Unless you’ve been hiding under a rock, you know that in just a few short weeks, August 1, 2023, recreational cannabis (marijuana) will be lawful in Minnesota (under state law). However, recent news has also highlighted the fact that it may take up to 18 months for new cannabis dispensaries to obtain a license to sell. In the meantime, new business owners are setting up their cannabis business, hiring employees, and doing all the things necessary to obtain the license. So, what wage and hour considerations should you think of if this is your business?
Federal Fair Labor Standards Act
As far as we know, yes, it applies, and yes, you should follow it. While there has been an argument before the 10th Circuit Court of Appeals (this is not where MN is located – we are in the 8th Circuit) that a cannabis employer need not follow the FLSA as cannabis is federally unlawful, the Court rejected that argument, rather holding that the FLSA does apply.
Employee v. Independent Contractor
Don’t fall for this trap! Yes, your best friend, neighbor, etc. whomever is going to help you start up this business may want to be an independent contractor to (try to) get around certain taxes, don’t do it. I have posted previously several times about this distinction so you can search it, but here’s the short of it – if it looks like a joint, smells like a joint, it probably is a joint. If a worker acts like an employee, can be seen to someone on the outside as an employee, they probably are an employee. If you are telling the person what to do, when to do it, how to do it, they are most likely an employee. You can never “err” by classifying someone as an employee – only by misclassifying them as an independent contractor. Also – it does not matter if both parties want that. The law states what it is to be and the current Biden Administration is working to make it harder to be properly classified as an independent contractor.
Recordkeeping & Payroll
Given the issues with federal banking for cannabis businesses you may be tempted to pay cash. Don’t do it. A cannabis business – like any other – must follow the federal Fair Labor Standards Act (FLSA), the state equivalent Minnesota Fair Labor Standards Act, and the Minnesota Wage Theft Protection Act. These require employers keep certain records such as hours worked, wages paid, paid time off available (in MN), address of the employer and the like. Paying cash leaves no trace, no records, and is up for future dispute = bad. Just because you start small (1 employee) does not mean you don’t have to follow these recordkeeping laws.
Minimum Wage & Overtime
Again- pay it. Pay all wages up front, keep records of wages paid, and be sure you’re paying the minimum wage for the local you are in (i.e., Minneapolis, St. Paul, Duluth, Bloomington) which may have a different minimum wage rate than the state minimum wage. As to overtime – Minnesota requires overtime be paid after 48 hours (not 40 like federal). Your business will fall under FLSA’s 40 hour requirement if you have an annual dollar volume of sales or business of at least $500,000 (enterprise coverage) OR your employee is engaged in interstate commerce (individual coverage). In this regard, I believe cannabis employers may be uniquely suited as – unlike virtually all other businesses – you are necessarily NOT producing goods to be sent out of state, handling interstate transactions, traveling to other states and doing work where goods are produced for shipment out of state. However, I would caution using the 48 hour state requirement if you even remotely anticipate $500,000 in sales your first year of business. Again, you can always pay more (i.e., overtime based on 40 hours) but never less – so budget to err on the cautious side. If you anticipate overtime, set the regular rate lower to account for overtime. That said, don’t change the rate thereafter (except normal increases) as that itself can be an FLSA violation.
As to exemptions from overtime – you may be tempted to pay all your starting employees a “salary”. Keep in mind that under both state and federal law, employees are entitled to overtime UNLESS they are exempt. You can pay a salary, but if they are a non-exempt employee, you must also pay overtime. Have a job description for each job that supports the classification – if they supervise two or more employees, state that; if they have “independent discretion with matters of significance” make those duties clear (i.e., signing contracts, developing policies and procedures). I do have lots of posts on exemptions if you need more information, use the search function (or better yet – subscribe to my blog!). Side note – if you are going to require overtime from time-to-time, add that to the job description. Again, for a start-up, one wage claim can be crippling. It never hurts to pay an employee hourly and time and one-half of that for overtime over 40. Then, so long as they are paid for actual hours worked, you can’t go wrong!
Employee Handbook – Earned Sick and Safe Time – Paid Time Off
Yes, you started small. However, anticipate growth. Make sure your employee handbook (you have one employee, you need one) has all the required notices (many new ones for MN which I recently blogged about), and includes the January 1, 2024 required state Earned Sick and Safe Time requirements (this can be via PTO). Make sure you have policies about recording all time worked, not working off the clock and reporting any errors or discrepancies in payroll. Your best friend that is your first worker? Yes, they too need to sign the acknowledgement. You are now an employer and all employees must be notified of the policies, procedures, etc. related to the workplace. One of those – not being at work under the influence – should be in there as well. Plan for dealing with the worst employee ever, and then hope for the best.
New hire/best friend not working out? Recall if they ask, you must provide their final paycheck within 24 hours. Thus, save yourself the headache and if you are going to terminate, prepare the last check ahead of time and just give it to them on their way out.
At the end of the day, be sure to follow both federal and state wage laws (check out my blog search bar for any specific/general issues) and remember your business already will have enough hurdles to jump through, this need not be another one! Finally, I’m neither a CPA nor a tax attorney, and I recognize a lot of the payroll issues may be easier said than done – don’t give up. Do your due diligence, find a reputable payroll company that will work with your business and a good tax attorney/CPA to get you started on the right path to grow your business! Yep, pun intended.