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The Ultimate HR Compliance Guide and Checklist Every Cannabis Business Wishes They Had Sooner

November 20th, 2024

4 min read

By Clarke Lyons

compliance-guide-for-cannabis
The Ultimate HR Compliance Guide and Checklist Every Cannabis Business Wishes They Had Sooner
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Understanding Cannabis HR Compliance: Why It Matters

So... You’re running a successful cannabis business, but one day, a misclassified employee files a complaint, triggering a Department of Labor audit.

Suddenly, your business is facing massive fines, disrupted operations, and a hit to your reputation.

Cannabis businesses operate in one of the most regulated industries, where every misstep can have cascading consequences.

From employee misclassification to payroll tax errors or workplace safety violations, the risks are amplified by intense scrutiny from regulators.

Compliance isn’t just about avoiding penalties—it’s about building a sustainable business.

A solid HR foundation fosters trust, reduces turnover, and helps create a workplace where employees feel valued and protected.

By addressing the most common questions owners, HR professionals, and employees ask, you can not only stay compliant but gain a competitive edge.

The High Stakes of Non-Compliance

Failing to prioritize HR compliance isn’t just risky—it’s costly.

  • Financial Risks: Misclassifications, payroll errors, or tax non-compliance can lead to fines ranging from thousands to millions of dollars.
  • Reputation Risks: Word spreads quickly in the cannabis community. A single compliance scandal can damage your credibility with employees, customers, and partners.
  • Employee Morale Risks: Employees notice when businesses cut corners, especially when it impacts their pay or benefits. Non-compliance can erode trust and lead to higher turnover.

The good news? You can avoid these pitfalls with the right systems, policies, and proactive planning.

Burning Questions in Cannabis HR Compliance: What Everyone Wants to Know

 

How Can Cannabis Companies Handle Drug Testing When Employees May Legally Use Cannabis?
Drug testing policies are a complex issue in the cannabis industry, where off-duty use is legal in many places, but workplace impairment is strictly prohibited.

Focus on impairment rather than use. Clearly define what workplace impairment means and ensure supervisors are trained to recognize it. Seek legal guidance to balance operational safety with employee rights.

What Are the Risks of Misclassifying Employees?
Misclassification is a common issue in the cannabis industry, often used to save on payroll taxes and benefits, but it can have serious consequences.

Misclassification can result in fines, back wages, and legal penalties. Adhere to IRS guidelines and consult state-specific laws to correctly classify worker roles.

How Can Cannabis Companies Stay Compliant With OSHA Regulations?
Cannabis businesses face unique safety challenges, including pesticide exposure, cash handling, and fire hazards.

Conduct regular safety audits, provide PPE, and train employees in hazard management. Keep thorough documentation of all safety measures to demonstrate compliance during inspections.

What Payroll Issues Are Most Common in Cannabis Businesses?
Payroll compliance in cannabis is complicated by multi-state operations and IRS 280E restrictions.

Use payroll software designed for cannabis businesses. Automate tax filings and consult experts for multi-state operations to avoid costly mistakes.

What Policies Should Address Employee Cannabis Use Outside Work Hours?
Legal cannabis use outside of work creates challenges for workplace policies.

Develop clear policies that differentiate off-duty consumption from workplace impairment. Communicate these policies during onboarding and include them in the employee handbook.

The Ultimate HR Compliance Checklist

Employee Classification
✅ Verify all employees are correctly classified as W-2 employees or 1099 contractors based on federal and state criteria. Misclassification is one of the top compliance risks in cannabis.
✅ Conduct regular audits to ensure roles haven’t evolved beyond their original classification.
✅ Ensure compliance with the Fair Labor Standards Act (FLSA) regarding exempt and non-exempt employee classifications.

Payroll Compliance
✅ Use payroll systems that account for cannabis-specific challenges, like IRS 280E restrictions.
✅ Regularly audit payroll processes to ensure accurate tax withholdings and adherence to wage and hour laws.
✅ Maintain detailed payroll records for at least 3–7 years, depending on jurisdiction.
✅ For cash-heavy operations, implement secure systems like pay cards or direct deposit alternatives.

Employee Onboarding
✅ Provide new hires with clear offer letters and comprehensive handbooks covering company policies and expectations.
✅ Confirm eligibility to work in the U.S. using Form I-9 and ensure compliance with local laws through systems like E-Verify.
✅ Collect signed acknowledgments of key documents, such as anti-harassment policies and safety protocols.

Workplace Policies
✅ Develop and regularly update an employee handbook that includes anti-harassment policies, attendance policies, and workplace safety guidelines.
✅ Ensure all policies comply with federal, state, and local cannabis regulations.
✅ Communicate policies clearly during onboarding and provide accessible resources for employees to reference.

Health and Safety
✅ Establish a Workplace Safety Plan aligned with OSHA standards, including cannabis-specific hazards.
✅ Provide Personal Protective Equipment (PPE) for cultivation and production roles and ensure employees are trained to use it properly.
✅ Maintain incident logs and conduct investigations promptly to prevent repeat occurrences.

Record-keeping
✅ Maintain detailed and secure records for payroll, employee contracts, OSHA compliance, and disciplinary actions.
✅ Use digital systems to organize records and ensure easy access during audits.

Terminations and Layoffs
✅ Develop a termination policy that includes clear documentation of reasons for termination and exit interview protocols.
✅ Ensure compliance with WARN Act requirements for layoffs.
✅ Provide final paychecks according to state-specific timelines.

Diversity, Equity, and Inclusion (DEI)
✅ Create a DEI strategy that aligns with your company’s mission and actively promotes fair hiring practices.
✅ Conduct unconscious bias training to support a more inclusive workplace.

Why Compliance Is Good for Business

HR compliance isn’t just a legal box to check—it’s a key driver of business success. Companies that prioritize compliance build trust with employees, reduce turnover, and enhance their reputations.

For example, one cannabis dispensary that implemented regular HR audits and transparent policies saw a 25% reduction in employee turnover and avoided $50,000 in fines after correcting misclassification errors.

Compliance also creates a culture of accountability and fairness, which resonates with employees and attracts top talent. In a competitive industry, this is a vital advantage.

Tips to Make Compliance Easier

  1. Leverage Technology: Use HR platforms designed for cannabis businesses to automate payroll, track classifications, and monitor compliance.
  2. Build an Informed Team: Train managers and HR staff regularly on changing cannabis-specific regulations.
  3. Consult Experts: Partner with legal and HR consultants specializing in cannabis compliance.
  4. Foster a Compliance Culture: Make compliance a shared responsibility through clear communication and accessible resources.

From Chaos to Compliance: Safeguard Your Cannabis Biz the Easy Way

Compliance doesn’t have to be a constant headache. With the right tools, a solid checklist, and a dash of planning, you can turn HR chaos into smooth, seamless operations. Protect your team, avoid those costly pitfalls, and show the world that your cannabis business is ready to thrive without breaking a sweat.

Ready to level up? Read more on our Compliance Solutions to see how we personally address these issues and take the next step toward building a compliant, unstoppable business.