Employers Paying Employees in Bitcoin? Tread Carefully

As Bitcoin* continues to rise in value relative to the U.S. dollar (currently trading at $12,843 on Coinbase), renewed interest in the non-sovereign currency is sparking the question among some intrepid employers: Can I pay my employees in Bitcoin?

For U.S. employers, the answer is a tricky one. Nevertheless, for those seeking to attract top tech talent and other trail blazing employees that see value in accepting payment in the increasingly valuable cryptocurrency, navigating the legal and regulatory hurdles may be worthwhile.

Why Use Bitcoin To Pay Your Employees?

The motivation for using Bitcoin varies, but it is clear that an increasing number of individuals and organizations are opting to wade into the somewhat unsteady waters of crypto-compensation packages. Even Jack Dorsey, CEO and co-founder of Twitter, signaled his willingness to pay employees in Bitcoin:

While very appealing to proponents of Bitcoin, employers should be wary of establishing a payment structure entirely dependent on the nascent currency. The Fair Labor Standards Act (“FLSA”), for example, presents a number of preliminary challenges. The FLSA requires employees to be paid in “wages,” a term with a specific definition that Bitcoin may not satisfy. Beyond this, many individual states have their own laws and regulations related to payment of wages, so even if an employer achieves federal compliance they may still face problems at the state level.

Another potential snag is the well-known fact that Bitcoin is incredibly volatile. Since its inception, the digital currency has been in a prolonged period of “price discovery” resulting in massive swings in value. Despite considerable price appreciation, the volatility period is likely to continue for years while the global market decides just how to value digitally created “sound” money. This makes things difficult for employers hoping to pay their workers in the currency.

In early June, 2019, the price of a Bitcoin fell $1,000 in a day. It is no easy task to pay your employees who work near the minimum wage if their method of payment is worth 15 percent less today than it was yesterday. Moreover, if Bitcoin is not considered “wages” under the FLSA in the first place, then even paying employees significant amounts of Bitcoin may not count towards an employer’s minimum wage requirements.

Even assuming Bitcoin payments constitute "wages," additional hurdles remain. Employers are often unaware that simply paying their employees a salary does not necessarily mean an employee is ineligible for overtime premium pay. The Department of Labor utilizes a multipart test to determine whether an employee is entitled to overtime payments from their employer. One part of this test is called the “salary basis” test, which requires that an “employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis.” Although the issue hasn’t been squarely considered, the wild fluctuations in the price of Bitcoin could pull an otherwise overtime exempt position into one that is overtime eligible because the rapid changes in value of Bitcoin mean the employee is not being regularly paid a “predetermined amount.”

Some potential ways to mitigate the regulatory uncertainty include:

• Limiting pay in Bitcoin to only independent contractors, because they are subject to far fewer rules and regulations.
• Using a Bitcoin conversion service so that the employment contract is actually paid out in U.S. dollars, which are immediately converted to bitcoin upon receipt.
• Doing a blended compensation package, where a set amount is paid out in dollars to cover all the minimum wage, salary, and overtime requirements, with the excess portion being paid out in Bitcoin.

Even utilizing these tactics, however, it is very difficult for an employer to shed all the risk that accompanies paying workers in Bitcoin. But for some, the cost of compliance may be outweighed by the benefits associated with such a forward thinking payment policy. For those employers that decide to take the leap into Bitcoin payments, it is best to have the direct advice of experienced counsel before doing so.

* Bitcoin is a non-sovereign currency issued by a computer network of voluntary participants that is not linked to, controlled by, or directly subject to the policies and politics of any nation or coalition of nation states. The issuance of Bitcoin – and thus the rate of inflation – occurs at regular intervals, on average every ten minutes, and depends upon network participants expending computing effort and electricity to solve complex cryptographic puzzles (hence the term, cryptocurrency). This process serves the added purpose of securing the network against those who would seek to undermine the accuracy of the growing chain of transactions (hence the term, blockchain). Accordingly, each 10-minute issuance of Bitcoin simultaneously 1) secures the network; 2) verifies recent transactions; and 3) adds a predictable amount of Bitcoin to the ecosystem, thereby controlling the rate of inflation in a way that is not currently possible with legacy currencies.