Cannabis Knowledge & Insights

Cannabis Industry Worker Classification & Paying Payroll in Cash

In this video and article, our team discusses the importance of Cannabis Industry Worker Classification and Paying Payroll in Cash…


Hi my name is Jim Breese at GreenGrowth CPAs and today I want to talk to you about paying payroll and cash for your cannabis business there’s a lot of you know little nuances and things that can complicate the process we’ll also talked about worker classification between 1099 contractors and bona fide payroll employees and how to mitigate 280e in the entire process so the top right into the computer here and I’ll walk you through all the processes and steps to paying payroll in cash for your cannabis business so due to federal regulations restricting cannabis operators access to traditional banking many cannabis companies are forced to pay their operational costs in cash in payroll is one of the most regular expenses that can be difficult and risky to pay in cash especially if you don’t know what you’re doing so in this video I’m gonna cover with you how to pay your employees in cash as well as your contractors but before I do I need to let you know that the information contained in this presentation is meant for guidance purposes only and not as professional legal or tax advice and further it does not give any personalized legal tax investment or any business advice in general so with that out of the way let’s hop right in quick agenda what we’re going to cover first we’re gonna talk about determining worker classification and the importance of that then paying payroll employees and then how to pay payroll taxes as well as paying contractors those 1099 contractors you may have italo’s properly allocating time for 280e mitigation so first let’s cover some background on worker classification there are a few different ways to pay your people depending on how you classify your employees I’m sure you’ve asked yourself are your workers employees or subcontractors and this distinction is very very important it’s hyper critical to get this right now uber the ride-sharing company you’ve heard of them well they recently faced a lawsuit where they tried to blur the lines between employees and subcontractors in an effort to prevent their drivers from forming a union by classifying the majority of their workforce as independent contractors the rideshare giant was able to prevent drivers from bargaining collectively in a lawsuit has led to a pro worker bill currently making its way through the California state legislature that if passed could redefine the relationship between worker and boss by forcing corporations to actually pay up and make it more expensive for corporations now it was a big deal and I’m sure it costs them dearly to defend against this lawsuit so what does this mean for your cannabis business well there are some costly repercussions for trying to shortchange your team by misclassifying them as subcontractors and not giving them benefits rather than traditional employees where they have access to more benefits in more payment and other things that come along with being employees and this could expose you to lawsuits back taxes and further operational complications that said it’s also true that not every worker is an employee and there’s a long list of elements to check to determine if your team member is actually an employee or a subcontractor so let’s review and take a look at some of those core elements to consider so classification of workers now in this presentation let’s use an example of a cannabis dispensary but these factories will work for each vertical in the cannabis industry so if a person is employed at the same dispensary with a set work hours to work on the sales floor using the dispensaries equipment to perform their job description or job duties that person is likely an employee now person number two if that person has no set hours or scheduled uses their own equipment to perform their job and typically performs specific projects with due dates or deliverables that person is likely an independent contractor now the determination of an employee revolves around three main criteria number one is behavior now this is the way the work is performed such as the direction to use a specific POS system and protocols to complete transactions and number two is financial so what financial resources are required to get the job done things like does the employee get reimbursed for driving their vehicle to a job if yes then likely in most potentially they are an employee whereas a contractor covers this expense on their own now this doesn’t mean like their drive to and from work but if they were driving you know around to do sales calls or their driving around to pick up product if they’re reimbursed for that likely they’re an employee and lastly number three is the relationship now it’s a bit more complex for employees compared to contractors for example an employee may receive perks such as health insurance and an ongoing commitment to provide a specific number of hours by that corporation so when you look at all three of these key factors it helps you kind of understand who is an employee and who is a contractor and most cannabis businesses will have a mix of both employees and contractors on their team so let’s look how to take care of each group in the payroll considerations for each so first how to pay employees on payroll and when we talk about payroll we mean bona fide payroll asset pay structure every period whether that’s every week every two weeks or monthly with the associated taxes taken out cannot stress this enough your payroll must be organized because employees are expensive there’s a lot of taxes and other things that come along with them you must pay their salaries and wages as well as the employer portion of the FICA and Medicare employer paid unemployment insurance employer paid employment training tax the federal unemployment tax workers compensation insurance payroll processing fees and in addition to those taxes and fees you must file extra reports four times a year meaning that your accounting expense will rise as a result of having to process those associated reports and things may get a little bit more complicated if you’re planning to pay your payroll in cash which most of you probably do because you don’t have access to a bank so that means you can’t write them checks or do direct deposit so if you do pay your payroll in cash make sure your employees sign a receipt verifying that they got the cash owed to them you will need these signed receipts for proof that they have been paid as well if you ever get audited and if you pay with a check then those checks or that direct deposit receipt is your evidence for that payment next let’s cover taxes for payroll you must also make sure that you are allocating the proper taxes every period again if that’s weekly bi-weekly monthly however you’re paying out your employees make sure you’re allocating those taxes properly because trying to come up with that tax money later is a big big burden because that can add up very very quickly and the employer is always held responsible for withholding and remitting these taxes to the state or the federal government if an employer does not follow directions in protocol then the employee would be an injured party and may have a case against you if you mess this up so take this very very seriously and you may be asking well what’s the best system to do this well we suggest that the taxes that you collect and you hold on to when you withhold from your employees you hold that in escrow and then send that to the IRS or to the state never deposit schedules are and this is usually again quarterly payroll taxes are prepared and remitted every quarter four times per year now there are two people you’re gonna be paying taxes to you know the federal government and the state government so for the federal government you have EFTPS and this is the digital payment portal for paying the IRS payroll taxes and rarely can you pay your employee payroll taxes in cash so if you don’t have a bank account for your cannabis business and you probably need to pay these personally and then pay yourself back through the company or through the business and then you have EDD which is in the state of California is the Employment Development Division and this is how you pay your state withholding taxes for payroll in here you have to pay everything you withheld from your employees as well as SDI which is state disability insurance and you can do this via snail mail and if all this feels a little too complicated you know you can work with an accountant to help you out and do all this and do these things for you or instead of managing employees yourself there are payroll and employee leasing companies who can help you out with this now a leasing company helps you quote unquote lease employees from a non cannabis company that does not have the 280e issues that other cannabis businesses and operators face and because they are not restricted by 280e you pay the leasing company to pay your people and take care of all the filings there’s usually a fee on top of the employee rates but it’s a convenient and easy way to manage your cash flow and just export that task out to somebody and make sure it’s being done the right way and keeping you compliant to leasing companies you may want to look into or payroll companies you may want to look into or adp and payroll u.s. saying next let’s cover how to pay subcontractors now the process for paying your subcontractors look slightly different before you pay any subcontractor make sure that you have their completed and signed w-9 forms this IRS form is necessary when working with an independent contractor and if you don’t have this information you can be penalized now at the end of the year you must complete a 1099 for each subcontractor based on the total amount you paid out to that contractor that 1099 form gets sent both to the worker that completed the work and the IRS so that keeps everyone compliant and keeps everybody truthful now each subcontractor must list every 1099 on their Schedule C form and then they copy of the 1099 does not get filed with the IRS since they already have a copy but it’s held for the subcontractors personal records only and as a business you should issue 1099s to LLC’s individuals and partnerships and don’t issue 1099 to corporations or suppliers of your business so for example a landscaper who cuts the grass at your business for $500 a month we’ll need a 1099 and for sure any subcontractor who you paid more than $600 over the year will get a 1099 and many cannabis companies make the mistake of thinking that they don’t have to issue 1099 since the operator can’t get the deduction because of 280e however the question of being able to take the expense is a little complicated and based on the facts and circumstances around that engagement you may still be able to take payroll expenses and deduct that from your gross revenue so if the subcontractor is direct sourcing of products weighing products hacking products or adding value to the cogs and other ways then you can probably take that expense but a budtender taking the time to ring up a client and sell them product would not qualify as an expense that you can deduct from your gross revenue under 280e so to help you with this here are two helpful tools to make sure you can actually allocate time properly and get that deduction so first it’s important to have an employee handbook to keep track of these different variables and job duties you can use your handbook to split out the contractors and employees time for example allocate 25% of their time to X which could be sourcing new products in 35% of their time to Y which is packaging new products and etc and on and on and on in laying out how employees and contractors appropriate their time throughout their engagement with you what this does is give you a methodology and evidence for delineating some payroll expenses under the 280e tax code now if you want to create an even more granular allocation of time have your employees clock in and clock out for specific activities it does seem like we’re asking a lot when you say hey make sure they clock in for this and clock out for that but clocking in and clocking out doesn’t need to be so burdensome you could issue a bad solution and divide your tasks into separate rooms right like a room for selling a car related tasks some room and they can just punch in and punch out and you can use that ledger or that information that comes from the security check in check out as evidence on how to allocate time it’s all about using technology and evidence to create a reasonable methodology for your cannabis company to allocate those expenses for 280e now quite quickly we’ve covered a lot of ground on payroll and contractors versus employees but let’s talk about four key takeaways here employee classification has important tax implications for all cannabis businesses no matter if they’re employees or 1099 contractors you’re going to have different ways to pay them in different tax laws and tax things you have to make sure that you do when they fall under a particular classification and to understand that classification there are three base or core factors which is behavior the financial part of it like the resources they have to use and the relationship between the employee and the employer now the 280e expense is based on the facts and circumstances of the engagement and what that person whether employee or contractor is doing while working for you and to help allocate time make sure you have an employee handbook and even further a badge solution to check people in and out of particular tasks at a more granular level so you can allocate that expense and deduct that from your total revenue and have lower taxable base now thank you for taking the time to sit and listen and hopefully this video has brought you some value to help you understand paying payroll in taxes and worker classification in the cannabis industry now if you need help with employee and contractor payroll accounting please get in contact with us today by visiting our website at green growth CPAs comm or giving us a call at eight hundred 676

snowball and become something bigger to deal with down the road so again if you need help with employee or contractor payroll please get in contact with us today via our website at green growth CPAs dot-com or giving us a call at eight hundred 676

hi my name is Jim briefs and Greengrass CPAs and today I want to talk to you about paying payroll and cash for your cannabis business there’s a lot of you know little nuances and things that can complicate the process we’ll also talked about worker classification between 1099 contractors and bona fide payroll employees and how to mitigate 280e in the entire process so the top right into the computer here and I’ll walk you through all the processes and steps to paying payroll in cash for your cannabis business so due to federal regulations restricting cannabis operators access to traditional banking many cannabis companies are forced to pay their operational costs in cash in payroll is one of the most regular expenses that can be difficult and risky to pay in cash especially if you don’t know what you’re doing so in this video I’m gonna cover with you how to pay your employees in cash as well as your contractors but before I do I need to let you know that the information contained in this presentation is meant for guidance purposes only and not as professional legal or tax advice and further it does not give any personalized legal tax investment or any business advice in general so with that out of the way let’s hop right in quick agenda what we’re going to cover first we’re gonna talk about determining worker classification and the importance of that then paying payroll employees and then how to pay payroll taxes as well as paying contractors those 1099 contractors you may have italo’s properly allocating time for 280e mitigation so first let’s cover some background on worker classification there are a few different ways to pay your people depending on how you classify your employees I’m sure you’ve asked yourself are your workers employees or subcontractors and this distinction is very very important it’s hyper critical to get this right now uber the ride-sharing company you’ve heard of them well they recently faced a lawsuit where they tried to blur the lines between employees and subcontractors in an effort to prevent their drivers from forming a union by classifying the majority of their workforce as independent contractors the rideshare giant was able to prevent drivers from bargaining collectively in a lawsuit has led to a pro worker bill currently making its way through the California state legislature that if passed could redefine the relationship between worker and boss by forcing corporations to actually pay up and make it more expensive for corporations now it was a big deal and I’m sure it costs them dearly to defend against this lawsuit so what does this mean for your cannabis business well there are some costly repercussions for trying to shortchange your team by misclassifying them as subcontractors and not giving them benefits rather than traditional employees where they have access to more benefits in more payment and other things that come along with being employees and this could expose you to lawsuits back taxes and further operational complications that said it’s also true that not every worker is an employee and there’s a long list of elements to check to determine if your team member is actually an employee or a subcontractor so let’s review and take a look at some of those core elements to consider so classification of workers now in this presentation let’s use an example of a cannabis dispensary but these factories will work for each vertical in the cannabis industry so if a person is employed at the same dispensary with a set work hours to work on the sales floor using the dispensaries equipment to perform their job description or job duties that person is likely an employee now person number two if that person has no set hours or scheduled uses their own equipment to perform their job and typically performs specific projects with due dates or deliverables that person is likely an independent contractor now the determination of an employee revolves around three main criteria number one is behavior now this is the way the work is performed such as the direction to use a specific POS system and protocols to complete transactions and number two is financial so what financial resources are required to get the job done things like does the employee get reimbursed for driving their vehicle to a job if yes then likely in most potentially they are an employee whereas a contractor covers this expense on their own now this doesn’t mean like their drive to and from work but if they were driving you know around to do sales calls or their driving around to pick up product if they’re reimbursed for that likely they’re an employee and lastly number three is the relationship now it’s a bit more complex for employees compared to contractors for example an employee may receive perks such as health insurance and an ongoing commitment to provide a specific number of hours by that corporation so when you look at all three of these key factors it helps you kind of understand who is an employee and who is a contractor and most cannabis businesses will have a mix of both employees and contractors on their team so let’s look how to take care of each group in the payroll considerations for each so first how to pay employees on payroll and when we talk about payroll we mean bona fide payroll asset pay structure every period whether that’s every week every two weeks or monthly with the associated taxes taken out cannot stress this enough your payroll must be organized because employees are expensive there’s a lot of taxes and other things that come along with them you must pay their salaries and wages as well as the employer portion of the FICA and Medicare employer paid unemployment insurance employer paid employment training tax the federal unemployment tax workers compensation insurance payroll processing fees and in addition to those taxes and fees you must file extra reports four times a year meaning that your accounting expense will rise as a result of having to process those associated reports and things may get a little bit more complicated if you’re planning to pay your payroll in cash which most of you probably do because you don’t have access to a bank so that means you can’t write them checks or do direct deposit so if you do pay your payroll in cash make sure your employees sign a receipt verifying that they got the cash owed to them you will need these signed receipts for proof that they have been paid as well if you ever get audited and if you pay with a check then those checks or that direct deposit receipt is your evidence for that payment next let’s cover taxes for payroll you must also make sure that you are allocating the proper taxes every period again if that’s weekly bi-weekly monthly however you’re paying out your employees make sure you’re allocating those taxes properly because trying to come up with that tax money later is a big big burden because that can add up very very quickly and the employer is always held responsible for withholding and remitting these taxes to the state or the federal government if an employer does not follow directions in protocol then the employee would be an injured party and may have a case against you if you mess this up so take this very very seriously and you may be asking well what’s the best system to do this well we suggest that the taxes that you collect and you hold on to when you withhold from your employees you hold that in escrow and then send that to the IRS or to the state never deposit schedules are and this is usually again quarterly payroll taxes are prepared and remitted every quarter four times per year now there are two people you’re gonna be paying taxes to you know the federal government and the state government so for the federal government you have EFTPS and this is the digital payment portal for paying the IRS payroll taxes and rarely can you pay your employee payroll taxes in cash so if you don’t have a bank account for your cannabis business and you probably need to pay these personally and then pay yourself back through the company or through the business and then you have EDD which is in the state of California is the Employment Development Division and this is how you pay your state withholding taxes for payroll in here you have to pay everything you withheld from your employees as well as SDI which is state disability insurance and you can do this via snail mail and if all this feels a little too complicated you know you can work with an accountant to help you out and do all this and do these things for you or instead of managing employees yourself there are payroll and employee leasing companies who can help you out with this now a leasing company helps you quote unquote lease employees from a non cannabis company that does not have the 280e issues that other cannabis businesses and operators face and because they are not restricted by 280e you pay the leasing company to pay your people and take care of all the filings there’s usually a fee on top of the employee rates but it’s a convenient and easy way to manage your cash flow and just export that task out to somebody and make sure it’s being done the right way and keeping you compliant to leasing companies you may want to look into or payroll companies you may want to look into or adp and payroll u.s. saying next let’s cover how to pay subcontractors now the process for paying your subcontractors look slightly different before you pay any subcontractor make sure that you have their completed and signed w-9 forms this IRS form is necessary when working with an independent contractor and if you don’t have this information you can be penalized now at the end of the year you must complete a 1099 for each subcontractor based on the total amount you paid out to that contractor that 1099 form gets sent both to the worker that completed the work and the IRS so that keeps everyone compliant and keeps everybody truthful now each subcontractor must list every 1099 on their Schedule C form and then they copy of the 1099 does not get filed with the IRS since they already have a copy but it’s held for the subcontractors personal records only and as a business you should issue 1099s to LLC’s individuals and partnerships and don’t issue 1099 to corporations or suppliers of your business so for example a landscaper who cuts the grass at your business for $500 a month we’ll need a 1099 and for sure any subcontractor who you paid more than $600 over the year will get a 1099 and many cannabis companies make the mistake of thinking that they don’t have to issue 1099 since the operator can’t get the deduction because of 280e however the question of being able to take the expense is a little complicated and based on the facts and circumstances around that engagement you may still be able to take payroll expenses and deduct that from your gross revenue so if the subcontractor is direct sourcing of products weighing products hacking products or adding value to the cogs and other ways then you can probably take that expense but a budtender taking the time to ring up a client and sell them product would not qualify as an expense that you can deduct from your gross revenue under 280e so to help you with this here are two helpful tools to make sure you can actually allocate time properly and get that deduction so first it’s important to have an employee handbook to keep track of these different variables and job duties you can use your handbook to split out the contractors and employees time for example allocate 25% of their time to X which could be sourcing new products in 35% of their time to Y which is packaging new products and etc and on and on and on in laying out how employees and contractors appropriate their time throughout their engagement with you what this does is give you a methodology and evidence for delineating some payroll expenses under the 280e tax code now if you want to create an even more granular allocation of time have your employees clock in and clock out for specific activities it does seem like we’re asking a lot when you say hey make sure they clock in for this and clock out for that but clocking in and clocking out doesn’t need to be so burdensome you could issue a bad solution and divide your tasks into separate rooms right like a room for selling a car related tasks some room and they can just punch in and punch out and you can use that ledger or that information that comes from the security check in check out as evidence on how to allocate time it’s all about using technology and evidence to create a reasonable methodology for your cannabis company to allocate those expenses for 280e now quite quickly we’ve covered a lot of ground on payroll and contractors versus employees but let’s talk about four key takeaways here employee classification has important tax implications for all cannabis businesses no matter if they’re employees or 1099 contractors you’re going to have different ways to pay them in different tax laws and tax things you have to make sure that you do when they fall under a particular classification and to understand that classification there are three base or core factors which is behavior the financial part of it like the resources they have to use and the relationship between the employee and the employer now the 280e expense is based on the facts and circumstances of the engagement and what that person whether employee or contractor is doing while working for you and to help allocate time make sure you have an employee handbook and even further a badge solution to check people in and out of particular tasks at a more granular level so you can allocate that expense and deduct that from your total revenue and have lower taxable base now thank you for taking the time to sit and listen and hopefully this video has brought you some value to help you understand paying payroll in taxes and worker classification in the cannabis industry now if you need help with employee and contractor payroll accounting please get in contact with us today by visiting our website at green growth CPAs comm or giving us a call at eight hundred 676

snowball and become something bigger to deal with down the road so again if you need help with employee or contractor payroll please get in contact with us today via our website at green growth CPAs dot-com or giving us a call at eight hundred 676

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