With the rise of digital coins, many employees want to be paid in cryptocurrency. Decentralized currencies offer fast, secure, low-cost transactions. Many platforms facilitate cryptocurrency payments between companies and their employees or contractors. However, because there are significant risks involved with using cryptocurrency to fund payroll, you want to learn more before deciding whether to implement the option.
Payroll Services Offering Cryptocurrency
If you want to pay employees and contractors with cryptocurrency, you may need assistance from companies that specialize in it. For instance, Bitwage is a platform that provides employer payroll services using cryptocurrency. Payroll funding currently supports bitcoin core (BTC) and ethereum (ETH) as well as fiat currencies such as the U.S. dollar, Chinese yuan, Russian ruble, and euro. Once Bitwage receives the funds, workers choose to get paid in cryptocurrency or local fiat. Bitwage clients in the United States also may have the company cover employee benefits such as health insurance. Plus, clients may settle payroll taxes in cryptocurrency through Bitwage’s partnership with Simply Efficient HR. Be sure you check and adhere to local regulations because tax obligations related to cryptocurrency income vary among jurisdictions.
Tax Implications of Cryptocurrency for Payroll
United States companies funding payroll with cryptocurrency face unique tax implications. For instance, although subject to the same Social Security, Medicare, and Federal income tax withholdings, you should withhold employees’ Federal income tax and FICA taxes in U.S. dollars. Also, because making salary payments is a taxable event, you need to calculate capital gains or losses based on the cryptocurrency transaction price less the cost basis.
Risks of Funding Payroll with Cryptocurrency
United States companies funding payroll with cryptocurrency face significant risks. For instance, because the IRS considers cryptocurrency to be property, not money, employers who pay wages in cryptocurrency must convert the cryptocurrency to U.S. dollars for tax reporting. This creates a substantial hassle for most companies. Also, the Fair Labor Standards Act, which covers most aspects of employee rights, states that employees need to be paid in cash or negotiable instrument payable at par, interpreted to mean cash or something immediately convertible to cash, such as a check or direct deposit. Although currently there is no case law on funding payroll with cryptocurrency, the Department of Labor (DOL) may not consider cryptocurrency to be the same as a fiat currency. If so, the DOL may determine you failed to pay employees a minimum wage, which could lead to costly legal ramifications. Plus, the value of cryptocurrencies is extremely volatile. Although a cryptocurrency may be trending up, it could suffer a severe loss in value before an employee cashes out their paycheck. Such action may make it difficult for the employee to pay their bills.
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