restrictions create major payroll challenges for cannabis dispensary owners
- Non-compliant dispensary payroll methods, including cash payments or misclassification, can have severe legal and financial consequences.
- Partnering with a specialized cannabis payroll and HR provider is crucial for success. At Greenleaf HR, we help cannabis businesses navigate complex regulations and ensure compliance. Contact us to learn how we can help.
How do dispensaries pay their employees? With nearly 15,000 dispensaries in the U.S., the question of how they handle payroll becomes critical. Even as recreational marijuana legalization keeps spreading across the country, cannabis business owners still face complex challenges in operating legally under federal and state regulations. Banking restrictions and limitations on tax deductions present unique obstacles for dispensaries, especially when it comes to paying employees.
This article explores common dispensary payroll strategies and reveals the best methods available to ensure budtenders and store managers receive fair and compliant compensation.
Let’s get started!
The Challenges of Dispensary Payroll
Dispensary owners face multiple challenges when it comes to employee payroll.
The fact that marijuana is classified as a Schedule I controlled substance by the federal government severely limits access to traditional banking services for the cannabis industry.
Many reputable banks are reluctant to do business with cannabis companies, fearing legal repercussions and reputational damage. This creates a precarious situation and forces dispensary owners to seek alternative solutions for paying budtenders, store managers, and other employees.
This lack of access to mainstream banking leaves dispensary owners facing a critical dilemma:
- Paying employees in cash or through informal channels carries significant legal and financial risks, including potential fines, penalties, and even criminal charges.
- Finding a compliant and reputable financial institution to manage their cannabis payroll can be a time-consuming and challenging process.
For cannabis business owners, this can be incredibly frustrating, as your ability to operate legally depends on factors that are out of your control.
Dispensary Payroll: The Wrong Ways to Pay Your Employees
Some dispensaries pay their employees in cash or by using a product trade-out or bartering system. These practices are not only unethical but also illegal and highly risky for cannabis businesses.
Another common, yet illegal, practice is classifying employees as independent contractors (1099 employees). Paying employees “under the table” doesn’t withhold any state or federal taxes from their paychecks and can result in substantial fines and penalties for the business owner. The IRS and state labor boards actively investigate and prosecute businesses that misclassify employees, so this practice can lead to back-tax payments, fines, and even criminal charges, not to mention costly lawsuits and legal battles.
For example, any one of your employees could potentially come after you and your business for unemployment money they’re unable to collect from the government. If employment taxes have never been paid, how is that employee able to receive their unemployment?
Operating a cannabis business requires strict compliance with all applicable labor and tax laws. Ignoring these laws creates a significant risk to the business’s long-term viability and the well-being of its employees.
Finding the Right Payroll Solution for Your Cannabis Business
Now that we’ve explored the pitfalls of non-compliant payroll practices, let’s focus on finding the right payroll solutions for your cannabis business.
Wondering how you can pay employees at your cannabis dispensary? A strategic cannabis payroll partner can take all the guesswork out of your payroll and HR policies and regulations. By choosing the right team of specialized professionals, you can guarantee access to federally insured banking services while ensuring full compliance with all relevant federal and state regulations.
Many banks say they support the cannabis industry but have strict regulations on how much you’re able to deposit at once. A solid cannabis banking partner, however, offers flexible deposit limits, whether that be $400 or $40,000.
In a nutshell, a great cannabis banking partner is there to do the hard work for you when it comes to payroll, HR, workers’ compensation, safety, benefits, administration, and compliance. They provide the financial infrastructure you need, so you can focus on what’s most important: growing your cannabis business. It’s a true partnership.
What Does Cannabis Payroll Consist of?
While the fundamental aspects of payroll are similar to any other industry – paying employees accurately and on time – the cannabis sector has unique complexities that require specialized attention.
Here’s a breakdown of the key components of cannabis payroll:
- Gross wages and salaries: The total earnings of employees before any deductions. This includes hourly wages, salaries, overtime pay, bonuses, and commissions. It’s key to keep track of hours worked, especially for hourly employees.
- Deductions: Like any business, cannabis dispensaries must handle various deductions from employee paychecks. These typically include:
- Mandatory deductions: Federal, state, and local income taxes, as well as Social Security and Medicare taxes (FICA). You should also consider state-specific cannabis regulations, which may impact tax withholding and reporting.
- Voluntary deductions: These are deductions authorized by the employee, such as contributions to health insurance premiums, retirement plans (if offered), union dues, and other benefits.
- Employer contributions: Beyond the gross wages, dispensaries are responsible for employer-side contributions. This includes:
- Employer portion of FICA taxes: Matching the employee’s Social Security and Medicare contributions.
- Unemployment taxes: Federal and state unemployment taxes (FUTA and SUTA). State regulations regarding unemployment for cannabis businesses can sometimes differ.
- Workers’ compensation insurance: This is a critical aspect, and the risk classification for cannabis industry jobs can influence premiums.
- Employer-sponsored benefits: Contributions towards health insurance, retirement plans, and other employee benefits offered by the dispensary.
- Tax compliance and reporting: Due to federal prohibition, cannabis businesses often encounter challenges with traditional banking and payment processing. This can impact how payroll taxes are remitted and reported. Staying up to date with constantly evolving state and local tax regulations specific to the cannabis industry is essential. This includes understanding nuances related to state-specific cannabis taxes and the IRS section 280E.
- Record keeping and reporting: This is vital for compliance, audits, and resolving any employee disputes, and includes:
- Employee records: Including names, addresses, social security numbers, hire dates, pay rates, and hours worked.
- Pay stubs: Providing employees with detailed breakdowns of their earnings, deductions, and net pay.
- Tax forms: Preparing and filing various federal and state payroll tax forms (e.g., W-2, 1099, 941).
Best Cannabis Payroll Tips for New Dispensary Owners
Starting a cannabis business can be challenging, especially when it comes to navigating the complex world of payroll and banking. Here are a few key tips for new dispensary owners:
- Find a trusted HR partner. Invest time in finding a reputable and experienced HR partner specializing in the cannabis industry. Avoid simply choosing the newest or most advertised company. Look for a partner with a proven track record and a deep understanding of the unique challenges and regulations facing cannabis businesses.
- Learn your local and federal laws. Thoroughly research and understand all applicable federal, state, and local laws and regulations related to cannabis businesses. Pay close attention to labor laws, tax regulations, and industry-specific compliance requirements. Requirements that you wouldn’t think pertain to your business, typically do. For example, workers’ compensation is not an option; it’s a legal requirement.
- Understand tax implications for cannabis businesses. Recognize that the tax obligations for a business differ significantly from personal income taxes. Seek expert guidance from tax professionals specializing in the cannabis industry to ensure accurate tax filings and avoid costly penalties.
Discover Greenleaf: Cannabis Payroll You Can Count On
There’s a lot that goes into a thriving cannabis company. Having a strong banking partnership is crucial, but it’s just the beginning.
At Greenleaf HR, we understand the unique challenges faced by dispensary owners. That’s why we offer a comprehensive suite of services, including payroll and tax services, but also HR management, employee benefits, and compliance guidance.
Our goal is to empower cannabis businesses and provide them with the resources they need to succeed, simplifying complex administrative tasks, and ensuring accurate, timely, and compliant payroll.
Experience the Greenleaf HR difference. Partner with our team of experts and find the solutions you need to succeed. Contact us today for a free quote.
