What does an Irish electronic repairman, a sheriff from Kentucky, and a Finnish software developer all have in common? They are all getting paid in the hottest technological trend since Al Gore created the Internet: the Bitcoin.
As the hype builds and development of this digital currency grows, more and more employees are requesting Bitcoin as a form of supplemental and sometimes primary compensation to avoid the otherwise cumbersome process of acquiring Bitcoin, and employers across the globe are responding. Online payroll processing companies, Bitcoin ATM’s and even Bitcoin-to-cash ATM and debit cards are popping up all over the world, paving the way for the progressive trend to become more mainstream.
As a high-level primer, Bitcoin can most easily be thought of as virtual gold: it is a unit of value that is awarded when “miners” solve a series of complex equations on a computer. There is a fixed quantity of Bitcoin as each equation can only be solved once, and the equations become incrementally more complicated as they are solved. There is no central banking or governmental unit to control the price or flow of Bitcoin; it is a purely peer to peer network. As such, its value can easily fluctuate over a short period of time and, like gold, it can be lost or stolen.
Despite its undisputed volatility, the Bitcoin does have its advantages which appeal to employees living in an increasingly global community. Bitcoin is highly-encrypted and secure, it cannot be frozen or confiscated, transactions are anonymous, and the currency can be instantly transferred across the world with little to no transaction fees or costs.
It’s difficult to tell if and how Bitcoin technology will impact the global workforce in the long-run. Yet, while alternative currencies are gaining support beyond tech-savvy margins, there still is little legal guidance on the subject.
There is some guidance on taxation. The IRS has made it clear that virtual currency is not tax exempt. Any wages paid using Bitcoin are taxable to the employee, must be reported by the employer, and are subject to all other federal and state taxes and withholdings. Therefore, the dollar value of any Bitcoins paid should be recorded to calculate such amounts.
There is also some guidance by analogy to the issue of pay cards. Just last year a major fast food franchise was hit with a class action alleging that the practice of paying employees exclusively with pay cards violated the state wage laws based on paying wages in cash. State laws uniformly mandate that “employees” must be paid in cash. 820 ILCS 115/4 (“All wages and final compensation shall be paid in lawful money of the United States”); 29 C.F.R. § 531.26 (“Various Federal, State, and local legislation requires the payment of wages in cash”).
Recently, the federal Consumer Financial Protection Bureau advised that employers may only offer paycards if the employee is allowed to choose the financial institution at which the wages will be deposited or if the employee has the option to receive the pay in a different manner. Presumably, Bitcoins are subject to that same limitation: i.e., employees cannot be forced to accept wages via Bitcoin.
There is also some guidance by analogy to payroll commitments in non-dollar currencies. Dept of Labor Opinion Letter FLSA2006-17 (opining on payroll conversions from foreign currency to US currency for compliance with the Fair Labor Standards Act). Employers should continue to set base salaries and wages in dollars that meet state and federal minimum wage and overtime requirements, so that the amounts employees are paid do not fluctuate with the dollar-to-Bitcoin exchange rate. Further, the policies should explicitly provide that the currency conversion from dollars to Bitcoins will occur on a specified date (payroll close date for that payroll period) and by a specified table
Employers with access to Bitcoins and with sufficient courage might be able to enter this world.