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The Tax Act and Cannabis Employment Practices

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Look out for a change in tax deductions for employer provided benefits — at least for some businesses.

President Trump signed the Tax Cuts and Jobs Act (the “Act”) into law on December 22, 2017.  The Act contains several sections that will impact companies that work with cannabis businesses and provide important indications of where states might be going with taxes in the coming year. As for the Act itself, its sweeping provisions went into effect on January 1, 2018.

Note that much of the Tax Act’s deductions and credits won’t apply to cannabis businesses due to IRC 280E, but these deductions and credits are still important to many ancillary businesses that serve the industry, and which may not be subject to 280E (we recommend that anyone with questions as to where they fall seek advice from their CPA or cannabis tax attorney). If these credits and deductions prove to be popular we may see states enact similar changes that will directly affect cannabis business themselves.

On the employment front, many cannabis businesses obtain employees through staffing agencies. Those agencies should will be subject to these new tax deductions and credits. We may see an influx of agency recruits, or a decrease, depending on how the recruitment companies take advantage of these deductions and how the new laws remove deductions for benefits provided to employees.

Sexual Harassment Settlements

Prior to 2017, we didn’t hear much about sexual harassment in the workplace. One reason for this is because a majority of sexual harassment settlements contain nondisclosure agreements. A nondisclosure agreement typically prohibits the employee from discussing the sexual harassment suit, its result or even the fact that harassment was ever alleged. Currently, employers are allowed to take a tax deduction for settlements paid out for sexual harassment and sexual abuse, regardless of the terms of the settlement agreement. That’s finally changing.

Going forward, employers cannot deduct settlement payments related to sexual harassment if the settlement agreement contains a nondisclosure agreement. Employers can receive a tax deductions on sexual harassment settlements that do not contain nondisclosure agreements. Payments in sexual harassment suits can be huge–meaning the tax deduction can also be huge. (Bill O’Reilly paid $32 million to one female accuser.) This will force employers to carefully consider how sexual harassment suits are settled, which is a welcome change. States might follow suit. Plan now how to handle sexual assault cases so you don’t have to make this decision.

Paid Leave Credit

Paid family and medical leave is a significant benefit for cannabis employees. Providing paid family and medical leave can attract highly qualified employees and help retain those employees. In what has been described as the first step towards a “nationwide paid family leave policy”, the Act provides employers incentives to provide paid family and medical leave—admittedly in a very complicated fashion.

Employers can qualify for up to a 25 percent tax credit for providing paid leave for qualifying employees under the Family Medical and Leave Act (FMLA). Employers qualify for the credit by providing at least two weeks paid leave equal to at least 50 percent of the employee’s regular wages. At a minimum, employers will receive a 12.5 percent tax credit for providing paid leave. The credit incrementally increases based on the percentage of regular wages the employee receives. The paid leave credit is only applicable to employees who earn less than $72,000 and have been employed at least one year. Paid leave must be provided separately from vacation leave, personal leave, or other medical or sick leave.

The Paid Leave credit expires in 2019 unless extended by Congress. Some congressional members have suggested Congress is considering enacting separate legislation that requires paid leave. Paid sick leave requirements are already in effect in several states, including those with cannabis laws.

Pay attention to expenses related to paid leave, and consider whether this a feasible option for your cannabis business. Several states already have paid leave and more are likely to follow. If your state does not already have paid leave that applies to your cannabis business, you should assume they will enact similar tax incentives soon.

ACA Individual Mandate

The Act removes the Affordable Care Act individual mandate to purchase health insurance. At first glance, this does not seem like it would affect your cannabis business, but staffing agencies employing more than 50 full time employees. are required to purchase healthcare for their employees. Employees that are recruited to your cannabis business are considered employees of the staffing agency. The ACA’s individual mandate was designed to work with the employer mandate to provide health insurance. The employer mandate is still in place. Employers with 50 or more full-time employees are still required to provide health insurance.  Without the individual mandate, it is likely insurance premiums will continue to rise unless Congress acts to reform health care.

Further, given the mandates were designed to work together, there is a strong suggestion that Congress will start to undo the employer mandate. It will likely come in the form of fewer reporting requirements or a complete removal of reporting requirements. This means that staffing agencies may reduce the number of recruits they have out at a time to avoid the employer mandate of the ACA, meaning you will have less of a pool to pull from.

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Oregon Cannabis: New Year, New Minimum Wage

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More for the workers, less for the boss.

It’s 2018! That means your Oregon marijuana business will be subject to increased minimum wage requirements this summer. The new federal Tax Act has everyone considering money, so now is a great time to think about how the increase in state minimum wage will affect your business expenses.

In 2015 the Oregon legislature established a progressive series of annual minimum wage rate increases. The rate increases began on July 1, 2016 and continue through July 1, 2022. On July 1, 2023 the minimum wage rate will be indexed to inflation based on the consumer price index, which is a figure published by the United States Bureau of Labor Statistics.

The location of your Oregon cannabis business will dictate the amount of increase of the minimum wage for your non-exempt employees this July. (“Non-exempt employees” are employees who must be paid minimum wage and overtime, for any hours worked beyond 40 in a given week.)

Date Standard Portland Metro Nonurban Counties
July 1, 2016 $9.75 $9.75 $9.50
July 1, 2017 $10.25 $11.25 $10.00
July 1, 2018 $10.75 $12.00 $10.50
July 1, 2019 $11.25 $12.50 $11.00
July 1, 2020 $12.00 $13.25 $11.50
July 1, 2021 $12.75 $14.00 $12.00
July 1, 2022 $13.50 $14.75 $12.50
July 1, 2023 Adjusted annually based on the increase, if any, to the US City average Consumer Price Index for All Urban Consumers $1.25 over the standard minimum wage $1 less than the standard minimum wage

The Portland Metro rate applies to all employers located within the urban growth boundary. Metro has an Urban Growth Boundary tool to help determine if your cannabis business is within the Portland Metro area. The nonurban counties rate applies to: Baker, Coos, Crook, Curry, Douglas, Gilliam, Grant, Harney, Jefferson, Klamath, Lake, Malheur, Marrow, Sherman, Umatilla, Union, Wallowa, and Wheeler. All other counties must pay the standard rate.

Both the state of Oregon and the federal government set minimum wage requirements. The federal minimum wage is and remains at $7.25. As you can tell, Oregon’s minimum wage is significantly higher than the federal minimum wage. When federal and state employment laws conflict, employers must apply whichever standard is most beneficial to employees. In the case of minimum wage, Oregon employers, including all cannabis businesses, must pay their employees minimum wage based on the Oregon rate. Start planning ahead.