Cryptocurrencies like bitcoin are all the rage, and many consumers now regularly use them buy goods or services. But what about employers? Can you pay your employees in a cryptocurrency?
The state of the law is unclear, but the safe answer is “No,” which we explain below.
Federal Law Probably Prohibits It
The federal Fair Labor Standards Act (FLSA) is the nation’s primary labor law, and it requires that employers pay their employees in “cash or negotiable instruments payable at par.” Negotiable instruments are things like checks.
Will cryptocurrency qualify as “cash” or even a negotiable instrument? Probably not. For its part, the IRS considers bitcoin and other cryptocurrencies as property, not cash. There is no reason that the Department of Labor (which enforces the FLSA) would decide differently. Until the federal government gives express approval, employers should sit tight and continue to pay wages and salaries using cash or checks. If you fail to follow the law, you could be sued.
Using Cryptocurrencies is Risky
Even if it were legal, paying an employee with a cryptocurrency is probably not a good idea. For one thing, California sets a minimum wage using dollars, and you would need to pay an amount in cryptocurrency equal to the mandated minimum wage. Because bitcoin fluctuates in value, it is very easy to pay too little, thus violating California’s minimum wage law.
You could also violate the state’s overtime provisions. Generally, employers must compensate non-exempt employees for any hour over 40 worked in a week and any hours over 8 worked in a single day. Overtime pay must be equal to at least 1.5 times the base rate of pay. Once again, the fluctuating value of a cryptocurrency could cause you to violate overtime law provisions as well.
Withholding Taxes Would be a Nightmare
Employers are responsible for withholding and reporting taxes to the IRS, but these amounts must be reported in dollars. Also, employers can claim payroll costs as a deduction but also must do so in dollars. As a result, you would need to track the dollar value of the cryptocurrency, which is beyond the reach of current financial ledger systems.
You Might be Able to Pay a Bonus in Cryptocurrency
If you really love the idea of paying an employee in bitcoin or another cryptocurrency, then you could consider giving it as a bonus. You would use checks or cash for all weekly wages but then at the end of the year give a bonus in bitcoin.
However, proceed cautiously. Sometimes, bonuses count towards the calculation of an employee’s base rate of pay. You could once again run afoul of overtime laws by making a gift. Instead, work closely with a Mountain View Employment attorney who can structure the bonus the right way.
Contact a Mountain View Employment Lawyer Today
Cryptocurrency is an exciting field, and paying employees using bitcoin or another currency could make you stand out in the crowd. However, there are currently substantial legal compliance issues. If you have a question about this or another employment issue, please call Kalia Law today. You can reach us at 650-701-7617 or submit an online message. We represent startups in Mountain View and throughout California.