ROCHESTER, N.Y. – Third-party payroll and human resources service provider Paychex will suspend direct deposits, time and attendance, and automatic payroll tax administration for the cannabis industry effective May 1. The company did not provide a clear answer for its decision in a memo sent to clients on March 29.
Paychex handles payments for one in twelve private sector employees in the United States, and with one month to find a suitable replacement, employers are scrambling to meet their payroll obligations in an already cumbersome banking environment.
“There are very few providers willing to service the industry, so when you find one with the experience and technology to service plant-touching businesses, it’s very upsetting to cannabis business owners as well as accountants to see them cease operating in the cannabis space,” said Angela Mays, founder and chief executive officer at The Blunt Accountant. “The choices available are few, and most lack the technological capabilities and experience that Paychex brings to the marketplace. It makes our jobs difficult as accountants and it also creates additional headaches for plant-touching business owners with the lack of businesses willing to service the industry.”
For businesses that are able to find an alternative payroll solution quickly, the onboarding process, which can take as long as 12 weeks, could create issues with missed payroll payments. While employee protections vary by state, much of the industry operates in states where missed payments are penalized.
“The Colorado Wage Act (C.R.S. 8-4-101 et seq.) requires Colorado employers to pay employees their earned wages in a timely manner,” said Christine Lamb, partner at Fortis Law. “Pay periods can be no longer than once per calendar month or thirty days, whichever is longer. Paydays must be no later than ten days following the close of each pay period. The Colorado Division of Labor Standards and Statistics will investigate disputes where an employee has not been fully compensated in a timely manner for all work performed.”
According to Ruth A. Rauls, partner at Saul Ewing LLP, “Many of [labor] laws also include significant penalty provisions for employers if they are not followed, such as monetary damages, fee shifting, and in some cases, criminal penalties. By way of example, in 2019 New Jersey enacted several new laws that increase penalties for employers, including potential imprisonment for employers who run afoul of its provisions, and added protections for employee retaliation claims.”
According to Lamb and Rauls, employers who’ve been relying on Paychex should take a close look at the rules and regulations for every state where they have employees to avoid unwanted scrutiny and penalties from regulators. Despite potential interruptions in payroll services, employers should be able to tell their employees how and when they’ll be paid.
“Payment of wages and ensuring compliance with state laws should be a top priority for employers,” said Rauls. “Accordingly, changes to how companies, and in this instance cannabis companies, run their payroll can have significant repercussions if not handled properly.”
Like many other industry-focused ancillary companies, the cannabis workforce management platform Würk has been shifting resources to fill the gap left by Paychex’s departure.
“Given the current circumstance of the reduction of services from our competitors, we have had to allocate additional resources to quickly onboard new clients to ensure their operations are not impacted,” said Scott Kenyon, executive chairman and chief executive officer at Würk. “With these additional resources, we are aiming to onboard new clients within a three- to four-week window in order to meet their May payroll obligations. We understand the immediate stress these companies are facing, so we are doing everything we can to support them through the transition.”
Würk is one of the dozen or so companies offering U.S.-based cannabis businesses many of the same services they’ve been getting from Paychex. Other direct service providers or intermediaries serving the industry include Adaptive HR, Comploy, Dama Financial, Green Leaf Business Solutions, Gusto, KayaPush, Panacea Payroll, and Paragon Payroll.
In addition to finding a new provider for payroll and other related services, it’s important to maintain accurate records of hours worked for any employees who’ve been using Paychex to track hours.
“As with payment of wages, properly recording time worked is highly regulated and can lead to significant penalties if not done properly,” said Rauls. “This includes properly recording any overtime worked for non-exempt or hourly employees and calculation of wages. Employers should also ensure they are communicating clearly to their employees any changes in payroll processing. Designating an appropriate company representative to field those questions is an excellent way to streamline that process.”