In this 4 part series I'll discuss critical aspects of employment in the cannabis industry. Having employees comes with significant rules and responsibilities. The 4 most prevalent issues we will focus on are: 1) Employee vs. Independent Contractor (I/C); 2) Exempt vs. Non-Exempt; 3) Proper documentation; and 4) Workers' Compensation and Unemployment Insurance.
In our industry in particular, many who have been operating "off the grid" are many times not aware of the numerous rules and regulations related to employment. Businesses really need to educate themselves and/or have qualified advisors to help them maintain compliance with all laws and regulations or risk jeopardizing their licenses.
If you've operated a cannabis business prior to it becoming fully legal, chances are you brought people in, considered them I/Cs and paid them cash. Now that your business is legal, you need to understand the status of an individual that does work for you. Is that person an I/C or really an employee?
Who is considered an employee? Time and again, I come across businesses paying individuals as I/Cs when those individuals should be classified as employees.
Significant factors that determine if an individual is an employee or I/C include whether the company controls what the worker does and how the worker does their job as well as if the relationship is ongoing and at the discretion of the company. If a company dictates hours to be worked, how the job should be performed and provides the equipment necessary to perform the job, this is likely an employee position. Independent contractors generally work on project based tasks as opposed to general operations.
The IRS and the U.S. Dept of Health and Human Services have further detail on this issue at:
Penalties for non-compliance can be significant and include not only Federal and State penalties, but also payment of payroll taxes and unemployment insurance as well as the related interest for the period in question which all can add up to thousands of dollars depending on the number of employees and duration they were paid as I/Cs.
States regularly perform payroll audits of companies to ensure employees are properly classified and the related unemployment insurance premiums are being paid. In addition, the Federal government regularly inspects/audits company records to ensure payroll tax obligations are being met as well as ensuring employees are properly documented and legally employable.
In the next article in this series we'll further detail proper hiring practices, employment documentation and workers' compensation.
Feel free to comment or send us a note if you have any comments or questions or need help getting compliant.