Identify wage compliance challenges in your growing cannabis business
(Editor’s Note: This story is part of a recurring series of comments from professionals in the cannabis industry. Josh Nadreau and Lisa McGlynn are attorneys at the national labor law firm Fisher Phillips. Nadreau is based in Boston and McGlynn, Tampa, Florida. )
As the cannabis industry continues to grow, it is important to keep track of wage and work time issues that could turn a growing business upside down.
The Fair Labor Standards Act (FLSA) is the federal wage and working time act from 1938, which has numerous strict and confusing requirements for employers.
While some employers in the cannabis industry recently tried to argue that the FLSA should not be applied to cannabis-related employers because of its Controlled Substances Act status, several federal courts have consistently rejected this theory.
For the cannabis industry in general, this means you need to be made aware of federal and state wage laws and make sure you comply with them.
Just last month, Theory Wellness, a Massachusetts cannabis company, was fined nearly $ 300,000 in compensation for failing to pay retail employees the Sunday and holiday bonus paid under the archaic Massachusetts “blue laws” would have.
Although only two states – Massachusetts and Rhode Island – still require such premium payment, these laws underscore the importance of complying with both federal and state law and how compliance in one jurisdiction need not necessarily be compliance in another.
Here are some FLSA “hot topics” that cannabis companies should be aware of to avoid fines or other sanctions:
Local, state or federal – whichever applies
To begin with, keep in mind that employers are subject to an ever-growing web of overlapping but inconsistent laws.
The FLSA covers employees across the country. But many states have additional, stricter wage and hourly requirements. If you work in more than one state, you may have different obligations to the same class of employee.
For example, most states have unique minimum wage laws that are more generous than the state minimum wage.
Additionally, several states, like California, have meal break requirements while others may not.
Make sure you understand any additional requirements for each state you operate in.
Self-employed contractors or employees?
This is an area that can be tricky for cannabis companies.
Contrary to some belief, individuals cannot choose to be independent contractors if they fail to meet the legal definition, and a detailed independent contractor agreement (although recommended) may not absolve an employer in a dispute over proper grading.
A true independent contractor is someone who is similar to a landscaper:
- You have several customers, so you are not financially dependent on any particular one.
- They supply their own equipment.
- They set their own schedule.
Conversely, if you have someone who only works for your company, whose schedule is dictated by your management, and who works under your direction and control, it is likely an employee.
If you have individuals classified as self-employed contractors who are better classed as employees, you run the risk of being held liable for back wage tax payments, minimum wages and overtime, employee accident issues, and general labor law claims of discrimination and retaliation.
The FLSA places two main obligations on most employers – a minimum wage and an overtime allowance. Federal law requires all employees to receive a minimum of $ 7.25 per hour unless otherwise noted.
For many employers, however, the federal minimum wage is insignificant as 30 states have laws that require a higher wage than the federal minimum wage. Cannabis employers must meet the higher of the two wages, which in most cases is the state minimum wage.
Overtime requirements and exemptions
The second major obligation under the FLSA is the 40-hour week.
Employees who work more than 40 hours in a working week are entitled to overtime at 1.5 times their regular rate.
Some employee classifications are exempt from this requirement. With regard to the cannabis industry, the most common exceptions are the “white collar” exceptions and the agricultural exception.
- “Exceptions for employees: Employees in managerial, administrative or professional positions earning a minimum salary of $ 684 per week are exempt as long as they complete certain mandatory tests. The exemption for executives generally applies to the company’s management. The main duties of a released executive must relate to the management of the company or a department within the company; the employee must regularly manage at least two full-time employees or the equivalent in the case of part-time employees; the employee must be empowered to hire or fire employees, or the employee’s recommendations for hiring, firing, and promoting must carry significant weight.
- administration Exceptions apply if the main tasks of the employee are performing office work that is directly related to the management or general business operations of the company and the employee regularly exercises discretion and independent judgment in important matters. This exception typically includes positions in accounting, purchasing, marketing, research, human resources, and other “non-manual” jobs.
- Employment exemptions apply to employees who work in a scientific or learning field, who have acquired their knowledge through longer specialist training and whose main tasks are largely intellectual and require the use of “discretion and independent judgment”. This exception applies to scientists, doctors, lawyers, engineers and other highly qualified specialists.
- Exceptions for agriculture: The FLSA also exempts “any agricultural worker” from overtime pay. Agriculture is broadly defined in the FLSA and includes “Agriculture in all its branches”, including harvesting and preparing crops for market or storage.
The federal agricultural exemption is quite broad, but not unlimited. There must be a specific connection to the farms in order to qualify.
For example, employees in your retail establishment would likely not qualify.
This is also an area where state law may be narrower, meaning employers must comply with the more worker-friendly law.
Keeping an eye on employees’ time
It is the responsibility of the employer (not the employee) to ensure that accurate time records are kept.
Common mistakes happen when employees clock in and out when they’re supposed to work, rather than when they actually start and stop.
For example, if you have an employee who clocks out at 5:00 p.m. but still does work-related tasks after that time, your time records will be incorrect.
While there isn’t a federal law that mandates meal breaks, nearly half of the states in the US have some type of law that mandates them.
Typically, these laws require unpaid time, either 30 minutes or an hour, after the worker has worked a shift of a certain length.
Employers in states with strict meal-break policies are encouraged to ensure they keep accurate records of when each employee’s breaks start and end, and to ensure that if the employee is not relieved of their duties while eating, the employee is compensated for the time .
Wage and working time laws pose many challenges for companies, ranging from increasingly complex compliance requirements to the risk of high-risk litigation. In particular, more than 6,300 federal FLSA cases were filed in 2020, and payroll and hourly slips have reportedly cost employers nearly $ 295 million.
With the Department of Labor vigorously enforcing the FLSA, state and local laws and regulations steadily expanding labor rights, and wage and hour classes and class actions across the country, compliance is more important than ever.
Companies, especially operators with several states, have to navigate their way through a minefield of different laws.
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