Cryptocurrency Clamor: Paying Employees In Bitcoin Has Reached The General Public | Fisher phillips


It has been a great year for Bitcoin. Between hitting a record trading price of over $ 63,000, landing on big business balance sheets and being recognized as inevitable by financial institutions that once tried to avoid it, the rise of Bitcoin – and more adoption wide of cryptocurrency – is one of the biggest stories of 2021. Cryptocurrencies are increasingly common as a form of payment and investment – or speculation, depending on your perspective.

Perhaps the appeal lies in the underlying technology (i.e. the use of math, rather than third-party banks, to facilitate almost instant, inexpensive, and irrevocable transactions all over Earth). Perhaps this is the questionable benefit of holding cryptocurrencies, especially Bitcoin, as a long-term hedge against inflation. Or maybe it’s the indisputable entertainment value of running a one-minute candlestick chart on a big screen TV to watch the price move on a volatile day (a purely hypothetical scenario).

Either way, cryptocurrencies are clearly here to stay. Innovative employers are responding by putting Bitcoin compensation on the table as a perk to attract top talent – and it’s not just tech companies. This year, Twitter, the City of Miami, the City of Jackson, TN, the Sacramento Kings and more announced their Bitcoin payroll exploration. We expect more to come and start to see employee requests for the option. If your organization is considering paying employees or contractors in Bitcoin, what should you know?

Is it legal to pay wages in cryptocurrency?

The first question you have to face: is it allowed under federal and state law to pay your workers in Bitcoin or similar cryptocurrency.

Under the Fair Labor Standards Act, wages must be paid “in cash or indeed negotiable payable at par”. Cryptocurrency is, of course, neither. And while the most popular cryptocurrencies can easily and immediately be sold for cash, this fact may not matter to the US Department of Labor.

In addition, employers should also consider state laws, some of which require wages to be paid in U.S. currency (including California, Washington, Georgia, Maryland, Delaware, Pennsylvania, Michigan, New Jersey, Texas and Illinois). The specific restrictions and the exemptions that accompany them vary from state to state. In Georgia, for example, the statute does not apply to salaried company directors, superintendents or certain department heads, nor to employers in the agriculture, sawmills and turpentine industries. Meanwhile, in Texas, while wages are generally to be paid in US currency, “an employee may agree in writing to receive some or all of the wages in kind or in some other form.”

For these reasons, you must pay basic compensation in US currency in amounts that meet federal, state, and local requirements for minimum wage, overtime, or wage exemptions. Any cryptocurrency payment program must be optional and authorized in writing by the employee (on a form clearly acknowledging the risks of doing so).

Why would an employer want to pay in cryptocurrency?

Given the legal hurdles and risks faced by employers exploring this option, why bother? Primarily, talent acquisition through signage. Competition for the hiring and retention of the best and brightest employees is fierce, especially in the tech industry. By offering to pay employees in cryptocurrency, companies can attract workers looking for a forward-thinking employer by standing out as the early adopters of the technology that offers compelling benefits and compensation.

Businesses with outsourcing or remote or international employees might also appreciate the ease of making cross-border cryptocurrency payments. Who needs to choose from international currencies and worry about exchange rates when anyone can send and receive Bitcoin in minutes with nothing more than a cell phone?

Is it convenient to pay in cryptocurrency?

If your business decides to offer cryptocurrency as part of their payroll or bonus program, there are two general ways to do it. Employees can be paid (1) in their normal currency, with a designated portion of their salary converted into the selected cryptocurrency and sent to their wallet; or (2) in the cryptocurrency itself.

In the conversion option, the employee may bear some risk that the exchange rate available to the employer is not as favorable as what the employee might get by purchasing the cryptocurrency on their own. In the direct payment option, you technically make a payment in property, not cash, under current IRS guidelines (check with IRS Faq, a 2014 Note, and a 2019 Income decision About that). The fair market value of the cryptocurrency – easy to determine for coins as popular as Bitcoin and Ether – is subject to payroll taxes and must be reported on Form W-2. While not impossible, this impact on payroll returns and withholding taxes could be administratively difficult. Regardless of which option you choose, most employers should strongly consider using a third-party service dedicated to cryptocurrency payroll processing.

A common concern with paying employees in Bitcoin is its risk of volatility – $ 100 worth of Bitcoin on payday might only be worth $ 80 when it reaches the employee’s wallet. These days, it might be fair to assume that anyone who is comfortable enough with cryptocurrency to choose to receive it as part of their salary would be very familiar with this risk. (Many would even be excited if the price dropped significantly just before payday, so they could “buy the drop.” Many users average dollar cryptocurrency in their wallets, just like they would buy funds. mutual funds in a 401 (k).) But you need to consider the risks that would likely come with those disgruntled employees who aren’t happy with such a steep fall. And you might not want to just assume that anyone who signs up to receive compensation through the cryptocurrency understands these fluctuations, making sure to provide sufficient notification of the realities to those considering the option.

Another concern relates to taxes. Despite the IRS guidelines published on the subject in 2014 and clarified in detail in late 2019 (links above), many cryptocurrency holders seem unaware that they are entering an interesting lesson on taxes on assets. capital gains when they buy, sell, trade, and get paid in cryptocurrency. You should include relevant disclaimers, and perhaps a reference to current tax advice, in any authorization for an employee to be paid in a digital asset.

The future of cryptocurrency

Bitcoin adoption has evolved at lightning speed in 2021. Simply put, it’s not a passing fad.

Private companies that adhere to the law

WeWork has announced that it will begin accepting payments in Bitcoin, Ether, and several other cryptocurrencies as payment, including for its memberships, and intends to keep the assets on its balance sheet. He will also work with owners and other partners to make cryptocurrency payments. Coinbase, the largest cryptocurrency exchange in the United States, will be the first customer to pay for their WeWork membership in cryptocurrency.

Mastercard has announced plans to give merchants the option to receive cryptocurrency payments this year. Raj Dhamordharan, Executive Vice President of Mastercard for Blockchain and Digital Asset Products, commented, “Our philosophy on cryptocurrencies is simple: it’s a matter of choice. Mastercard is not here to recommend that you start using cryptocurrencies. But we’re here to empower customers, merchants and businesses to drive digital value. “

Venmo, a large peer-to-peer payment app, has announced that it will support cryptocurrency payments between users. PayPal has announced that its users will be able to buy, sell and transfer cryptocurrencies.

Federal and state governments are also signaling their interest

In February, Treasury Secretary Janet Yellen indicated that central banks should consider issuing digital currencies. From Yellen’s perspective, a digital dollar could help reduce the barriers many low-income households face when it comes to financial inclusion. However, Secretary Yellen also warned that Bitcoin is “extremely inefficient,” and the Biden administration is would have develop a cryptographic regulatory framework.

In 2019, Ohio offered businesses that operate there the option of paying their taxes with Bitcoin. Other states, such as Georgia and Illinois, have considered legislation to allow cryptocurrency tax payments – but to date that legislation has failed. As Bitcoin becomes more widely adopted and used as a currency, look for other states to follow in Ohio’s footsteps and accept Bitcoin. States are likely to make this decision and take other steps to attract business, just as private businesses have started to do.

The government taking note of the benefits of cryptocurrencies is a big step towards legitimacy and mass adoption. Additionally, government acceptance could lead to systematic changes that would make it much easier for employers to accept payment in the form of cryptocurrencies and, in turn, pay employees with crypto.

Conclusion

The recent announcements of Bitcoin by large companies are a sign of the increasing adoption of cryptocurrencies as currencies. This increases the likelihood that an employee can request to be paid in Bitcoin. As we have discussed, there are many potential pitfalls when paying employees with Bitcoin and the decision to offer payment in Bitcoin should not be taken lightly. If you decide to pay employees in Bitcoin or other cryptocurrencies, ensure that non-exempt employees receive the applicable minimum wage and overtime.

While many potential legal issues can arise, employers who wish to pay their employees with cryptocurrency can likely find solutions with the help of legal counsel. Additionally, regardless of the state in which an employer operates, you should never proceed to introduce cryptocurrency into salary or bonus payments without first consulting your employment counselor.

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