I was feeling excited offering a position to the candidate across from me. It’s so tough these days to get people to apply and show for an interview. Being at the offer stage was pretty thrilling.
“We pay either by direct deposit or through reloadable cash card. Which would you prefer so that I can provide you with the right paperwork?”
The candidate looked at me, surprised. “I want to be paid in crypto. What options do you have for me?”
Yes, it’s the newest trend. Sports stars like Russell Okung and Aaron Rodgers have confirmed that part of their compensation is in cryptocurrency. The mayor of Miami is taking his paycheck in Bitcoin, and the mayor of New York City announced he is looking into the possibility of paying city employees in digital assets while also taking his first three paychecks in crypto.
Is this a trend your company should jump on? Might be worth doing some research before you decide to make the move.
Let’s take a high-level look at some of the benefits:
— Employers are viewed as progressive and tech-savvy. Cryptocurrency is new and flashy. Businesses who use this method for payment of goods and services are seen as forward-thinking. According to SoFi, 36% of workers want the ability to receive part or all of their paycheck in cryptocurrency and 42% would like to receive NFTs as a performance reward. Catering to this desire by the workforce could put an employer at a recruiting advantage.
— It’s speedy. Transactions in crypto are immediate, so employees would not have any delay in their paycheck being received because the middle step – the bank – is no longer involved.
— International aspects may be attractive. Cryptocurrency is a worldwide medium overall, and therefore paying employees in the U.S. dollar and having it exchanged into, let’s say, the Euro, is eliminated, along with the conversion headache. Crypto is it, regardless of country.
— There may be tax efficiency, in the United States. As an example, Bitcoin is viewed by the IRS as property, and therefore subject to capital gains taxes, which may be lower than someone’s tax bracket for income.
— Ability to earn more without doing anything. Cryptocurrency fluctuates in value, and as the value increases, employees who are paid with it could earn more without doing anything more than what they did while earning cash.
While this may be the trend of the future, it is important for businesses to do a solid risk-benefit analysis on whether to offer cryptocurrency as a form of payment. Things to consider are:
— Is it compliant with the Fair Labor Standards Act (FLSA)? This federal law is specific in how employers must pay their employees, citing “…payments of the prescribed wages….in cash or negotiable instrument.” While the Department of Labor (who interprets FLSA) have allowed employees to be paid in foreign currency, employers must make sure the converted amount meets the proper thresholds of the regulation. It has yet to be determined, or tested, as to whether the DOL considers cryptocurrency to be comparable to foreign currency in this situation.
— It may be a violation of state law. Depending on where the company and/or the employee is located, cryptocurrency may not be a legal form of payment based on the State. Some states, such as Maryland, require employees to be paid in U.S. currency; while Pennsylvania says wages must be paid with lawful money of the U.S. or check. Neither of these laws would, currently, mean that cryptocurrency payment would be legal. Further, many states require that employee paychecks be readily accessed without costs, fees or other encumbrances. Who – the employee or employer – would be responsible for the fees to convert crypto to dollars? It’s so new, state laws have not been tested yet.
— Volatility is significant. Similarly, to the benefit of “earning more without doing anything” mentioned, the opposite could be true. The value of digital assets could quickly take a turn down, thus then putting the employer at risk of not paying their employees the appropriate wage.
— Taxes become complicated. Since it’s unclear about the taxable status of crypto, there’s really not any guidance on how this would be taxed. Quick value changes can also complicate tax situations.
— Interoperability issues, potentially. If an organization chooses to use one specific type of cryptocurrency, while an employee may have a crypto wallet of a different cryptocurrency, it’s possible that the transaction would not work because cryptocurrencies aren’t necessarily easily to exchange from one form to another.
Ultimately, the decision to compensate this way is one that needs to be made with quite a bit of information at hand. Paying with digital assets is risky. Employees need to understand the risk the are taking in accepting payment in this form. The YOLO (You Only Live Once) draw is strong with this trend, but details of the concept is an enigma still, since so much needs to be figured out.
Employees could find themselves in a good situation with it one day, and very short on earnings the next; and issues like taxes and converting it to common currency can have hurdles. Employers take on risks at this point because of the unregulated nature of cryptocurrency, how it may fit within current regulations and laws concerning wage compensation, and what types of other risk factors could be a burden. Likely, though, it won’t be going away, so we’ll all have to bide our time and see how the pros and cons work through the conventional systems.
When your company is comfortable taking the risk, it may be a worthwhile recruiting and retention tool.
Monica Blackwood is CEO of Westsound Workforce, a staffing agency with offices in Gig Harbor and Poulsbo.