Thursday, July 24, 2014

Are Bitcoins the Future of Payroll?

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The virtual currency known as Bitcoins has appeared frequently in the news in recent months. In the past two years, companies such as BitPay, Wagepoint, and BitWage, have popped up offering their services as Bitcoin Payroll Service Providers. So what impact could this have on payroll?

For tax purposes, the IRS says that virtual currency is property. State laws generally require employers to pay employees in cash or the equivalent. A check drawn on U.S. dollars is the equivalent. Bitcoins are not. Most states go so far as to specify the methods of wage payment, such as cash, checks, direct deposit, or payroll card. As long as Bitcoins are not included in that list it is unacceptable to pay employees directly in Bitcoins.

If an employee does agree to be paid in Bitcoins they must first be paid in cash and then buy Bitcoins from their employer. The process is similar to being paid in cash and then converting the pay into stock options. You would not have money anymore, but you would have a commodity that is worth money. Just like the stock market goes up and down, so does the value of Bitcoins.

The IRS is not accepting Bitcoins at the moment so taxes still must be paid in U.S. dollars. Payroll departments will continue to remit employees’ insurance premiums, child support, and other payments in U.S. dollars also. The number of businesses accepting Bitcoins for payment is reportedly increasing. This means an Accounts Payable department may be more likely to be paying in Bitcoins than a Payroll department.

As a virtual currency, Bitcoins do not exist physically. It is an entirely electronic exchange. Currency is usually associated with nations. U.S. dollars, Canadian dollars, and Mexican pesos are all different kinds of currencies. Bitcoins on the other hand, are not associated with any particular nation. Only time will tell if the virtual currency will really grab hold and enter widespread use. It is unlikely that most payroll professionals will stop paying employees in U.S. dollars and convert everything to Bitcoins anytime soon. Check back with Pay News Now for more interesting payroll news.