The foreseeable need for Human Resources and Lawyers
Are we breaking any laws in the Cryptocurrency space by paying employees in Bitcoin, Ethereum, or any other type of digital asset? For most people, this hasn’t even crossed their minds, especially if they are being paid in BTC which is passing $8,000 as I type this. For companies already paying salaries in Bitcoin, I am assuming, or at least hoping, that they have contacted an employment lawyer for proper consulting or using an adequate payroll API that handles most of those issues. Navigating employment laws around wage issues in the United States is hard enough already with fiat currency, overtime rules, exempt and nonexempt employees, contractual workers and the many other ever-changing laws.
I manage two separate HR departments for two aviation companies in Phoenix Arizona. This year we have held steady around 120 employees between both entities at any given time despite the fact that the aviation industry is a revolving door for pilots at the moment. Navigating the tides of wage and hour laws is a continuous practice throughout your HR career as you learn the law and how it plays out in a real-life work environment. We read state statutes and federal law and understand it at face value except for all of the vagueness left open for interpretation which governments are notorious for doing. This isn’t always the case though, and business owners and HR professionals alike understand that unique circumstances will rear their heads and the complexity of gray areas that you could never have imagined coming to fruition will do so. Managing hard assets can be tough, but they never come close to managing humans and their emotions and decisions around the individuality of each one. Employment laws can be tricky and at times become hugely muddied depending on the industry, state or county you are in as they vary massively. Even though we know that, for the most part, Federal law trumps state and county legislative due to the Supremacy Clause that isn’t always the case either. For this reason, it is imperative to know if what your practicing is legal or not before you see yourself on the wrong end of an employment case which more often than not can tank your operation.
Remember that at the end of the day you’re responsible for all of your team members, and your customers, and that means you are responsible for knowing if you are operating in the green, grey, or red. It can be amusing looking back at some of the complex situations that have come up and how they vary in separate industries. An example for us would be the FAA as another entity that also gets to input regulations and practices for safety that add an entirely different layer of mud to trudge through. For instance we know that X absolutely has to happen inside of the United States but because we are in Arizona Z contradicts that and because Joey’s conversation with management during the hiring process we now need to follow Q and R and we should also watch out for Jared’s situation because of an incident regarding his nephews dog eating cake on a holiday, which we also hope he is genuinely exempt or else we may be going back through payroll records reconciling overtime pay… You may be laughing at that, but I have been apart of some complicated issues where the law contradicted itself in many areas, and we had to spend countless hours with legal teams dissecting interpretations of case law. Before we begin, I am not a lawyer, CPA, or tax professional so none of this is my legal advice to you, do your research and contact a licensed professional for any legal advice you may need. Continuing as we sift through significant employment law and paying wages, I wanted to touch on a few issues, but we should take a look at Federal Law first.
Wage Definitions and Taxes
First off let’s look and what the DOL says about currency payments. In Title 29 Labor, specifically CFR §531.27 Payment in cash or its equivalent required. It is written that (a) Standing alone, sections 6 and 7 of the Act require payments of the prescribed wages, including overtime compensation, in cash or negotiable instrument payable at par. This negotiable instrument payable at par is what probably gives us the ability to pay salaries in Bitcoin or any other digital asset. Without this wordage, we would more than likely have to wait until future litigation and new law or policy created around that litigation. There are caveats for this though; this does not mean you can just pay someone with free lodging, or in doll hairs instead of dollars which can be read further into 531.27. Second, regardless of employee classifications, you will need to pay federal income tax on all employee salaries if you are the employer. FICA, FUTA, and any self-employment tax will still need to be paid, and there will never be a way around this. Buying Bitcoins with your cash, however, is different. The IRS has come out and said that they are treating virtual currency as property, which also means any gains made from the sale of personal property are subject to capital gains tax and this changes with the length of time held. It is also important to know that regardless of employers or employees, buying bitcoin and exchanging them back to USD will result in taxation and it is essential to understand those regulations and requirements. An interesting video on YouTube with some useful information regarding this subject is from David Hay, and it can be watched here.
Exempt or Nonexempt
Next, you need to rule out rather someone is entitled to overtime or not, as well as accurately classifying your team members. A high number of employee-related court cases stem from not having employees classified correctly. Exempt employees, mainly managers, executives, and highly specialized professionals, are exempt and are not entitled to overtime. Exempt, defined by the FLSA is: to be exempt an employee must (a) be paid at least $23,600 per year ($455 per week), and (b) be paid on a salary basis, and also perform exempt job duties. Most employees must meet all three “tests” to be exempt. The exempt job duties are essential as those are the specifics that need to be met. A general rule of thumb for exempt employees, aside from salary and how the salary is paid, is that an employee that has any weight in hiring, firing, promotion, payroll actions, or making decisions that directly affect the company will most likely fall under this category, i.e., management. Nonexempt employees are entitled to overtime, and by overtime, we mean any minute worked past 40 hours in a seven day week must be paid at a rate not less than one and one-half times the regular rate of pay. Remember, paying someone on a salary basis does not make them exempt, that is only half of the equation to meet the exempt qualifications. If you are paying nonexempt employees in Bitcoin, make sure they receive any overtime which they are legally required to receive
Minimum Wage and Back Pay
Paying employees in bitcoin must, in the United States, come out to more than the minimum wage which is currently at $7.25 per hour effective July 24, 2009. This just means everywhere in the United States, hourly nonexempt employees must be paid more than $7.25 per hour of work, but this varies from state to state. In Arizona as of July 1st, 2017 the minimum wage went from $8.05 to $10.00 and in Seattle, it is currently at $13.00 and will change on January 1st to $14.00. Make sure you check your state requirements to pay our the appropriate amount. Paying anything below the minimum wage will result in a nasty path in the future for you as the employer as penalties for failing to do so is steep and personal. Another issue that will be tricky in the future is back paying any employees for payroll mistakes revolving around exempt or nonexempt misclassifications. Let’s use a real-life example. You hire Suzy and place her on Salary and neither you or her, realizes that just because she is on salary does not make her exempt. She works for you for an entire year at 50 hours per week, that is 20 hours every bi-weekly pay period over 40 hour work week needed to be paid out in overtime. You get audited, fined, and have to go back and pay Suzy overtime for every hour over 40 hours. If doing so in Bitcoin, you will now need to go back and do so at the rate of each pay period which she was paid in. What a massive headache. It hurts my head thinking about it. This happens quite often with fiat currency and doing so in digital currency adds an extra layer of complexity for employers paying employees this way.
This type of labor is how I see a vast majority of remote programming and payment being transacted. For independent contractors, it is still taxable, and self-employment tax rules apply, and employers will need to issue a 1099 form. Also, something to keep in mind, the minimum wage law does not apply to contractual work. The reason for this is because contract workers are not actual employees of that company. Instead, they are outside freelancers or consultants doing outside jobs for the company. With most contract work, pay decisions are usually negotiated upfront based on the completion of a project followed by a handshake or contractual signature. If one of either party does not like the pay opportunity, they just decline the work. Other standard regulations and laws may also differ with 1099 contract workers, and this is another reason to explore your options and operating rights while hiring and paying contractors.
Summary and Conclusion
Be careful how you hire workers in the crypto space and pay attention to how you pay them and if doing so already, look into Bitcoin API services such as Bitwage or other solutions like Bitpay. I have heard from some individuals involved in ICO’s how they are hiring and paying certain people, and it makes my heart sink into my stomach. This mentality could just be my HR and Management background working day and night to keep companies safe through policy and practice but either way. The main complex issues around paying employees or workers in Bitcoin revolve around conversions back to USD, volatile market fluctuations, and taxes around capital gains/losses since virtual currency is considered property. Saying all of that, there is still safe and legal employment practices that need to be followed. There is this unsaid, underlying culture right now with ICO’s and digital currency companies that merely because everyone is extremely excited and genuinely trying to be apart of groundbreaking technology, that they will work and do whatever for digital assets to be apart of the movement. That is incredible, and I love that, I honestly do. However, that does not make your employment practices legal just because we are at the forefront of bleeding edge blockchain technology changing the future as we know it. It is always the best option to do things legally and practically. If it doesn’t make sense, don’t do it and if it does make sense, make sure it is legal. It is that simple. I have spoken to a few lawyers I work with, and there hasn’t been any significant litigation or regulation to come forth yet regarding this space, but we would be silly to think it’s not happening sooner than later. Again, this conversation is mainly directed to ICO’s and companies inside of the United States wherein 2017 you can sue an employer for practically anything in the world and where EEOC attorneys are hungry lions waiting to take just about any case handed to them, trust me.
Everyone, thank you for reading this food for thought and if you enjoyed it, please clap once or twice or let me know in a comment. Also, follow me on Medium and Twitter for future content. If you, or someone you know, is involved in employment in this space make sure everyone has measured twice so they can cut only once, maybe tag them in this or send it to them. As I mentioned above, I am not a lawyer, and this is not legal advice so feel free to add your input and start a dialogue, I would enjoy that. At the end of the day, my goal is for everyone to be protected legally and for workers to be treated fairly. If your ICO, digital currency exchange, or digital asset company is looking for remote HR work or HR contractual consulting around specific issues, email me at Nickabeaird@gmail.com, and I would love to get involved.