The California EDD (Employment Development Department) offers free training and seminars on all things employee related. They recently offered a two and a half hour seminar “Cannabis Industry State Payroll Tax” seminar in Downtown LA. The morning was enlightening, there was some great discussion among the attendees and instructor and I left with a folder full of materials on payroll tax, e-filing and misconceptions around independent contractors.
Cannabis business owners can be reluctant to hire “employees”; payroll is hard to do without a bank account, finding benefit providers can be challenging and filing/paying payroll tax is just another thing for overworked, cash strapped businesses to contend with. However, the consequences of misclassification can result in a reclassification audit, going back at a minimum three years and up to seven years if it appears the misclassification was purposeful. At the conclusion of the audit there will be back taxes, fees and penalties to pay if employees (W2) were treated as contractors (1099). There are primary and secondary factors that are considered, the most important being, Does the company control the manner & means of accomplishing the work? Regardless of part-time, full-time or on-call hourly, if you set the schedule, dictate when and how the work is done and the person is integral to the business, i.e. budtenders, then they are an employee. Hiring workers through an agency can be a good option for entry-level and/or seasonal positions.
This can get confusing, especially in the newly emerging cannabis industry. Sometimes it’s not black and white. What to do? You could contact the EDD. You could ask your Cannabis Accountant. You could schedule a call with Alice & Fran! We offer free 1 hour consultations and we can discuss whatever is most important to you, whether cost accounting for 280, a mid-year forecast or employee classification.