‘Why is My Bitcoin Transaction Taking So Long?’ Here’s Why My Bitcoin wallet has recently taken longer and longer to receive a Bitcoin payment. This wasn’t happening 2-3 months ago. Maybe you haven’t noticed it, but I know I have. My Bitcoin wallet has recently taken longer and longer to receive a Bitcoin payment, have […]
Employment Law Lookout
Insights for Management
Bitcoin one hundred one – How to Pay Your Employees in Digital Currency
Has the water cooler talk at your workplace turned to the greatest topic in technology – Bitcoin? Are your employees clamoring to be paid in digital currency or include crypto currencies in their defined retirement plans? In a latest poll by Tech in Movement, fifty one percent of IT professionals responded that they would be interested in accepting Bitcoins as payment for work, and major retailers, including Tesla Motors, Lord & Taylor, Overstock, and Tiger Direct are beginning to accept Bitcoin payments. When someone from IT comes knocking on your door asking you about Bitcoin, should you consider paying him in it?
What is Bitcoin? Bitcoin is a decentralized digital currency that permits parties to exchange virtual coins without a middle man. Moreover, Bitcoin is not managed or backed by any bank or central government authority, like the Federal Reserve. As Bitcoin transactions do not require a centralized intermediary, payments can be processed at a very low, almost “frictionless” cost.
Where do Bitcoins come from? Bitcoins are lumps of computer code that represent monetary units. Each Bitcoin is “mined” by a computer solving complicated algorithms. There are presently approximately eleven million Bitcoins in existence and only about twenty one million Bitcoin will ever be generated or “mined.”
How do people buy or use Bitcoins? Bitcoins are bought online using traditional currencies (U.S. dollars, Euros, etc.) through Bitcoin exchanges (see, e.g., Coinbase, Bitstamp.net, or the infamously defunct Mt. Gox) and private sellers. Bitcoin users must very first install a Bitcoin wallet on their computer or smartphone, or, alternatively, use a wallet in the cloud. Users can then share their wallet’s address with others to make or receive payments.
Payroll Processing Companies Paving the Way for Employers to Pay Employees in Bitcoin
Coinciding with the rise in digital currencies, venture capital is flooding into the Bitcoin space, making way for a rapidly expanding infrastructure. At least $72 million of venture capital poured into Bitcoin startups in the very first quarter of two thousand fourteen alone. Part of this community includes online employee payroll companies. BitPay, the largest payment processor for crypto currencies, recently released a beta version of a Bitcoin payroll application for employers. In addition, a Canadian payroll company, Wagepoint, already permits employees to convert a portion of their net pay into Bitcoin, and then online Bitcoin payroll systems automatically exchange the dollars for Bitcoin at the current market rate. These companies and others are making it possible to entertain the idea of paying employees using Bitcoin.
Legal Implications of Paying in Bitcoin
Bitcoin has seen major fluctuations in value in its brief life. Consequently, $100 worth of Bitcoin on one paycheck will almost certainly be a different amount on later paychecks. Thus, employers contemplating paying employers in Bitcoin as opposed to traditional currency are advised to review minimum wage and other state and federal employment law requirements. Very first, paying employees in Bitcoin may not count as “wages” under the FLSA. Employers may still be able to pay employees a base rate in traditional currency that meets FLSA and minimum wage requirements, while supplementing the rate with Bitcoins over and above the minimum wage. However, if Company X agrees to pay its employees one (1) Bitcoin each week (current value as of this posting $462.16) the employee has the chance of watching that value rise (all-time high value of $1,216.73) or fall (all-time low value of less than $0.01). Thus, even if Bitcoin were permitted to sate minimum wage obligations, if the exchange rate were to fall below $290 for a non-exempt employee working forty hours a week, earning one (1) Bitcoin per week, the employer would be in disturbance of the federal minimum wage.
Therefore, any employer interested in paying employees Bitcoin should consider:
- Paying employees in traditional currency that is then converted to Bitcoin instantly;
- Paying employees a base rate that pleases all state and federal minimum wage and overtime requirements and supplementing these wages with Bitcoins;
- If paying in Bitcoin, consider applying a wage differential for weeks in which an employee’s Bitcoin-dollar equivalent falls below the applicable minimum wage; and
- Consulting an attorney experienced in labor and employment issues.
As with other areas of rapidly advancing technology, the legal framework and regulatory background is fighting to keep tempo with Bitcoin. Legal challenges and government regulation will likely be forthcoming and suggest significant clarity to the usage of Bitcoin.
Tax Implications of Paying in Bitcoin
Fortunately, in at least one area of the law significant to employers, the IRS issued guidance on the tax treatment of Bitcoin. Determining that Bitcoin is “property” and not currency, the IRS informed employers of the following:
- Wages paid using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes;
- Payments using virtual currency made to independent contractors and other service providers are taxable – most often a Form one thousand ninety nine must be issued;
- As with any other payments made in property, information reporting requirements are required for payments made using virtual currency.
Check back with Seyfarth Shaw’s Employment Law Lookout Blog for future updates on Bitcoin in the workplace, or contact the author or your Seyfarth attorney.