Cryptocurrencies such as Bitcoin are very much “in vogue”. “Currencies” like bitcoin are maintained by computer-based algorithms, rather than the government or a central bank. They are so popular that it’s been reported on in the past that employees have been rejecting Canadian dollar salaries for cryptocurrencies such as Bitcoin.
That said, there are not many financial benefits to an employer for paying employees in bitcoin, but there may be recruitment benefits. Employees can be attracted by the possibility to receiving wages in Bitcoins. Bitcoins offer users anonymity, low transaction fees, and greater freedom from freezes or interruptions that banks and governments could place on ordinary currencies However, there are pitfalls.
Firstly, employers need to ensure that employees are paid wages that will be recognized by Employment Standards Legislation. In Ontario, ‘wages’ are defined under the Employment Standards Act, 2000 as ‘a monetary remuneration for work performed,’ and the Currency Act states the monetary unit of Canada is the dollar. The Canada Labour Code’s definition of wages is more expansive and includes ‘every form of remuneration.’ Finally, the minimum wage rate for Ontario and most other provinces is expressed in terms of dollars an hour. While the issue has never been before the courts, employers may risk being found in violation of minimum wage legislation if employees are paid the majority of their wage in Bitcoin.
Second, employees may face serious tax consequences for paying employees in Bitcoin. The C.R.A. considers payment of wages in bitcoins to be a payment in goods — “a barter transaction.” When a person provides bartered goods or services which would normally be sold by him in the course of his business or profession, the value of those services must be included in income. At the same time, if a bitcoin increases in value after the company paid it to an employee, the increase may be taxable as a capital gain.
Thirdly, Bitcoin value has been notoriously volatile. In 2013, Bitcoin prices fluctuated between $100 to $1,240 and has since moved between $230 and $630 often changing 15% more in value within a month. Employees paid in Bitcoins may end up being displeased with their eventual compensation.
In the end, it’s not entirely clear that the benefits of paying employees in bitcoin outweigh the risks. It may be best for employers to treat bitcoins like bonuses or stock options until the legal and economic uncertainty surrounding bitcoins wanes—just a “bit”.
Written with the assistance of Danny Urquhart, articling student.