As Crypto Enters the Compensation World, Employers Should Walk Before Running
The following article was first posted on the Carmody Torrance Sandak & Hennessey LLP’s Labor and Employment blog and is reposted here with permission.
Recent guidance from the U.S. Department of Labor and other developments in the public and private sectors signal that the use of cryptocurrency is starting to gain a substantial foothold in employment and compensation.
For employers of all sizes and stripes, this trend should call for both excitement and caution.
First, last month the DOL’s Employee Benefits Security Administration published a compliance assistance document which acknowledged that in recent months firms have been marketing cryptocurrency investments to 401(k) plans as potential investment options.
In its compliance assistance, the DOL reminded employers of their core fiduciary duties under the Employee Retirement Income Security Act to offer only responsible investment options to plan participants.
As “highly speculative” investments with recordkeeping challenges, among other concerns, the DOL warned employers to exercise extreme caution in offering cryptocurrency investment options to their 401(k) plan participants.
Around the same time last month, the Biden Administration issued an executive order directing the federal government to take a variety of detailed steps to ensure the responsible development of digital assets in the U.S., including research and development efforts into the potential deployment of a U.S. central bank digital currency similar to those being developed by other foreign governments.
In issuing this order, the administration recognized the increasing significance of cryptocurrency in the U.S. and global economies, noting that in November 2021, non‑state issued digital assets had reached a combined market capitalization of $3 trillion.
With this quickly developing backdrop, several high-profile individuals, including the mayors of New York City and Miami, and a number of professional athletes, have announced in recent months that they had arranged to either accept or convert their salaries into Bitcoin and other cryptocurrencies.
These developments have excited many entrepreneurs and entrepreneurial-minded employees.
In light of this trend, employers may be tempted to offer present or future wages to employees or consultants in digital assets.
Some employers are already doing so with the assistance of like-minded service providers, like Bitwage.
However, such businesses should be mindful of federal, state, and local wage and hour laws that generally do not recognize cryptocurrency at this point for purposes of minimum wage and overtime pay.
Employers that already meet legal pay requirements for their employees in U.S. dollars, but may be interested in integrating cryptocurrency into incentive or bonus plans (such as with stock option plans), may soon be inundated with a world of opportunities to evolve their compensation structures.
But as laws and regulations begin to catch up with capital markets and the private sector, employers are well-advised to walk, before they run, in this complex and fast-developing area.
About the authors: Timothy Klimpl is an attorney with experience providing ERISA advice.
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