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Bitcoin Sidesteps into the Workplace

By Allen Smith  3/3/2014
 
Bitcoin has appeared to be on the ropes since the Feb. 28, 2014, collapse of Mt. Gox, an exchange for the digital currency that is not issued by any government. But suppose Bitcoin survives—and even thrives—as the launch of the first Bitcoin exchange in New York suggests. Could employees asking to be paid in bitcoins be that far behind? In some cases it’s already happening.

Bitcoin Compensation

Tech in Motion polled 847 IT professionals about whether they would be interested in accepting bitcoins as payment for work, and more than half—51 percent—said yes, and 18 percent said maybe.

And on Jan.13, 2014, BitPay, the largest payment processor for virtual currencies, announced a beta release of its Bitcoin payroll application programming interface (API) for employers, which would allow them to provide  their W-2 workers with a portion of their net pay in bitcoins.

“For the longest time the hard question was, ‘How do I buy Bitcoin?’ ” said Tony Gallippi, co-founder and CEO of BitPay. “Now the answer is easy: Ask your employer.”

BitPay developed the Bitcoin payroll API for its own use at the request of its 20 employees and has been using it with its payroll provider for more than six months. All BitPay employees receive some of their net pay in bitcoins. Four, including Gallippi, receive 100 percent of their net pay in this currency.

Chief Financial Officer Bryan Krohn said: “This also clarifies the tax question around Bitcoin. Because all payroll and withholding taxes are taken out first from the employee’s gross income, bitcoins can be sent from the net pay tax-free, and the employer’s gross income reporting to the [Internal Revenue Service] IRS remains unchanged.”

Items on the black market have been bought with bitcoins, leading some to wonder if there’s something shady about the currency. But ordinary money can be used to buy things on the black market, too, noted Joseph Lazzarotti, an attorney in Jackson Lewis’ Morristown, N.J., office.

Wiped Mobile Devices

Lazzarotti said employers might have other Bitcoin concerns, apart from using it to pay workers who prefer this currency. 

Because bitcoins can be stored in virtual wallets on mobile devices, he explained, employees could store them on a company mobile device, and if the device is lost and wiped clean, employees would have to start from scratch with their bitcoins unless they previously backed up their online wallets.

Lazzarotti suggested that companies could clarify in policies that it’s up to employees to back up personal items, such as bitcoins, on their mobile devices, though it’s probably too early at this stage to single out the digital currency.

Passing Fad?

As for providing some compensation in bitcoins, he said there are still outstanding tax questions, despite Krohn’s comment.

The IRS sought to resolve some of these questions in a March 25, 2014, notice. The notice said virtual currency like Bitcoin is to be treated as property for U.S. federal tax purposes. And it added that wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.

Another issue is wage and hour compliance. Presumably, businesses paying workers in bitcoins would have to meet minimum-wage and overtime obligations in dollars and cents to ensure compliance, making it more likely that bitcoins would be used to pay bonuses.

And the volatility of Bitcoin’s value has some wondering whether the currency will just die out. Lazzarotti recommends that employers wait and see with Bitcoin.

“For the vast majority, it’s not on their radar and they do not need to be concerned about this,” he said.

Even so, on the Workplace Privacy Data Management & Security Report blog, he reported: “In the four months between July and December 2013, Bitcoin usage has increased by over 75 percent—from about 1,700 transactions per hour to over 3,000. Over the same period, the market value of bitcoins in circulation increased more than tenfold from about $1.1 billion to $12.6 billion,” suggesting the currency might, despite a rough start this year, have legs.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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