It has been a big year for Bitcoin. Between hitting a record high trading price of over $ 63,000, hitting the balance sheets of large companies, and being recognized as inevitable by financial institutions that once tried to avoid it, the rise of Bitcoin – and the wider adoption of cryptocurrency – is one of them. from the larger stories of 2021. Cryptocurrencies are becoming more and more popular as a form of payment and investment – or speculation, depending on your point of view.
Perhaps the appeal lies in the underlying technology (i.e. using mathematics, rather than third-party banks, to facilitate near-instant, low-cost, irrevocable transactions anywhere in the world). Perhaps this is the controversial advantage of owning cryptocurrency, especially bitcoin, as a long-term inflation hedge. Or maybe it’s the undeniable entertainment value of displaying a one-minute candlestick chart on a large TV screen to watch the price move on an unstable day (purely hypothetical scenario).
Either way, cryptocurrencies are clearly not going anywhere. Innovative employers are responding by offering bitcoin compensation as an advantage to attract the best talent – and it’s not just tech companies. This year Twitter, Miami City, Jackson City, Tennessee, Sacramento Kings and others announced their Bitcoin payroll study. We expect more to come and we will start seeing requests for this option from employees. If your organization is considering paying its employees or contractors bitcoin, what do you need to know?
Is it legal to pay wages in cryptocurrency?
The first question you need to face is whether it is permissible under federal and state law to pay your employees in bitcoin or similar cryptocurrency.
The Fair Labor Standards Act requires wages to be paid “in cash or negotiable at par.” Cryptocurrency is, of course, neither one nor the other. While the most popular cryptocurrencies can be easily and immediately sold for cash, this fact may not matter to the US Department of Labor.
In addition, employers must also consider state laws, some of which require wages to be paid in US currency (including California, Washington, Georgia, Maryland, Delaware, Pennsylvania, Michigan, New Jersey, Texas, and Illinois). Specific limitations and attendant exclusions vary from state to state. In Georgia, for example, the law does not apply to company officials, superintendents or heads of certain departments, as well as employers in agriculture, sawmilling and turpentine production. Meanwhile, in Texas, although wages are generally required to be paid in US currency, “the worker 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 wages, overtime, or wage-based exemptions. Any cryptocurrency payment program must be optional and have the written permission of the employee (in a form that clearly confirms the associated risks).
Why should an employer pay with cryptocurrency?
Why bother, given the legal hurdles and risks faced by employers who are exploring this option? First of all, attracting talent through signaling. The competition to recruit and retain the best and brightest talent is fierce, especially in the tech industry. By offering pay to employees in cryptocurrency, companies can attract workers looking for a forward-thinking employer, standing out as early adopters of technology that offer compelling benefits and compensation.
Companies with remote or international contractors or employees may also appreciate the ease of making cross-border payments in cryptocurrency. Who needs to choose between international currencies and worry about exchange rates where anyone can send and receive bitcoins in minutes with just a mobile phone?
Is it practical to pay with cryptocurrency?
If your company decides to offer cryptocurrency as part of its payroll or bonus program, there are two main ways to do it. Employees may be paid (1) in their regular currency, with a certain portion of their salary converted into their chosen cryptocurrency and sent to their wallet; or (2) in the cryptocurrency itself.
In the conversion option, the employee may carry some risk that the exchange rate available to the employer will not be as beneficial as the one that the employee could get by buying the cryptocurrency on their own. In the direct payment option, you are technically paying in property, not cash, in accordance with current IRS regulations (check out the IRS FAQ, 2014 Notice and 2019 Income Ordinance.Fair market value of cryptocurrency that is easy to determine for such popular coins like bitcoin and ether are subject to payroll tax and must be listed on a W-2. While this is not impossible, this impact on payroll reporting and tax withholding can be administratively difficult. , most employers should strongly consider using a third-party service dedicated to processing cryptocurrency payroll.
One of the common problems with paying employees in bitcoins is their risk of volatility: $ 100 payday bitcoins can only cost $ 80 when they end up in an employee’s wallet. These days, it would be fair to assume that anyone familiar enough with cryptocurrency to agree to receive it as part of their paycheck would be well aware of this risk. (Many would even be worried if the price plummeted just before payday so they could “buy the flop.” Many users invest in their portfolios on average at dollar value the same way they would buy mutual funds. at 401 (k).) But you must consider the risks that are likely to come with those disgruntled employees who are unhappy with such a sharp drop. And you might not want to just assume that anyone signing up to receive compensation through crypto understands these fluctuations, making sure to provide sufficient notice of the realities to those considering this option.
Another problem is taxes. Despite the IRS guide published on this topic in 2014 and clarified in detail at the end of 2019 (links above), many cryptocurrency holders seem to be unaware that they are getting an interesting lesson on capital gains taxes when they buy, sell, exchange. etc. and are paid in cryptocurrency. You should include appropriate disclaimers and possibly a link to current tax regulations in any employee permission to pay with a digital asset.
The future of cryptocurrency
Bitcoin adoption is advancing at the speed of light in 2021. Simply put, this is not a passing fashion.
Private business falls under the law
WeWork has announced that it will begin accepting payments in bitcoin, ether and several other cryptocurrencies, including for membership, and intends to keep assets on its balance sheet. He will also work with landlords and other partners to make payments in cryptocurrency. Coinbase, the largest cryptocurrency exchange in the US, will be the first customer to pay for their WeWork membership with cryptocurrency.
Mastercard announced that it plans to provide merchants with the ability to receive payments in cryptocurrency this year. Raj Damordharan, Executive Vice President of Blockchain and Digital Asset Products at Mastercard, commented, “Our philosophy with cryptocurrencies is simple: it’s all about choice. Mastercard is not meant to recommend that you start using cryptocurrency. But we are here to enable customers, merchants and businesses to promote digital value. ”
Venmo, a major peer-to-peer payment app, has announced that it will support cryptocurrency payments between users. PayPal announced that its users will be able to buy, sell and transfer cryptocurrencies.
Federal and state governments are also showing interest
In February, Treasury Secretary Janet Yellen indicated that central banks should consider issuing digital currencies. According to Yellen, the digital dollar can help alleviate the barriers many low-income households face in financial inclusion. However, Secretary Yellen also warned that Bitcoin is “highly inefficient” and the Biden administration is reportedly developing a crypto regulatory framework.
In 2019, Ohio made it possible for companies operating there to pay taxes with Bitcoin. Other states, such as Georgia and Illinois, have considered legislation allowing tax payments for cryptocurrency, but that legislation has failed to date. As Bitcoin becomes more widely accepted and used as a currency, look for other states to follow in Ohio’s footsteps and adopt Bitcoin. Governments are likely to take this step and take other steps to attract business in the same way that private companies have begun.
The government notes the advantages of cryptocurrencies – this is a big step towards legitimacy and mass adoption. In addition, government adoption could lead to systematic changes that make it much easier for employers to accept payments in the form of cryptocurrencies and, in turn, pay employees in cryptocurrencies.
The recent announcements of bitcoin by major companies are a sign of the growing adoption of cryptocurrencies as currencies. This increases the likelihood that an employee can request payment in bitcoins. As we said, there are many potential pitfalls when paying employees in bitcoin, and the decision to offer payment in bitcoin should not be taken lightly. If you choose to pay employees in Bitcoin or other cryptocurrencies, make sure that non-tax exempt workers are paid the appropriate minimum wage and overtime wages.
While there are many potential legal issues that can arise, employers looking to pay employees with cryptocurrency are more likely to find solutions with the help of a legal advisor. Moreover, no matter what state the employer is in, you should never start introducing cryptocurrency for payroll or bonuses without first consulting your employment consultant.