Businesses understandably focus most of their attention on providing products and services, but cannabis payroll is equally important. Without employees, most businesses wouldn’t be able to function.
In the cannabis industry, managing payroll can be especially challenging. Many states mandate penalties and fines if particular requirements are not met. And let’s not forget the “soft costs” that can accrue due to mismanagement, including high turnover and stress on employees, business partners, and vendors.
Ever-changing employee rights, industry regulations, and tax laws cannot be ignored; cannabis business owners frequently have to adjust and incorporate revisions into their operating procedures. Keeping up can seem daunting, but do not lose hope. By preparing for change and the unexpected, any business can manage crucial aspects of its payroll.
Depending on the size of the entity, a variety of systems may be appropriate. The first step in choosing between them is understanding the needs and capabilities of your human resources (HR) department.
Cannabis payroll systems
Typical payroll systems include:
In-house delegation: The business owner and/or an HR employee is directly responsible for running an internal system that is completed manually each pay period. This method works well for businesses with a small number of employees.
Accountant: A financial expert on staff or working as a consultant runs payroll and files taxes on behalf of the company, handling the process from start to finish and ensuring compliance with applicable laws and regulations.
Software: Specialized cannabis HR software automates payroll processing, which can help minimize the chance of human error.
Payroll service: Consulting companies handle payroll and taxes from start to finish for a predetermined fee.
Small businesses often assign payroll responsibilities in-house or use software, then hire outside experts as their company grows. Expanding companies frequently find hiring consultants helps them keep up with compliance issues and changes to regulations and tax laws for both the business and its employees. Providing employees with the most up-to-date tax and banking information helps them feel more prepared to handle their finances.
One of the most essential parts of an effective system is synchronizing payroll with cash flow. The best employer-employee relationships are based on trust, and nothing destroys trust quicker than delayed paychecks or vague rules. Employers should be very clear about expectations regarding timesheets, overtime, and absences. Establish rules, and then ensure everyone follows them.
Keep in mind deadlines aren’t just for employees. Understanding and meeting all deadlines put in place by banks and local, state, and federal agencies is an integral part of compliance.
Not everyone understands or is up to date on payroll requirements and procedures, and that’s okay. Software can make life easier for those who need an extra hand, but it can’t teach someone fundamentals.
The person responsible for paying employees must familiarize himself or herself with common management challenges. One of the most common issues is simply a matter of workflow. To address workflow, first evaluate your filing system. Are you keeping important records organized in an effective manner? Payroll requires a great deal of paperwork that quickly can become overwhelming, regardless of whether you use an in-house system, consultant, or software. Errors are more likely to occur when a business’s storage system is not well organized.
Software can cut down the workload in the HR department, streamline the onboarding process, and ensure quick and accurate payments. Plus, compliance with confusing tax laws is easier with a system that updates regularly.
One especially important federal tax regulation, Internal Revenue Code Section 280E, requires a precise log of employees, their roles, and their hours. Having a transparent and concise payroll structure can streamline bookkeeping practices and prevent errors when complying with this complex law.
Where to find help
If your current payroll system isn’t keeping up or you’re just overwhelmed with managing the process, there are ways to improve your system.
- Seek advice from experts and peers whose systems are working. Implement standard best practices.
- Understand all the moving parts in the industry by knowing the deadlines that impact companies at each stage of product production.
- Whether or not they’re directly responsible for placing payment in employees’ hands, business owners should ensure they understand how payroll works.
- Give new employees packets that explain due dates, pay periods, and any industry-specific information.
If payroll continues to be a challenge, consider outsourcing at least some HR duties to a partner familiar with the specific rules and regulations affecting the industry. The cost of an HR service or accountant pales in comparison to the risks associated with incorrect practices, even if mistakes are unintentional. With ever-changing laws, regulations, and tax rules, it may be in your best interest to hire an expert to help your business implement frequent changes.
If you choose to hire a cannabis HR expert, make sure they will be your trusted partner in compliance. Vet potential partners to ensure they can manage all standard payroll needs and stay on top of the industry’s ever-shifting landscape. A well-managed and compliant payroll system is vital for both business success and employee trust.
Businesses run more smoothly when payroll is managed well. Effective payroll practices can improve your reputation in the industry and keep employees happy.
Jim Valenzuela is founder and CEO at OROleafhr, which provides tailored human-resources services and payroll solutions designed specifically for the cannabis industry. The company also addresses retirement programs, workers compensation, HR technology, and benefits. Valenzuela has been an HR professional since 2008 and was introduced to the cannabis industry in 2014.