The People’s Bank of China (PBOC) released a statement on September 24 stating that all cryptocurrency-related transactions will be considered illegal and that foreign exchanges are prohibited from providing services to residents in China via the internet. The announcement – the latest in a long line of moves China has taken to strengthen the country’s firm stance against cryptocurrencies – should remind employers across the country that volatility is inevitable in this area.
Volatility is a feature, not a bug
Volatility in the cryptocurrency market is well documented, and many would actually argue that this volatility is a hallmark of cryptocurrency, rather than an outlier. Following the PBOC announcement, the price of Bitcoin fell more than 6% in 24 hours, while Ether fell 9%. While each cryptocurrency then recouped most of those losses a few days later, it was another roller coaster ride that many in this space got used to.
Indeed, since the inception of Bitcoin, the first cryptocurrency, there have been many parabolic highs and falls, with several core cryptocurrencies continuing to weather every storm and increase its market capitalization over time. Many factors have impacted the price of cryptocurrencies including sparkling markets, FOMO (Fear of Missing Out), FUD (Fear Uncertainty Doubt), media stories, tweets from well-known CEOs, popular skits late night television, and a seemingly constant topic – fear of regulation.
These recent events are a reminder to employers assessing whether to pay cryptocurrency salaries that unexpected external factors can have a significant impact on cryptocurrency volatility and could cause drastic fluctuations in value over short periods of time. For example, fluctuations in value can occur between the end of the pay period and when the payment reaches the employee’s digital wallet. Many payroll systems have a delay in the payroll cycle to discourage an employee trying to time the price of their favorite cryptocurrency. This could either make an employee feel like they are undercompensated or feel like they are receiving money for free. Alternatively, under circumstances of a significant increase in value, an employer may feel that they have paid considerably too much for the work performed or that an exponential price increase between the date of performance of the contract and the date payment resulted in an unforeseen event that changed the terms of an employment contract.
3 Considerations for Employers
Here are three key considerations you need to assess when deciding to pay your workers in cryptocurrency:
- Check the relevant laws on wages and hours: Employers should assess applicable federal and state laws. As a reminder, the Fair Labor Standards Act requires that minimum wages and overtime be paid “in cash or negotiable instruments payable at par”. In addition, some state laws require that employee compensation be paid in US dollars. This could be especially important for domestic employers who need to assess the monetary laws of multiple states. (As a reminder, our cryptocurrency and blockchain resource center includes a free salary payment survey in 50 states to assess cryptocurrency payment restrictions). Employers should consider paying basic compensation in US currency in amounts that meet federal, state, and local minimum wage, overtime, or wage-based exemptions requirements to avoid problems with compliance.
- Determine how to pay workers: An employer assessing whether to pay workers as part of its payroll or bonus program needs to determine whether workers will be paid (1) in their normal currency, with a designated portion of their salary quickly converted into crypto currency selected at time of exchange. rate; or (2) in the cryptocurrency itself. As a reminder, the IRS considers the cryptocurrency to be property, which means that the fair market value of the cryptocurrency is to be declared. Many employers may consider using a third-party service that specializes in crypto payroll processing to help manage this process.
- Update your policies: Any employer instituting a cryptocurrency payment program should seriously consider updating their policies. All employees participating in the program must provide their written authorization on a form clearly explaining the risks of participation. This documentation should be prepared in collaboration with a lawyer who has the necessary expertise in cryptography.
There are many potential benefits associated with cryptocurrency clearing. That being said, legal authority over various employment-related matters is murky at best, as many of the currently applicable laws were not designed to properly process digital currency payments. This will likely change over time as the adoption of cryptocurrency increases. In the meantime, however, businesses and HR professionals who are considering using cryptocurrency clearing will need to have a clear understanding of the factors that can contribute to cryptocurrency volatility, potential pitfalls associated with the supply. payment in Bitcoin or another cryptocurrency. , and the reasons why they venture into this space. As a best practice, you should consult with legal counsel when evaluating the various considerations related to cryptocurrency salary payments.