3 reasons you shouldn’t use cryptocurrency as compensation

It’s becoming more common to use various cryptocurrencies as a form of payment. Some Texas residents like shopping online with cryptocurrencies while other people keep their crypto wallets as investments. There are even some employees who prefer to be paid in cryptocurrency as opposed to regular fiat currency.

If you’re an employer, paying your workers in cryptocurrency may be something you’re interested in. However, there are several downsides to using cryptocurrency as compensation.

#1: Cryptocurrency won’t count toward minimum wage

According to the federal Fair Labor Standards Act, employers must pay minimum wage and overtime wages using “cash or negotiable instrument payable at par.” Employment and business law has traditionally interpreted those words to mean fiat currencies, or currencies that are backed by government authorities.

Since cryptocurrency is not a fiat currency, an employer could be accused of violating wage and hour laws if they use it as payment. An employer that wants to provide cryptocurrency compensation for their employees would still need to cover minimum wages and overtime pay using fiat currency.

#2: Cryptocurrency is volatile

Volatility in the value of cryptocurrencies could cause a lot of issues for payroll. For example, employers would have to decide whether they are paying a fixed cryptocurrency amount or a dollar amount converted into cryptocurrency. Since cryptocurrency value can have huge fluctuations, there could be drastic underpayments or overpayments, depending on the day.

#3: Cryptocurrency is subject to capital gains tax

The IRS views cryptocurrency as property that is taxed based on capital gains. Employers must report the U.S. dollar value of the cryptocurrency paid to their employees on the day that it was paid. Sorting out these tax issues can make paying wages in cryptocurrency more complicated and time-consuming than it’s worth.

Other solutions

An employer that wants to attract crypto-savvy employees may decide to award annual bonuses in cryptocurrency. This way, accounting for cryptocurrency payments may be less complicated during tax season and minimum wage requirements won’t be affected.