Dispensary owners have a web of compliance and legal challenges to navigate, even when it comes to paying their employees.
Since the legal status of cannabis ranges so widely between states, while still illegal at the federal level, financial matters like taxation, banking, and running payroll for cannabis businesses can be complicated.
For these reasons, effective payroll management in cannabis dispensaries is critical to helping these businesses stay compliant with both federal and state labor laws and keep employees happy with on-time and accurate paychecks.
Below, we’ll discuss some of the essential tips dispensary owners should know to streamline their payroll processes.
1. Understand Payroll Processing
The basics of payroll processing apply to businesses in all industries, even dispensaries. So, even though there is a bit more legal complexity that cannabis companies must deal with, they still need to perform essential payroll responsibilities that any other business would, like:
- Calculating total worker wages
- Withholding deductions
- Calculating and filing payroll taxes
- Remitting payment to dispensary workers
Above all, complete and accurate dispensary payroll processing ensures the business is compliant with the relevant labor laws and that they are paying workers appropriately for their time worked.
2. Emphasize Compliance
Again, dispensaries must comply with the state and federal laws that regulate how all companies pay their employees. However, there are some additional regulatory requirements specific to running payroll in the cannabis industry.
This includes Section 208E of the Internal Revenue Code, which states that cannabis dispensaries are not allowed to deduct expenses related to the sale of marijuana, including employee wages in most cases, which directly impacts how dispensaries calculate their payroll taxes.
Dispensaries also need to pay workers and file the related payroll taxes appropriately based on how they are classified, like if they are considered employees of the business or independent contractors. Plus, they will need to categorize workers based on their job duties, like security, budtenders, or administrative staff. Wage and tax laws will vary depending on these considerations.
In addition, regulations may differ between states, even where cannabis is legal. For instance, local and state governments may impose additional taxes or fees on cannabis operations, which dispensary owners should be aware of.
3. Cash Payments and Tips Handling
Some dispensaries may opt to pay out employees’ wages and tips by cash to avoid some of the regulatory red tape that comes from dealing with national banks and financial institutions. However, this can still provide its own set of challenges.
Dispensaries need to keep accurate records, calculate payroll taxes, and pay employees on time when they make cash payments. Otherwise, it can open the dispensary up to more liability if their records are not complete, tax calculations are inaccurate, or they pay workers late.
4. Managing Independent Contractors
Cannabis dispensaries may classify and pay workers as independent contractors rather than employees, which makes these workers responsible for paying their own taxes.
However, the misclassification of workers can result in further penalties, fines, or legal issues for the dispensary. So, it’s important to understand what criteria must be met for a worker to be rightfully classified as an independent contractor and not an employee, including:
- Independent contractors have greater autonomy over their work while employees are more under the direct control of the employer
- Workers in roles that require highly specialized skills are more likely to be considered independent contractors
- Employees are typically paid hourly wages, while independent contractors are often paid a flat rate for their work
5. Automate Payroll Processes
Dispensary owners may consider using payroll software to help automate payroll processes and meet compliance requirements.
Using a dedicated cannabis payroll software can provide many benefits, including the ability to pay employees through direct deposit, streamline employee time tracking, keep accurate payroll records, automate tax calculations, receive tax filing support, and more.
All in all, an automated dispensary payroll system can eliminate some of the headaches and administrative burdens that come from running payroll for cannabis businesses.
6. Ensure Data Security
When using automated cannabis payroll software, dispensaries need to safeguard sensitive employee information to meet relevant data privacy laws.
This means looking for a payroll solution that employs robust security measures like encryption and strong access controls to prevent unauthorized access to employee data, as well as clear audit trails and record-keeping to stay compliant with industry standards.
7. Stay Updated on Regulatory Changes
Given the unique regulatory landscape surrounding cannabis in the United States, laws are constantly evolving. Dispensary owners need to stay informed about any changes in payroll regulations and compliance requirements to avoid legal penalties or fines.
These are some helpful resources to keep you up-to-date on the latest regulatory changes in the industry:
8. Choose the Right Payroll Provider
Despite the many options for payroll software available today, these providers are not all fit to serve the cannabis industry. So, dispensary owners need to do the proper research to find a reputable provider that will help streamline their compliance and payroll responsibilities.
Some factors to look for for when selecting a dispensary payroll provider include:
- Industry-specific expertise
- Compliance capabilities
- Tax filing support
- Scalability
- Customer support options
Still Need Help With Cannabis Payroll?
If you’re still struggling to manage cannabis payroll, our webinar will show you how our cutting-edge HRIS system can streamline your cannabis business:
While it can be challenging, effectively managing payroll in cannabis dispensaries is not impossible. When you have a better understanding of the compliance standards you must meet, the importance of correctly classifying workers, how to handle cash payments, and the benefits of automating this process, you can feel confident that you are adhering to all relevant laws and paying workers on time.
Especially when you’re using payroll software with automated compliance capabilities and industry-specific expertise, like Paypro, you can streamline your payroll processes while having the peace of mind that nothing will slip through the cracks.
About the Author
Kayla is the Marketing Manager at Paypro Corporation overseeing all inbound and outbound marketing and sales efforts. She has 7+ years of experience working within the B2B and SaaS based solutions space and thrives on creating messaging and campaigns that introduce products and services to those who need them most.