Which came first, the chicken or the egg? It’s an ancient paradox that has stumped humans for generations. But it is also one of the questions many crypto-enthusiasts are asking one another.
Business owners across the state of New Jersey want to be ready in case cryptocurrency goes mainstream, but many of them are too wary of crypto to actively incorporate it into their business plans.
While much of the news about the business world’s embrace of crypto focuses on retailers, Dressel/Malikschmitt is fielding a growing number of inquiries from business owners who want to know if they should start planning for crypto compensation. Should crypto be accepted as a form of payment in business-to-business transactions? Can employers offer it to employees as part of their compensation package?
While our team cannot predict the future, or offer business advice, we can and do serve as legal counsel for many people who consider themselves crypto-curious. We outline the legal risks various uses of crypto or blockchain technology present, and advise clients on what they will need to do to comply with various government regulations that may apply differently to crypto transactions.
Take, for example, the decision of New York City Mayor Eric Adams to convert his first three paychecks into cryptocurrency. He announced during his campaign that he wanted to be paid in Bitcoin to send the message that NYC is crypto friendly. However, he ended up converting his paycheck into cryptocurrency himself. This is because “due to U.S. Department of Labor regulations, New York City cannot pay employees in cryptocurrency.”
The press release announcing this development didn’t go into the details, but we suspect the issue is that the U.S. Department of Labor (DOL) has not said whether cryptocurrency meets its definition of a currency.
In addition, though it is not an issue for Mayor Adams, the volatile nature of crypto means a payment one day could theoretically shortchange a worker if the value of their crypto paycheck drops so as to fall below federal or state minimum wage requirements. There has been some discussion of this as Mayor Adams is estimated to have lost over $5,000 in converting his paychecks due to a drop in crypto prices.
Beyond wage and hour law worries, there are also concerns about how businesses and workers should be taxed on crypto compensation. Although the IRS currently considers crypto to be property, and taxes it as such, the agency has issued guidance stating that “the fair market value of virtual currency paid as wages, measured in U.S. dollars at the date of receipt, is subject to Federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2”.
Until the feds clean up the contradictions in these regulations, few employers and employees are going to demand the right to crypto compensation. But until more employers and employees ask for that clarity, the feds are unlikely to act.
In the meantime, businesses must make decisions about compensation that make sense for them and their employees, but they don’t have to do so alone. Dressel/Malikschmitt partners Andrew Dressel and Chris Malikschmitt have become the go-to advisors for many business owners who have legal questions about cryptocurrency. They were two of the first attorneys in the state of New Jersey to have successfully represented crypto and blockchain clients in litigation, and they also have a lot of experience advising businesses on complex topics.