Bitcoin Compensation Hurdles: Borderless Money in a Bordered World
By Bryan F. Jacoutot, Taylor English Duma LLP
Bitcoin, the world’s first and most popular cryptocurrency, continues its rapid ascent into mainstream consciousness. Initially developed as a method to circumvent traditional financial structures for internet-based transactions, it is increasingly seen as a potentially viable payment method for legacy structures like employment.
For a variety of reasons, employers around the world are asking whether they can legally pay their workers in Bitcoin. But even the most enterprising and innovative employers quickly see the tension develop between the borderless nature of Bitcoin and the highly regulated, border-dependent sphere of employment law. Indeed, the sheer volume of jurisdictions and the lack of broad understanding of Bitcoin effectively forecloses the idea to all but the most risk tolerant of organisations. For those organisations that are ready to take the plunge, there are a number of issues to consider.
First and foremost, employers need to understand their specific jurisdiction. In the US, for example, employment law is highly localised. The federal government often sets a foundation with respect to certain employment law issues, but individual states and even localities build upon that foundation, creating an even more regulated atmosphere for businesses operating within their jurisdiction. The term “wages” in American employment law provides a good illustration.
The Fair Labor Standards Act requires wages generally be paid “in cash or negotiable instrument payable at par”, but it is not entirely clear whether Bitcoin fits within this definition or any of its exceptions. Even if it does, some states add a secondary layer of compliance. For example, Texas and Michigan both have laws requiring employees be paid in US currency. While Bitcoin may be “wages”, it is clearly not US currency.
The issue of calculating taxes creates an added wrinkle for employers. Because the IRS classifies Bitcoin as property, it is likely that employees and employers will have to calculate capital gains taxes and losses each time an employer uses Bitcoin as a means of compensation. This, of course, is in addition to each employer’s regular withholding requirements and each employee’s income tax requirements.
Notwithstanding these potential burdens, which are by no means all encompassing, some employers may seek to attract top tech talent and other forward-thinking individuals through Bitcoin compensation packages. Thankfully, it’s not all doom and gloom for such organisations.
Perhaps the best currently workable solution for paying employees in Bitcoin in the US is by utilising a service that converts US dollar payments to Bitcoin at or near the time of payment. They could also limit this payment to only a certain portion of the employee’s overall compensation (perhaps to bonuses or commissions). This alleviates many of the abovedescribed burdens for employers while allowing them to participate in the bourgeoning Bitcoin economy.
For those who want to fully embrace the technology by solely utilising the Bitcoin network, the best option at this time is to limit payment to independent contractors or via a grant system. While these options contain their own drawbacks, much of the burden surrounding wages and employment-related taxes in the US is limited to the employee-employer relationship. Where independent contractors are concerned, organisations generally enjoy a greater degree of compensation flexibility.
Eleven years since it burst on the scene, Bitcoin shows no signs of disappearing any time soon. While the vast and varied global regulatory landscape catches up to this new technology, there are a few ways enterprising employers can responsibly experiment. But caution should prevail. Every jurisdiction represents unique challenges, and borderless money like Bitcoin was not built with an eye toward the legacy systems employers remain obligated to operate within today.
Bryan F. JacoutotGGI member firm
Taylor English Duma LLP
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Atlanta (GA), USA
T: +1 678 336 7191
Taylor English Duma LLP is a fullservice law firm headquartered in Atlanta. The firm represents all types of clients – from Fortune 500 companies to start-ups to individuals. A 2018 recipient of the Forbes Small Giants award, the firm is the Georgia law firm member of GGI.
Bryan F. Jacoutot is an Employment Attorney with Taylor English Duma. He represents employers of all sizes, counselling them on proactive compliance measures as well as providing representation in litigation. He frequently writes and speaks about the impact of Bitcoin on the global economic system.
Published: Labour Law Newsletter, No. 08, Spring 2020 l Photo: Andrey Popov - stock.adobe.com