Legal Risks of Paying Employees in Crypto

Paying Employees in Crypto

Cryptocurrencies are increasingly becoming popular and are gaining acceptance among businesses, corporations, and the wider population. Several employers are now looking for ways to pay their employees with bitcoin, ethereum, and other altcoins. The reasons for this bold move vary; for instance, it could be a marketing strategy to attract tech-savvy talents, a way to boost the circulation of specific cryptos, or just to set a record as a modern and crypto-enthusiast organization. 

Whichever the reasons for embracing cryptos and even paying employees using these digital assets, there are some legal ramifications you would want to consider. We’ve rounded up four legal issues for your reference.

1) Failing to Pay Employees with Cash Could Violate Federal and State Laws 

According to the Fair and Labor Standards Act (FLSA), minimum wage, overtime, and other compensations should be paid in cash or a negotiable instrument that’s payable at par. However, the United States Department of Labor (DOL) allows employers to compensate employees using foreign currencies – provided they can be converted instantly to the U.S. currency and that it meets the FLSA thresholds. 

Some states also dictate that wages should be paid in U.S currency; for example, Maryland requires any form of payment for wages to be paid strictly in U.S dollars or by check that is convertible on-demand and at face value into the U.S. currency. 

Similarly, Pennsylvania requires all employers to pay their workers in U.S currency or check. Several other states enforce these cash payment restrictions meaning cryptocurrency payments could violate state wage payments and collection laws.

2) Adhering to Minimum Wage and Overtime 

Cryptos are prone to sudden fluctuations in price, which can mean huge losses in seconds. Over the years, cryptos have shown the highest volatility. An example is bitcoin which can gain or lose 30% of its value in a day. This constitutes risks making it difficult to stay compliant with the overtime and minimum wage laws. 

By extrapolation, paying employees with cryptos makes it quite challenging to ascertain that they get their payments in full. For instance, the value of crypto could lose half of its value while processing payroll, and employers could be held liable for violating the minimum and overtime wages.

3) Cryptos Not Being Securities 

So far, the Securities and Exchange Commission (SEC) does not consider some of the top cryptos like bitcoin and Ethereum as securities. This means that paying employees with digital assets may not be considered a viable option in the long run. If some cryptos are cleared as securities in the future, they will have to comply with several federal and state securities regulations as well as wage and hour laws.

4) Tax Challenges 

Another common challenge facing employers, employees, and the tax authorities is how crypto payments can be taxed. Cryptos are decentralized, and they offer a deep layer of privacy, making it challenging to impose some tax rules and regulations. There’s also some confusion on the status of the crypto token. For instance, it’s hard to determine from which end the asset could be taxed, whether from the exchange point – i.e., the source or the individual’s crypto wallet. 

Navigating these Legal Challenges 

Employers looking to pay their workers with cryptos may need to work with crypto processing companies to allow their employees to get paid in U.S. currency and have the option to convert fiats into crypto. This is somewhat impractical or maybe hectic as it requires some strategic maneuvering and could also be costly in the long run.

That said, any business can comply with minimum wage and overtime laws by modifying its payment system to incorporate both the U.S. currency and cryptos. The cash payments should meet the minimum wage and overtime thresholds to ensure full compliance; then, the remainder could then be compensated via cryptocurrencies.

Before paying your employees using cryptos, you need to do some thorough research to fully understand both the federal and state laws, including the legal implications that could result from overtime and minimum wage payments. This is where employment lawyers will help with legal advice and any form of drafting to ensure compliance. 

Final Thoughts 

While most companies and businesses aren’t necessarily interested in paying their workers with cryptos, several crypto firms are pushing for this new payment method. Since these companies are either mining or processing these digital assets, it’s easier and cheaper for them to pay their workers using cryptos. 

For traditional businesses, paying employees with cryptos such as bitcoins may not make a lot of sense. This is because they’ll need, first, to buy bitcoins or other cryptos somewhere. Unless the company has pre-acquired a huge load of that particular crypto, it will only be expensive and inconveniencing. Similarly, if the company is paying using an altcoin, it will still be hectic for employees. This is because most crypto exchange points do not accept all cryptocurrencies. Instead, they will require that they convert those altcoins into bitcoin before exchanging them into fiats.

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