Overcoming Cannabis Payroll and HR Challenges

March 7, 2024

As of 2023, adult recreational use of cannabis is legal in 21 states and Washington D.C., building on massive growth from the business and employee perspective. Despite this growth and being such a hot industry, there are unique challenges to business operations that these companies are facing. Traditional business providers such as banks, payroll processors, and HR consultants have been dropping dispensary and cannabis businesses as customers, leaving them scrambling with 30 days’ notice to find a new provider.

This unfortunate occurrence is happening more and more, but is reinforcing the need for cannabis businesses to do their due diligence when searching for reputable and trustworthy payroll, HR, and financial partners.

While it’s exciting to focus on the building and growing part of your business, you cannot ignore the business fundamentals. Not being compliant when it comes to payroll taxes, HR, employment and labor law, and other workforce management issues can be very costly in the long run. 


Cannabis Payroll Obstacles

Why is payroll so tricky for dispensaries and cannabis companies? Traditional payroll operations rely on ACH transfers at banks. However, since cannabis is still classified as illegal at the federal level, a cannabis business cannot use an ordinary bank. Instead, providers rely heavily on physical cash and alternative financial institutions, such as community banks, credit unions, and only a handful of payment processors.

So can dispensaries pay their budtenders and cannabis employees in cash?  Some operators may elect to pay employees via cash, but that comes with a multitude of issues. Cash is hard to keep an accurate paper trail, is not convenient or secure for the workers, and registered employers still have to account for withholding and payroll taxes.

There are cannabis payroll companies and financial institutions that can ensure your dispensary or cannabis business employees are paid accurately, on time, and securely each payday. Whether it’s checks, direct deposit, or pay cards, there are more options than just cash.

It is also critical to educate yourself on the difference between an employee and an independent contractor. Worker misclassification is another cannabis payroll issue and a compliance red flag for cannabis businesses.


The Need for HR at Cannabis Companies

The downside to a rapidly growing and changing industry is also an incline in employee-related lawsuits. Dispensary operators have to focus on prevention and invest in HR to reduce their risk. While it’s not as fun as focusing on growth and profits, it’s necessary in today’s world. With the right HR partner, it doesn’t have to be too difficult or time-consuming of a responsibility.

In a quick Google search, one can see what types of recent lawsuits have been brought against dispensaries: Unpaid wages, overtime, whistleblower retaliation, wrongful termination, discrimination, violation of EEOC and Philadelphia’s Fair Workweek law, and more. The average claim is costing small-to-mid-sized cannabis businesses anywhere from $100,000 to $500,000 and over. For a much smaller price tag, employers and dispensary operators can invest in HR support early on and implement consistent HR policies to better organize and protect their workforce. Cannabis companies also face pressure and accountability from labor unions, whose goal is to protect the interest of budtenders and dispensary workers.

To get started with HR at your cannabis company:

  1. Write, implement, and regularly update an Employee Handbook. This helps eliminate confusion and promotes consistency with the organization.
  2. Create and follow a recordkeeping system so all employee demographic data, pay data, PTO, overtime, incidents, and performance or compliance issues are properly documented.
  3. Make sure any supervisors who manage employees, approve and deny PTO or overtime, or review resumes and conduct interviews are aware of current state and federal labor laws.
  4. Have open communication with your employees and stay informed on human resources tips and best practices.
  5. If you don’t have the budget for a full-time HR employee, see if your cannabis payroll processer offers supplemental HR support which typically includes a labor law library, DOL updates, memo templates and sample policies, and more to help you be compliant.


Recordkeeping for Dispensaries and Cannabis Businesses

Just like an ordinary business, employers at dispensaries and cannabis businesses still have to meet employee recordkeeping requirements. It might even be more important for those in the highly-regulated cannabis industry, since they are under such a microscope to ensure compliance in all areas. 

Employee records must include: Workers’ name and social security number; date hired or rehired; dates and amounts of pay period payments; amounts withheld from wages; disbursement records; and cash or cash value of in-kind wages. The FLSA requires employers to save records for at least three years, while records on wage computations, time cards, etc. should be saved for a  minimum of two years.

Timekeeping Options for Cannabis Workers

To try to mitigate mishaps, overtime miscalculations, scheduling errors, and inaccurate hour logs, employers should implement a timekeeping solution, ideally one that integrates with your dispensary’s payroll system. Automating timekeeping and payroll will help eliminate human error and aids in maintaining accurate records for time cards and tracked hours. Timekeeping can be offered as a physical terminal, a URL shortcut on your business’s computer or tablet, or through an app on employees’ smartphones.


Cannabis and Workers Comp Insurance 

Workers’ compensation insurance coverage requirements will vary from state to state, but being a legal cannabis business does not exclude you from needing a workers’ comp policy to protect your business and your employees. If your current vendor does not provide coverage to cannabis companies, there are insurance brokers who specialize in the industry and can get your dispensary the coverage it needs.


A Trusted Cannabis Payroll Company

The cannabis landscape is ever-evolving. Abacus Payroll  has been in business for 24 years, is backed by a CPA firm with 280E expertise,  and is here to help you navigate and ensure your dispensary workers are paid accurately, on-time, and meet industry compliance regulations. For a quote on payroll processing for your cannabis business, fill out our quote request form today.


Further reading:

Easier, Friendlier Payroll Is In Your Reach

Small businesses are a big deal to us. Eliminate the hassle of over complicated payroll and HR processes by partnering with a local and responsive provider.

Focus on your business and leave the payroll and tax to us. Count on Abacus Payroll.