Cannabis Businesses: Payroll Setup Guide (2026)

Step 1: accounts and registrations

Every cannabis business starts with an EIN, a withholding account in each state where someone works (unless that state has no wage tax), an unemployment insurance account in each of those states, and access to each state's new hire directory. New employers deposit federal employment taxes monthly during the first calendar year because there is no lookback period yet.

Step 2: classify budtenders and growers before the first check

DOL decides employee or independent contractor status under the FLSA by an economic reality test that looks at profit or loss opportunity, investments, permanence, control, whether the work is integral to the business, and skill and initiative. A worker's title, payment by 1099, or a signed independent contractor agreement does not make the worker an independent contractor, and DOL published a new proposed rule on this status on February 26, 2026.

Step 3: build the cannabis business pay codes

280E tax code payroll deductions, cash payroll documentation, state cannabis board reporting and banking restrictions each become a pay code with its own taxability and overtime treatment. Building them before the first run is cheaper than correcting a quarter of 941s afterward.

Any person in a trade or business that receives more than $10,000 in cash in a single transaction or related transactions must file Form 8300 within 15 days after receiving the payment. The IRS accepts cash tax payments from unbanked taxpayers at some Taxpayer Assistance Centers by appointment.

Step 4: set the records up to be kept

California cannabis licensees must keep personnel records showing each employee's full name, Social Security number or ITIN, date employment began and date of termination, plus training records listing the content and the employees trained, for at least seven years from the date of creation, in a form that can be produced to the Department of Cannabis Control on request.

FinCEN guidance FIN-2014-G001 directs banks that serve marijuana-related businesses to file Suspicious Activity Reports on those accounts and states that currency transaction reporting applies at the same thresholds as for any other business: banks file CTRs on more than $10,000 in cash per day, and any non-financial business must report cash receipts over $10,000.