Cannabis HR and Payroll 101

Growing cannabis businesses need support when it comes to paying employees, managing payroll taxes, and administering benefits — just like any other business. That’s where HR and payroll service providers come in. But given the unique landscape in the cannabis industry, how can you make sure you choose a supportive partner? This Green Check guide to cannabis HR and payroll can help you find the best possible partner for your business.

What is unique about cannabis HR and payroll?

In cannabis, many seemingly straightforward business operations are often anything but, and that goes for HR and payroll management as well. The challenges go back to the restrictions around banking and payment processing. HR and payroll providers initiate transactions that are completed by a cannabis operator’s bank, such as direct deposit payments.

Even though HR and payroll service providers aren’t moving the money themselves, they are requesting a cannabis business’s bank to do so. That means, just like the banks that work with cannabis businesses, it’s important for these services to capture detailed information about their clients, including details about company ownership and know your customer (KYC) data that supports anti-money laundering (AML) efforts under the Bank Secrecy Act (BSA).

Are all these acronyms making your head spin? Check out our Cannabis Banking Dictionary for a simple explanation of all the finance jargon and banking buzzwords.

In many cases, capturing this documentation has proved challenging for big names in HR and payroll processing. Market leader Paychex, for example, eliminated direct deposit and tax administration services for cannabis operators due to these more stringent reporting requirements. Banks want to see this documentation and need to collect it before they work with cannabis businesses. They also want to be sure that transactions initiated by third-party HR and payroll service providers are legitimate as well. 

Fortunately, cannabis-friendly HR and payroll service providers have stepped in to provide these much needed services to the cannabis industry. You have options available to you — you just need to know where to look.

Choosing a cannabis HR and payroll service provider

Trusting a third-party with the management of your team, their compensation, and their benefits is a big step. You’ll want to be sure you can trust the service provider you choose and that they’re set up to offer you HR and payroll support well into the future. Otherwise, the rug could be pulled out from under you with little to no warning. 

“Look for a group dedicated to cannabis,” said Tyler Priest, vice president of strategic accounts for Green Leaf Payroll & Business Solutions. “Look for a partner, not just a provider who will push payroll and call it a day.”

Here’s what to look for when choosing an HR and payroll service for your cannabis business.

1. The provider is dedicated to the cannabis industry

The cannabis industry is unique, so it’s important to find a partner that knows inside and out the nuances cannabis operators face. This includes making sure all the right KYC and AML boxes are checked before the bank gets involved, giving you an added layer of assurance that you can easily demonstrate your business’s compliance and legitimacy.

“Nobody forces us to collect that information, but we know the bank wants to see it,” Priest said. “Capturing that documentation allows us to offer direct deposit and tax solutions long-term.”

Additionally, with a partner dedicated to cannabis businesses, you gain access to their network as well — something that can be invaluable when working in the industry.

“Everybody knows each other despite the size of the industry, so we stay in touch with our network closely,” Priest said. “If we can help a client find a good resource to support their business, we do it.” 

 If you’re looking to connect with cannabis-friendly financial institutions, check out the verified businesses featured on the Green Check Connect marketplace.

2. The provider has good answers to the right questions

Any cannabis-friendly HR and payroll service provider should have detailed, cannabis industry-specific answers to these questions. Make sure you understand how any provider plans to offer their services into the future as the industry grows and evolves.

• How long have you worked in the cannabis industry? Cannabis expertise is invaluable, so choose a provider that has a track record of success in the space.
  
• Are the banks you work with cannabis-friendly? Whenever an HR and payroll service provider initiates the movement of money, a bank is behind it. Make sure those banks are cannabis-friendly and understand who they’re working with, and that your service provider has all the necessary KYC and AML documentation on hand.
• In which states do you operate? A service provider should have familiarity with your local market, as well as provide you the option to grow into new markets should you choose to expand.
• How do you support your direct deposit and tax administration services? An HR and payroll service provider should be able to describe how they work with banks to provide these services, and how they’re set up to provide them well into the future. Again, the important element is transparency with the bank and the collection of detailed KYC and AML documentation.

Check out our guide to the cannabis banking documents you need to secure financial services to grow your business.

3. The provider has a strong reputation with other cannabis businesses

Talk to other cannabis operators in your network and find out if they know of or have worked with the HR and payroll service providers you’re considering. Gather as much information as you can from others, because chances are at least a few of your colleagues are familiar with some of the providers on your shortlist. In the cannabis industry, word travels fast and reputations precede brands, so do your due diligence in getting customer reviews and feedback.

4. The provider isn’t charging you the “green tax”

Some HR and payroll service providers have gotten away with charging cannabis businesses more “a.k.a The Green Tax”, simply because those businesses have limited options. Since many large companies aren’t servicing the space or only offer limited services, those that do feel they can charge a premium. However, partners that want to grow alongside cannabis businesses and the industry are unlikely to upcharge like this. Look for businesses that charge rates that are competitive with those that mainstream businesses experience for HR and payroll services.

“For us, we’ve always aligned our pricing with big providers like ADP and Paychex,” Priest said. “We’re in this for the long haul and we want to support these companies now as they grow to earn their loyalty later. Avoid partners who charge as much as they can just because there’s limited competition at the moment.”

Cannabis HR and payroll red flags to avoid

Once you find an HR and payroll service provider that works for your business, you’ll want to grow with them into the future. Make sure you’re choosing a service that is compliant and offers longevity and scalability to your business. 

There are some red flag/warning signs that could suggest an HR and payroll service provider is risky to work with. While these signs may not definitively mean the business is a shady operator, approach them with caution and consider going in a different direction. 

• Charging higher rates for cannabis services: If a company charges cannabis businesses more simply because they’re part of the industry, run the other way, Priest suggested. “Some companies charge cannabis a lot more — and don’t get me wrong, there are extra steps — but nothing that justifies a 400% price increase.”
• Limited onboarding documentation: HR and payroll providers aren’t required to capture the documentation that banks collect, Priest said, but they still should. That way, should the bank come asking for proof of compliance, your HR and payroll service provider already has it at the ready.

• Inability to scale with your business: As your team grows, you’ll need to offer more sophisticated benefits and retirement plans. If any HR and payroll partner you’re considering doesn’t have a roadmap for how to support your team when it grows, that’s a big red flag, Priest said.

• The company is publicly traded: While there is nothing inherently wrong with a publicly traded company, Priest said they are often more conservative than private businesses because they are answerable to a board and shareholders. If those stakeholders don’t want to risk serving cannabis any longer, the company is more likely to step away from the industry altogether and leave you out in the cold. This is especially true if they’re making a lot of money serving other industries already.

Demystify cannabis HR and payroll with Green Check

At Green Check, it’s our mission to bridge the gap between cannabis operators and financial services. We’re  here to make it easier for entrepreneurs to find cannabis-friendly financial institutions and the services that make their business run. Thanks to Green Check Connect, you can shop around in a marketplace of guaranteed cannabis-friendly companies, like Green Leaf, saving you time and helping you choose the right partners to grow your business. Explore the marketplace now and find your new partner today.