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The Practical Employer

Can You Pay Your Employees in Bitcoin?

Bitcoins do not have a set value. Their value is based solely on global exchanges, and depends on how it’s bought and sold online.

“What is bitcoin? I don’t understand how fake money works.”

These were the words of my 9-year-old last week.

Let me try to help him, and you, out.

Bitcoin is not fake money. It’s digital, or virtual, currency, created in 2009 by an unknown person using the alias Satoshi Nakamoto. It’s used for online transactions — some legitimate (Microsoft, Overstock), and some not legitimate (ransomware, dark web purchases).

It’s also traded online, which has made it very, very valuable. In fact, bitcoins do not have a set value. Their value is based solely on global exchanges and depends on how it’s bought and sold online.

As of mid-February, one bitcoin was trading online for $9,575.

Because of the skyrocketing value of bitcoin, the more forward thinking of employers may want to pay employees in bitcoins instead of dollars. Moreover, your employees may want to accept payment of their wages in these valuable bitcoins.

Tread very carefully, however.

The IRS treats bitcoin and other virtual or cryptocurrencies as property, not as currency.

And, the Fair Labor Standards Act requires that employers pay employees in “cash or negotiable instruments payable at par.”

Because the IRS treats bitcoin as property, it’s very likely that the DOL will not consider it “cash” or a “negotiable instrument” (i.e., a paycheck) for purposes of wage payments.

Thus, if you are not properly paying your employees under the FLSA, you have failed to pay them a minimum wage (a big FLSA no-no), no matter how valuable the bitcoins you’re providing may be.

Let me offer one more wage/hour bitcoin thought. If you and your employees are really into the idea of payment via cryptocurrency, consider offering it as a bonus payments. But, again, tread carefully. Bonuses can be considered part of an employee’s regular rate of pay for purposes of overtime calculations (even if made in kind).

Unless the payment —

  1. is made as a discretionary gift; and
  2. is not correlated to hours worked, production achieved, or efficiency attained
its value will count as part of an employee’s regular rate, and must therefore be factored into non-exempt employees’ overtime calculations.
I applaud any employer that looks to get creative with how it compensates its employees or rewards performance. In this case, however, a little bit of discretion will go a long way toward wage-hour compliance and avoiding an expensive FLSA mistake.
Jon Hyman is a partner at Meyers, Roman, Friedberg & Lewis in Cleveland. Comment below or email editors@workforce.com. Follow Hyman’s blog at Workforce.com/PracticalEmployer.