What You Need to Know about Hiring Independent Contractors for Your Cannabis Business

What You Need to Know about Hiring Contractors for Your Cannabis Business

As the Cannabis industry continues to grow and evolve within California, cannabis businesses need to make sure they follow the same guidelines with their workers as any other businesses do. An easy way that some smaller businesses (and often larger ones) run into trouble is by misclassifying their workers as independent contractors, interns or volunteers. Read below to learn how to avoid legal involvement with your workers and in your business.

First off, an employer’s hiring intent often has little bearing as to if a worker is properly classified. Business owners may assume that by hiring workers as “independent contractors” and filing 1099s, that will determine how they are considered for employment. However, there are several other key elements that factor into a determining if a worker is actually an employee.

What is the difference between an independent contractor and an employee?

The key feature of an independent contractor is in how much “independence” they have in determining how they work. Here are a few key signs of independence:

  • A contractor can determine how, when and in what manner they do their business
  • A contractor uses their own equipment (ie. computer or tools) for their work
  • A contractor can or does have other clients
  • Both the business owner and the worker understood their relationship to be an independent contractor basis (and/or established in writing)

Alternately, a worker may be considered an employee if their work has the following characteristics:

  • The worker’s contribution is a central part of the employer’s normal business
  • The worker’s activity is ongoing without any established end of the relationship
  • The worker’s contribution is controlled by the employer (when it is performed or the specific way it is to be done)

What are the Consequences for Misclassifying Employees?

The short answer is that you may be liable for back pay, penalties and legal fees. Employees are granted legal protections that which independent contractors often lack. An employee has rights both in how much they are paid (ie. minimum wage and/or overtime), how taxes and benefits are handled, and how they can be terminated. Employers that accidentally misclassify employees are liable for back wages, taxes and the like. Additionally, employers that intentionally misclassify employees as “independent contractors” can be liable to civil penalties from $5,000 to $25,000 per occurrence.


It’s important to be careful to consider your alternatives and responsibilities when hiring workers. If you are still confused, you can check out this Employment Determination Guide provided by the State of California’s Employment Development Department.

If you have additional questions about classifying workers and how it may affect your business, please feel free to check out our Cannabis Industry page, reach out to me at 626.703.1556 or just email me at ctobin@boltonco.com. I can help you avoid a lot of headaches and make sure you have the right coverage.


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About Corey Tobin

With close to a decade of industry experience, Corey has worked with a number of small and medium-sized businesses and is knowledgeable about property and casualty, life and health insurance. Corey specializes in working with elevator contractors, manufacturing, distributing, healthcare and construction. Additionally, he is focused on the unique needs and challenges facing cannabis related business, including dispensaries, cultivators, extractors, developers and much more.

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