Should You Compensate Your Workers In Crypto?

Many prominent people in financial and digital spaces are avidly extolling the virtues of virtual money. Hosted on the blockchain, cryptocurrency seemingly provides anonymity, security, and remarkable wealth to anyone who invests. Workers around the world are eager for the opportunities provided by crypto assets, and business leaders are becoming curious about how they can harness the power of crypto for organizational success.

Your business is relatively small and agile, and it could be possible for you to pay your workforce in cryptocurrency — but should you? The answer, of course, is a resounding no. Here’s why.

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It Is Not Legal To Compensate Your Workers With Crypto

In the United States, the rules that govern how you can compensate your workers are contained within the Fair Labor Standards Act (FLSA), a law that was first passed in 1938 to protect workers’ rights and is periodically updated to expand protections, adjust minimum wage and more. The FLSA states that wages must be paid “in cash or negotiable instrument payable at par.” A negotiable instrument is like a formal IOU, a signed document that promises payment (in cash) at a future date.

Thus, cryptocurrency is not a legal type of wage under the FLSA. Crypto fans ardently argue that because cryptocurrency can be sold for cash, it should be a viable form of wage. However, should the issue be tested, the U.S. Department of Labor likely would not agree.

What’s more, American employers need to navigate state employment laws, as well. Many states specifically require organizations to pay workers in U.S. currency, which crypto is decidedly not.

It is possible to get around the FLSA and state laws. For example, a company might pay a base compensation of the required minimum wage in U.S. currency and the rest of a worker’s salary and benefits in crypto. However, employees should always be given a choice between cash and crypto — and they should be fully informed of the risks of accepting their wages in a speculative investment like cryptocurrency.

It Is Not Practical To Compensate Your Workers With Crypto

There are two ways a company might offer cryptocurrency as part of payroll:

An employee can have a portion of their wages converted to the cryptocurrency of their choice and deposited in their crypto wallet, or
An employee can be paid in the cryptocurrency itself.

Both are incredibly inconvenient for employer and employee alike. In the first case, employees will lose some of their wages to conversion costs, and it is likely that employers will not exchange cash for crypto when the market is most favorable. Thus, both the organization and the worker waste resources on this method of payment.

In the second case, the company must determine the fair market value of the crypto coin they choose for payment, and they must manage payroll taxes on what is technically property under IRS guidelines. In either case, the extreme volatility of cryptocurrency might mean that workers are never paid the true rate at which they were hired to do their job.

You Might Offer Crypto As A Reward

Even small startups with only a handful of employees should stick to cash when it comes to paying worker wages. However, there are benefits to offering some kind of compensation in the form of crypto. Many organizations are seeing a significant increase in the competitiveness of the hiring environment, especially amidst the Great Recession.

Tech companies, startups, and other businesses interested in attracting young, tech-savvy talent need a way to set themselves apart, and being willing and able to supply workers with cryptocurrency is a means of demonstrating that an organization is forward-thinking.

To retain the benefits of this virtue signal, you might consider offering crypto as a reward for high performance and excellent behavior. This reduces your interaction with the crypto marketplace; instead of converting cash into crypto every week or two, your business might only need to create cryptocurrency once per quarter or less, depending on how your employee recognition programs work.

As with compensation, you should verify that the employee receiving the reward is interested in a crypto gift, and you should be certain they understand the risks of crypto before you send any digital currency to their wallet.

Despite the hype, cryptocurrency is not the latest and greatest way to pay your employees. In fact, crypto is incredibly cumbersome, complicated and precarious, making it remarkably poor as a form of a regular wage. If your workforce is clamoring for crypto, there are ways to build the financial product into your rewards programs — but it should never be the only way you show gratitude to your workers.