The cannabis industry is like any other business requiring people to function — those employees require payment and it must be accurate, on time, and not to mention, it is legally required. Payroll can be a stressful time for any company, and it is especially acute for those operating cannabis businesses.
Payroll is just one layer of doing cannabiz; there are the banking and regulatory hurdles, huge tax liabilities, and sometimes unconventional pay models that can further complicate traditional payroll processing. Let’s simplify things. Here are four foolproof payroll processing tactics to help your business navigate — correctly and compliantly — through the cannabis industry.
Canna-Friend or Canna-Foe?
The single most important question to ask of your current payroll provider right now is, “Do you serve the cannabis industry?” Ensure your payroll provider does business with the cannabis industry, and start a conversation. Ask questions. “Are you committed to serving the cannabis industry long-term?” If you’re not happy with the answer, start looking for another payroll provider. Be proactive — there are stories out there about cannabis companies getting dropped like a hot potato by software providers with just a quick 30-day notice to find something else. Avoid disruptions to your business. Partner with a provider that explicitly serves the cannabis industry; here you will find support and options specifically tailored to industry needs.
Love Those COGS
State-compliant cannabis businesses have one saving grace when it comes to taxes — IRS Code 280e, to be exact. That section spells out the provision that cannabis businesses cannot deduct business expenses, except for the cost of goods sold (COGS). That sweet little section 280e is manna from heaven for growers and processors. Even labor costs that are inventorial in nature fall under the COGS umbrella, and includes the cleaning, trimming and curing of cannabis — even packaging and inventory labor are included.
To maximize the tax benefit, it is critical to ensure you’re assigning each employee a specific title and job purpose and is crucial if your business is vertically integrated where everyone wears multiple hats to make things work.
And don’t forget to track data closely; monitor work hours and compensation with a time and attendance system that can capture split shifts. Keep abreast of what labor costs are tax-deductible and those that aren’t — and maintain detailed records of each. Say, for example, you have an employee that works for your vertically integrated operation, and spends 20 hours a week trimming flower and 20 hours as a budtender; you must track their work hours and compensation per position/role separately.
Mistake-Proof Tracking Systems
The cannabis industry uses multiple compensation models, and that can be difficult to track. There are hourly (non-exempt) and salaried (exempt) employees, and in many cases also employees paid by specific outputs (trimmers paid by the pound of material they manicure, for example).
This means that many conventional timekeeping and attendance systems won’t work. In some cases, companies will default to manual tracking of hours worked and pay calculation. That can create recordkeeping challenges on the regulatory side that are just plain stressful. Skip the hassle and utilize time and attendance software programs that allow employers to track their employees specific to their pay model, and say goodbye to tedious, manual recordkeeping and calculations.
To work flawlessly, however, all that delicious data needs to flow into your payroll processing system. Employees are paid correctly and on time, and you can devote time and attention to more pressing matters. If your systems do not communicate properly, do some research and find one. The system that would work for you is out there. It just might take some initial research and inquiries to locate it.
Choose Integrated Systems
Combine payroll variances (pay rate, schedules, locations, duties) with your standard payroll challenges, and combine that with pieced-together HR systems to track applicants, measure time and attendance, payroll, etc., and you have a potential mess on your hands. If you’re duplicating data input and creating elaborate “workarounds” just to make payroll happen, then you need another option.
An integrated HRIS (Human Resource Information System), complete with payroll capabilities can serve as that special ingredient — data is centralized, and you can pull reports and gather analytics easily. An integrated software system, with information literally at your fingertips, ensures that your company can provide regulatory information. It’s that kind of system that can help inform decision-making and position a company for growth.