Despite the controversy surrounding it, cryptocurrency remains a hot topic. In the employment world, a top question is whether employers can pay employees in cryptocurrency. Before we determine this, let’s explore “cryptocurrency” a bit.
What is
cryptocurrency?
Per the Cambridge Dictionary, cryptocurrency is “a digital currency produced by a public network, rather than any government, that uses cryptography to make sure payments are sent and received safely.”
In other words, cryptocurrency is digital money that utilizes encryption to secure transactions. These transactions are done without the involvement of banks and intermediaries via a distributed public ledger called blockchain.
There are many types of cryptocurrencies, with Bitcoin being the first and the most popular to this day. Some experts predict that Bitcoin’s value will eventually reach $100,000, though the possibility of collapse is ever present.
According to Kapersky.com, “Much of the interest in cryptocurrencies is to trade for profit, with speculators at times driving prices skyward.”
Among the interested parties are employees. In a 2022 study by Zety, 80% of respondents said they wanted to receive their salary or bonuses in cryptocurrency.
Can cryptocurrency replace a paycheck?
Generally speaking, it is not a recommended practice. Here’s why.
The Fair Labor Standards Act (FLSA) requires “payments of the prescribed wages, including overtime compensation, in cash or negotiable instrument payable at par.”
Note that the FLSA has some exceptions to the negotiable instrument rule. For instance, employers may be able to count food, housing or other facilities as wages. Generally though, employers must use cash or a negotiable instrument payable at par — such as direct deposit or paper check. Moreover, some states require wages to be paid in cash or a negotiable form of U.S. currency.
As explained by Littler, a law firm specializing in labor and employment law, “Cryptocurrency is neither cash nor a negotiable instrument in the United States and is not backed by the government or other legal entity.” As a result, paying base wages or salaries in cryptocurrency is not advised.
The reasoning is that employees should be paid in a manner that allows them to immediately access the payment. This likely won’t happen with cryptocurrency payments. Secondly, many states require wages to be paid free of cost to the employee. Therefore, employees must be able to convert their cryptocurrency payments into U.S. dollars without any fees. However, fees are normally associated with exchanging cryptocurrency to U.S. dollars, selling cryptocurrency or even using a cryptocurrency exchange card.
Some experts argue that employers can simply satisfy the FLSA‘s minimum wage and overtime criteria in U.S. currency and then pay any additional amounts in cryptocurrency. However, employers taking this route must also consider the rules for reporting cryptocurrency payments to the taxation agencies.
Despite any leeway made possible by the FLSA, employers should still proceed with caution, given the various governmental and administrative constraints.