Fidelity Investments recently announced that it would offer bitcoin as an investment option for employers using the firms’ 401(k) plans. Although the Department of Labor has warned against the policy, some employers are seriously considering cryptocurrency for investments and possibly even for regular compensation.

Tax issues abound, similar to those raised when employees are compensated with employee stock because cryptocurrency’s volatility can cause complications.

For example, the value of bitcoin when received could be substantially higher than when the coin is sold. If an employee sells a large amount of cryptocurrency at a loss, they could exceed the $3,000 cap on capital loss deductions and lose their money.

On the other hand, there is a benefit in the potential for an employee to sell their vested cryptocurrency to cover their tax liabilities (which is usually not the case with private stock).

Employers must also comply with the Wages and the Fair Labor Standards Act (FLSA), which regulates the national wages, salaries, and overtime requirements. The fluctuating value of cryptocurrency makes it difficult—if not impossible—to meet FLSA standards. This may result in the employers being required to provide a second, more consistent form of compensation.

Business owners have a lot to ruminate about when considering how to compensate their employees over the long term. If you need help analyzing your payroll and benefits options, give C&B a call for advice at 201.787.6542.