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Paying Employees in Cryptocurrency: Is That Lawful? | Morrison & Foerster LLP – JDSupra

Morrison & Foerster LLP

In recent years, more consumers, merchants and financial institutions have accepted cryptocurrencies as a form of payment for everyday products and services. Last November, the mayors of two major U.S. cities signaled what could be the next phase of cryptocurrency merging with the mundane, when they announced they would accept cryptocurrency paychecks. On Twitter, Miami Mayor Francis Suarez said that he would accept his next paycheck in Bitcoin, to which New York Mayor Eric Adams responded that he would accept his first three paychecks in Bitcoin.

Just as mayors try to project the image of their cities as leaders in the tech and crypto wave, employers are considering paying employee salaries or other compensation in crypto to position themselves as forward-thinking companies embracing change. and the new. Relatedly, employees may want to be paid in cryptocurrency due to its potential to grow in value. some experts predict that the price of bitcoin will continue to grow up to $100,000 and therefore some employees may want a portion of their salary to be paid in this dynamic way as a way to structure some of their income as a long-term investment as As soon as possible. paid.

Reading: Considering paying its city employees bitcoin

Before taking the plunge, however, employers should take note of the january 20, 2022 press release from the new york mayor’s office regarding mayor adams’ cryptocurrency salary:

due to us department of labor regulations, new york city cannot pay employees in cryptocurrencies. By using a cryptocurrency exchange, anyone paid in the US. uu. dollars can have funds converted to cryptocurrencies before the funds are deposited into your account.

Here are some things employers should keep in mind if they are considering paying their employees in cryptocurrency.

employees must be paid in US dollars. currency or its equivalent

See also: Bitcoin Up Test und Erfahrungen – Block-Builders.de

The Fair Labor Standards Act (FLSA) is the key federal legislation that governs many aspects of public and private employment in the United States. The FLSA oversees issues related to wages, including minimum wage and overtime pay, and relevant regulations explain that the FLSA requires “the payment of prescribed wages, including overtime compensation, in cash or negotiable instrument.” payable at par. Although there are some exceptions to this rule (e.g., in certain situations, the FLSA allows employers to count “food, shelter, or other accommodations” as wages), employers generally have two options for paying the prescribed wages for the flsa: cash or negotiable instruments “payable at par,” meaning payable at face value.

In a May 2006 opinion letter, the Department of Labor (DOL) provided guidance on what constitutes a tradable instrument payable at par. there, the dol allowed an employer to pay its employees with foreign currency in combination with US dollars. dollars to satisfy the minimum salary requirement of the executive, administrative, and professional exemption of the FLSA. Foreign currency was an acceptable salary when it reached the relevant FSA threshold after being converted to US dollars. dollars using the “exchange rate prevailing at the time of payment (i.e., the exchange rate generally available to an individual person in the neighborhood where the employee works)”. The DOL and the courts interpreting the FLSA have yet to indicate whether cryptocurrency is considered functionally similar to foreign currency, and thus a negotiable instrument payable at par. consequently, employers should be cautious if proceeding to pay salaries directly in cryptocurrencies.[1]

state considerations

As always, employers should also consider applicable state and local laws when formulating compensation plans. Most states have laws that specify how employers can and cannot pay wages. For example, California law prohibits employers from paying employee wages by any order, check, or other instrument “unless it is negotiable and payable in cash, on demand, without discount, at an established place of business in California.” the state”. Similarly, the Illinois Wage Collection and Payment Act provides that “[a]ll wages and final compensation shall be paid in lawful currency of the United States, by check, redeemable upon request and without discount at a bank or another financial institution readily available to the employee, by depositing funds into an account at a bank or other financial institution designated by the employee, or through a payroll card that meets the requirements of article 14.5.” Finally, many states, such as Washington, require that wages be paid at no cost to the employee. this means that, in order to proceed with crypto paychecks, employers must ensure that the wages paid first are American. dollars and then converted into cryptocurrencies do not include any costs for the employee.

the volatile nature of cryptocurrencies and salary compliance

Cryptocurrency volatility could also cause employers to violate minimum wage and overtime laws. Federal and state wage laws set specific standards for exactly how much employees must be paid. for example, the federal minimum wage is $7.25 an hour, and an employer who pays less than the minimum wage is liable for unpaid wages and damages, along with attorneys’ fees and costs. To qualify for an exemption to the FLSA’s overtime requirement, employers must pay employees a salary of at least $684 a week, or $35,568 a year. The minimum wage requirements for employees to be exempt from overtime requirements are higher in some states, such as California. Employers who fail to pay the required wage may face potential misclassification claims, which could include unpaid overtime damages, potential fines, and possible loss of exemption for all employees in the same job classification.

Certain types of cryptocurrencies can fluctuate in value, sometimes drastically, for a variety of reasons. this volatility could leave employers vulnerable to potential unintentional wage violations if employees receive amounts less than those required by applicable wage and hour law.

moving forward with crypto clearing

See also: Crypto crisis: how digital currencies went from boom to collapse | Cryptocurrencies | The Guardian

At this juncture, where more than ordinary life becomes virtual space, it’s hard to imagine a future where cryptocurrencies retreat from their position in society. Based on the current landscape, employers looking to participate in this new frontier may want to consider following Mayor Adams’ method of paying wages us first. uu. currency and then convert them to cryptocurrency, if the employee chooses, at no charge to the employee.

Congress could also pass legislation authorizing the use of cryptocurrencies for salary payments. For example, in 2000, Congress passed the Workers Economic Opportunity Act, amending the FLSA to exclude the value of income received as a result of stock option grants from the regular rate of pay. prior to this legislation, employers were hesitant to provide non-exempt employees with the opportunity to participate in stock option plans, given employer concerns about whether the value of stock options should be included in the regular pay rate for overtime calculation purposes, so Congress took action to avoid discouraging employers from providing stock options to non-exempt employees. if cryptocurrency is seen as a favorable mode of compensation, Congress could act to affirmatively authorize the payments. Even if Congress did act, employers would also need to monitor state law for updates before proceeding with crypto clearing.

As employers move into this new territory, they must remain vigilant and aware of the guidance of new legislation, as well as new administrative or judicial decisions, to inform their payroll practices. The complexities of using cryptocurrency as compensation go beyond the salary concepts covered in this article and have many other implications, including taxes, securities, and privacy. for example, the dol recently signaled that it might implement a ban on cryptocurrency-funded 401(k) plans. in its March 10, 2022 compliance assistance release, no. 2022-01, the dol expressed “serious concerns about the prudence of a fiduciary’s decision to expose 401(k) plan participants to direct investments in cryptocurrency or other products whose value is linked to cryptocurrency.” While not directly related to the payment of salaries in cryptocurrencies, this dol announcement could foretell the department’s thoughts on the subject at hand. Employers venturing into this field should consult with experts to mitigate potential unforeseen risks with their new compensation structure.

[1] The IRS has determined that cryptocurrencies are property, not currency, for federal tax purposes. several states have followed this approach.

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See also: PayPal, Venmo and CashApp simplify cryptocurrency for beginners – CNET

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