Cryptocurrency has been a popular topic and continues to trend as new coins come out, and more people invest. Businesses are also becoming intrigued by virtual currency and have begun to wonder how to use it for their employees.
Suppose an employer is interested in using cryptocurrency for wage payments. In that case, they should be aware of the basics and how to comply with the following:
- applicable withholding
- wage and hour
- wage payment necessities at the federal and state levels
The IRS defines cryptocurrency as “a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.” To better understand the stance of wage payments made through cryptocurrency, an employer should know the definition of virtual currency.
According to the IRS, virtual currency is “a digital representation of value, other than a representation of the U.S. dollar or foreign currency that functions as a unit of account, a store of value, and a medium of exchange.” Some virtual currency is convertible, and it is to be treated as property for federal income tax purposes as of 2014.
Suppose an employer decides to offer cryptocurrency as a wage payment. In that case, it is encouraged to be cautious when using it for base salaries, hourly pay, and overtime. Instead, an employer should consider using cryptocurrency for bonuses or incentive payments. This is because the Fair Labor Standards Act requires employers to pay wages in “cash or negotiable payable at par,” and cryptocurrency is not considered to be either. As a result, employers must pay base salaries and overtime in a currency issued by the government. Those who have used virtual currency as payment may not be considered in compliance.
To learn more about virtual currency and the restrictions it may impose on wage payments, visit the IRS website.