Many major U.S. retailers now accept certain cryptocurrencies as form of payment. Facebook recently announced that it will create its own virtual currency. But what about workers who want to be paid in it?
Earlier this month, New Zealand’s Inland Revenue Department, its equivalent of our Internal Revenue Service, announced that most employers could start paying workers in cryptocurrency.
The pay must be in a fixed amount and be a regular part of the employee’s salary. That means employers can’t just pay in crypto sometimes when it’s more convenient.
They also cannot just pay in any type of cryptocurrency. Its value must be pegged to at least one fiat currency, such as the U.S. dollar or Euro, and employees must be able to convert it to cash on an exchange. That makes bitcoin, the world’s most popular cryptocurrency, an obvious choice for many employers.
While some employees may want to be paid in full or partly in cryptocurrency, the simple truth is that in the U.S. it would be quite risky to do so.
The IRS considers bitcoin and other cryptocurrencies to be property, meaning not money. According to TurboTax, employers who pay wages in cryptocurrency must convert the crypto to U.S. dollars for purposes of tax reporting. This would likely be a huge hassle for most businesses.
Another hurdle is the Fair Labor Standards Act, which governs most aspects of employee rights. It states that employees must be paid in “cash or negotiable instrument payable at par.”
There is no case law on the subject yet, but for now it’s likely that the Department of Labor may not consider cryptocurrency to be the same as a fiat currency. The Labor Department could then also determine that an employer failed to pay their employees a minimum wage.
Additionally, the value of cryptocurrencies is quite volatile. While bitcoin may currently be trending up, it could suffer another severe loss in value, like it did in 2018.
If you own a business, it’s important to consider whether your employees would even want to be paid in a cryptocurrency that may lose value unless they cash out as soon as they receive their paycheck. While some risk-takers at startups may be on board, many more will likely be scared off by the potential instability.