Is Cryptocurrency The Cat’s Pajamas?
When I started playing the game CryptoKitties, I had $500.00 worth of Ethereum with which to buy, breed, and sell my Kitties. Two months later, I have a kindle of 38 Kitties and more than $500.00 worth of Ethereum. Now, while I’m pretty sure I would never want to be paid my wages in CryptoKitties, I might consider being paid in cryptocurrency. With the increase in value of Ethereum, I’ve essentially played the game for free, and I’ve got some hot purroperties if someone’s in the market for a jaguar, cerulean and greymatter, dali Kitty. But, can and should employers pay their employees in cryptocurrency?
Bitcoin, Stellar, Ethereum, Ripple – and seemingly countless more – have become mainstream currencies accepted and easily-converted to fiat currencies of the holder’s choosing. These currencies are extremely volatile. From the time I purchased Ethereum to today, it has nearly doubled in value (and on some days, it more than doubled). Bitcoin, on the other hand, peaked a bit over $19,000.00 and has fallen to roughly $10,000.00 today. You can see the potential upside for an employee accepting wages in cryptocurrency – a spike in the value of the cryptocurrency can lead to a nice capital gain. You can also see the downside – if the employee does not immediately convert to U.S. dollars, she might take a hit in wages, and this causes serious problems for employers.
This is assuming federal and state law would permit compensation by cryptocurrency in the first place. The West Virginia Wage Payment and Collection Act requires payment of wages in lawful money of the United States, by cash order, by deposit or electronic transfer into a payroll card account in a federally-insured depository institution, or by any method of depositing immediately available funds into an employee’s demand or time account in a bank, credit union, or savings & loan institution. So, West Virginia appears to be a no-go state when it comes to paying employees in cryptocurrency.
Pennsylvania’s wage law counterpart states that “wages shall be paid in lawful money of the United States or check.” In Ohio, wage means compensation due to an employee “payable in legal tender of the United States or checks on banks convertible into cash on demand at full face value.” Kentucky’s legal definition of wages also specifies “legal tender of the United States, checks on banks, direct deposits, or payroll card accounts convertible into cash on demand at full face value.” To properly pay wages in Colorado, any order, check, draft, note, memorandum, or other acknowledgement of indebtedness may be used only if it is payable upon demand without discount in cash at a bank organized and existing under the general banking laws of the U.S. or Colorado. These laws demonstrate two of the rubs with wage payment by cryptocurrency: many states require legal tender of the U.S. be used and the payment of wages at full value. With wildly fluctuating cryptocurrencies, this might not be possible.
The Texas Payday Law is phrased differently. Employers may use U.S. currency or written instruments negotiable on demand at full face value for U.S. currency or the electronic transfer of funds to pay wages. However, unlike a lot of other wage payment laws, the employee may agree in writing to receive part or all of his wages in another form. But, even if the employer and employee can agree to payment of wages in cryptocurrency, there’s still the Fair Labor Standards Act (“FLSA”) to contend with.
The Department of Labor (“DOL”) has permitted employers to pay employee wages with foreign currencies as long as FLSA thresholds have been met. This precedent might be applicable to cryptocurrency. So, for example, an employee in a state permitting (or at least not outright precluding) the payment of wages in cryptocurrency might be compensated by a combination of U.S. dollars and cryptocurrency. The employee could be paid in cash a sufficient amount of money to ensure the state and federal minimum wage requirements have been met, and everything above that could be paid in cryptocurrency (by agreement, of course).
The law always lags technology, so there are no firm answers at this time. Employers should be very cautious and seek legal counsel if they want to offer cryptocurrency as an alternative to payment by fiat currency. No one wants to cause the DOL to have kittens over the payment of wages.