Digital money has become more popular as a payment method for goods and services and as an investment. Major companies and retailers across the globe use digital currency such as Bitcoin as a payment method. Today, there are companies that pay their employees in Bitcoin.
However, since a legal and regulatory structure for cryptocurrency as a method of paying employees is yet to be established, and employers still have to comply with the state and federal employment laws, it is crucial to consult employment lawyers to ensure that the rights of the employees are protected.
What is Cryptocurrency?
Crypto is virtual money that uses technology. The digital technology it uses controls how and when it is created and allows users to exchange it directly, just like hard cash. This payment model eliminates the use of banks because the transactions are managed on a shared database known as a blockchain, which companies or individuals operate. The transactions are also kept safe using encryption techniques or cryptography.
The first cryptocurrency to exist is Bitcoin, and it was released in 2009. However, several other cryptocurrencies exist today. Bitcoin is reported to be secure because it is impossible to alter the transactions once you transact with it.
Is It Legal To Pay Employees In Cryptocurrency?
Though the practice of paying employees in cryptocurrency is becoming common in the U.S., you should proceed with caution if you decide to use it. According to the Fair Labor Standards Act (FLSA), employers have to pay their employees prescribed wages in cash or a negotiable instrument payable at par. This includes overtime compensation.
This means that either you pay your employees with hard cash or something that they can immediately convert into cash, such as a paper check or direct deposit. A report by Bloomberg Tax states that the U.S. Department of Labor (DOL) allows employers to pay their employees via foreign currencies as long as when the wages are converted into U.S. dollars, it can meet the relevant FLSA standards.
It is also unclear if the DOL esteems cryptocurrency as a legal mode of payment under the FLSA. In some cases, state laws have a role to play. For example, according to the laws in Maryland, employers must pay all wages in U.S dollars or by a check that employees can convert at face value into U.S. dollars.
Several other states have similar demands, and some also require employers to ensure that the wages are readily available to their employees without any hindrances or fees. Employers in such states risk violating the law if their employees cannot convert digital currency wages such as cryptocurrency without any restrictions or fees.
What Is The IRS’s Current Position On Cryptocurrency As Wages?
The other concern that you should take into account is the Internal Revenue Service (IRS). This is because it views cryptocurrencies as property and not as money. Therefore, similar to regular tax filing for self-employed business owners, all tax principles applicable to the transactions of property apply to cryptocurrencies
Basically, suppose you pay your employees with any digital currency. In that case, you have to convert the payment into U.S dollars, withhold taxes from it and report the information on the employees’ Form W-2. This can be a huge challenge to employers.
Other Potential Concerns to Consider
The U.S. Securities and Exchange Commission (SEC) has not regulated the market of cryptocurrency. Should this change in the future, you will also have to abide by securities laws and wage-and-hour laws on both state and federal levels if you want to pay wages in cryptocurrency.
You should also note that cryptocurrencies are unstable. If it loses value like the Bitcoin crash in 2018, it can prompt overtime and minimum wage compliance issues. This can put your employees at a financial disadvantage. To lessen the risks, your employees will have to cash out the digital currency payment as soon as they receive it.
Is it Possible to Achieve a Cryptocurrency Payroll?
Employers who are paying wages in cryptocurrency are making their own coin, and this cuts down on costs. When such employers use their own money to make the payments, the transaction is similar to paying employees via shares in your business and this yields major savings on payroll costs.
To ensure FLSA compliance, experts suggest that employers satisfy overtime and minimum wage thresholds in fiat currency and then pay the employees any other remaining amount in cryptocurrency. On the other hand, employers can also give their employees the option of getting optional bonuses in cryptocurrency because such bonuses do not have to be included in FLSA overtime calculations.
Using crypto as a mode of paying employees is still new. This trend can either catch on or die an early death. Its fate solely depends on the future of cryptocurrency. If you want to consider it as a mode of payment, it may be best to consider all the variables, including if it makes sense to use the payment model, its legality, and whether or not your employees will welcome the idea.