Cannabis leaves sitting on top of benajamin franklin $100 dollar bills

Cannabis Industry Payroll: How Is It Different?

Cannabis leaves sitting on top of benajamin franklin $100 dollar bills

Cannabis is a multi-million, and in some states billion, dollar industry that will continue to grow as more states move toward legalization. While cannabis is legal for adult use in some states, it’s still federally illegal. 

The legal status of cannabis brings about complex challenges for cannabis business owners. Due to certain regulations, many cannabis companies struggle to open checking accounts and are left puzzled about how they can legally pay their workers. 

Some cannabis businesses feel they are left with no other choice but to require cash payments from their customers and pay their employees in cash. However, this is not an ideal financial setup for your dispensary payroll needs. Below we’ll explain the challenges with cannabis industry payroll and how to deal with them.

Cannabis Banking

Many banks can be wary of working with cannabis companies because of certain risks that are posed. Banks can be highly selective about which cannabis companies they take on, making it difficult for many small businesses to open accounts. As a result, payroll, tax reporting, and compliance can become a complex process.

As a business owner, you’re left with two options: pay your employees in cash and try to stay tax compliant, or outsource your payroll and tax compliance. 

When you choose the first option, you run the risk of error. The federal government mandates that taxes be pulled from every working citizen, so all it takes is the wrong person walking through the door for your business to be put under serious scrutiny. You will be slapped with fines and have to pay back all the taxes you’ve missed or are owed by your employees. 

Where to get help with cannabis industry payroll?

Green Space Accounting has experience helping cannabis companies with setting up and managing payroll for their employees. If you’d like more information on our services, you can read our service page about cannabis payroll solutions or contact us today— we’ll explain how Green Space Accounting can help.

How to Pay Your Employees

Your cannabis employees can be classified as either employees or independent contractors, which impacts taxes and how they’re paid. Correctly classifying your employees is essential to avoid some costly repercussions. 

If you try to shortchange your team by misclassifying them as subcontractors, you open yourself up to trouble. While this remains true, not all of your workers are employees. So, we’ll help you figure out how you can properly classify your team and just how to pay them.

  • If your worker has a set number of hours a week, then they are most likely employees. 
  • If they are hired for specific deliverables and do not have a set number of hours weekly, then your worker is a subcontractor.

Choosing a Cannabis Payroll Provider

Now, the other option is to find a payroll provider with a long-term commitment to serving the cannabis industry. This way, you can build a relationship with a payroll provider that is dedicated to your industry and won’t drop you without notice. This can sometimes happen when cannabis businesses hire a general payroll provider. When you choose a cannabis-specific payroll provider, your business will be completely tax compliant, and you will not be slapped with a bill from the IRS. 

The difficulty of finding a bank is the main factor for proper cannabis payroll tax reporting and compliance. Also, depending on where you are, there might be additional state and local government payroll taxes that must also be accounted for.

When you are thrust into paying your payroll in cash, things get very complicated because you are the sole person responsible for taking out the following from each employee every pay period:

  1. The employer portion of FICA and Medicare
  2. Employer-paid unemployment insurance
  3. Employer-paid employment training Tax (ETT)
  4. Federal unemployment tax
  5. Worker’s compensation insurance
  6. Payroll processing fees

Dealing with payroll taxes and compliance takes valuable time away from scaling your cannabis business. Outsourcing your payroll allows you more time to focus on essential things like raising capital and expanding your business ventures. Contact us today for a free consultation.