Here are the 5 best practices for introducing or upgrading your cannabis payroll solutions:
1. Implementing a tracking system will make your life SO MUCH EASIER.
When you break it down, compliance is following strict rules and proving it—often with a state’s chosen track-and-trace (or “seed-to-sale”) system. Financial institutions work the same way. When you combine the two industries, stakeholders must meticulously track every penny spent and every seed sold.
So, developing a foolproof tracking system for your internal payments (like payroll) can help keep everything in line. Since cannabis businesses work with different compensation models, most traditional software doesn’t have enough flexibility to service our industry.
If you’re the founder of a grow op, you’ll need to pay your staff in various ways. Adding additional support can be necessary but can also make harvest time complex. You can choose payroll software that tracks labor by time instead of dividing salaried, hourly, and freelance employees by their various tax groups.
Time is a valuable resource for all owners and employees. It determines efficiency, helps inform scheduling, and is incredibly valuable for measuring the overall workforce when expanding your operations.
Of course, you want to follow the Fair Labor Standards Act (FLSA). This federally-support law establishes overtime rules that all businesses must comply with. Your business can face legal action if you turn a blind eye to the FLSA. Creating a digital trail can prove that you followed labor laws and make filing taxes a breeze. With the right cannabis payroll solution, sending approved hours into payroll and submitting funds to employees via direct deposit can be done in a snap.
2. Picking a 420-friendly payroll provider is your best bet.
When searching for cannabis-friendly payroll, remain focused and honest about your business. Solutions are out there, and mainstream payroll providers have caught on to cannabusinesses that slipped through the cracks.
Our POS partner Flowhub says it best:
As a result of this [federal banking regulations surrounding cannabis], several companies that previously provided payroll management services to dispensaries have dropped their clients once they realized they were a part of the cannabis industry. In some cases, regulators only gave cannabis businesses a short range of 30-90 days to find a new provider.
Although there are no explicit laws prohibiting financial institutions from doing business with cannabis retailers, federal law requires that banks file regular Suspicious Activity Reports (SARs) to allow monitoring of cannabis businesses for signs of illegal activity. There is also the added requirement that they comply with the 2014 FinCEN guidance.
You don’t want your cannabis operation to struggle with a one to three month notice on your payroll account. Some companies that shut your business out even add earlier termination fees. Plus, the additional reporting and monitoring needed for cannabis companies might go over a traditional payroll provider’s head. Bringing legal trust into this industry starts with transparency and a solution willing to work with your business, whether or not it’s plant-touching.
3. When it comes to taxes, familiarize yourself with what you can deduct.
Yes, IRS Code 280e limits what you can costs you can write off, but it does allow you to deduct business expenses for the cost of goods sold (COGs).
Like “3 Tips for Optimizing Payroll in Your Cannabis Company” points out:
“This is a saving grace for cannabis processors and growers, since even inventorial labor costs, including those for trimming, curing, and packaging, are considered COGS. For tax purposes, therefore, it is essential that you assign specific roles and titles for your employees and track their work time and date closely.”
Each part of your plant’s lifecycle serves a different purpose, just like each staff member’s green thumb. Managers could count inventory while bud trimmers are nipping at stems and plant material. Optimizing these deductions for each job can give you more deductions and a better outcome for your business taxes. Outlining roles can also help you stay aware of any role-specific legalities, which brings us to Human Resources.
4. Unifying processes with an HR team is always the right move.
The biggest challenge in cannabis is scaling your business as you grow. Rather than waiting until you have 50-70 employees, consider choosing a payroll provider that is also an HR resource. Making this investment will set you up for long-term success. As you define your roles, search for applicants, and hire, a combined HR + payroll provider can streamline your entire operations.
HR resources can:
- Conduct and verify background checks
- Check for the proof of state-required plant handling permits
- Organize employee classifications
- Help ensure diversity and inclusion policies
- Support social responsibility initiatives
- Track employee time, attendance, and PTO
- Review PTO policies
- Act as the source of truth for all payroll deductions
Some of these functions directly relate to payroll, and some indirectly. Cultivating and retaining a seasoned team will help your payroll and compliance efforts. After all, avoiding fines will always help your business’s books.
5. Getting ready to make moves? Prepare these essential items.
Gather the following significant tax and business documents to get started.
- Any relevant tax ID information (Employer Identification Numbers)
- Any required standard business licenses (these depend on your state)
- All necessary cannabis licenses, permits, or certificates (these also vary by state)
- A voided check from each of your business bank accounts
Digitally tracking your payroll, choosing a cannabis-friendly provider, familiarizing yourself with deductible labor roles, leaning on the HR team, and collecting your documents can simplify cannabis payroll. Save time by avoiding manual effort and workarounds. Upgrade your cannabis business to a connected HR, payroll, and taxes system.
Learn more about payroll efficiency tools today by contacting our financial solutions consultants.