Bitcoin – the first decentralised, convertible cryptocurrency – has seen a marked rise in public use, with over 300 Bitcoin ATMs going live globally in the course of last year, nearly 50% of which were in North America, but almost a third were in Europe.
Some organisations in the US and Canada are also blazing a trail by introducing bitcoin as an employee benefit, or part of wages. For example, Wisconsin-based coffee company Colectivo and real-time internet marketing company Rockerbox are using a bitwage, which enables companies to offer bitcoin as a method of payroll. Adoption of bitcoin as a national currency was even touted as an alternative to the drachma if Greece exited the euro. Despite some high profile cyber attacks on bitcoin exchanges, bitcoin appears here to stay – for now at least.
Digital currencies such as bitcoin are clearly on the UK government’s radar. Earlier this year a report published by the Treasury alongside the chancellor’s March budget speech included responses to last year’s consultation on the benefits and risks of digital currency, as well as next steps. Currently, digital currency exchange is not regulated, although this looks set to change.
What are the implications for employers considering the use of bitcoin?
Broadly speaking, the UK government treats bitcoin like a foreign currency or single purpose voucher depending on the context. However, payment of employee’s wages is highly regulated by reference to sterling. For example, national minimum wage regulations currently require a minimum of £6.50 per hour to be paid to workers. On making employees redundant, companies must pay a statutory redundancy payment calculated by reference to a statutory figure for a week’s pay, which is currently capped at £475. The PAYE and national insurance tax regimes cover earnings – and questions remain as to how virtual currency earnings would be calculated by HMRC. These elements of managing payroll and social security would be extremely difficult to administer were bitcoin adopted by employers instead of sterling.
In practice, employers would likely need to impose an exchange rate mechanism between bitcoin and sterling to ensure that it was possible to calculate wages and tax bills by reference to the various statutory requirements. Although, even then, it would not be certain until the government legislated in this area that employers had properly discharged their statutory duties by doing so. This potentially necessary step could be highly beneficial to employees, who would have a capped floor on their earnings (so as to ensure they did not fall below legal minimums), but no ceiling if the value of their bitcoin salary were to rise based on the agreed exchange rate.
Perhaps, on a more practical level, we may see employers – particularly in the tech sector – introducing bitcoin or other forms of digital currencies as a form of employee benefit, rather than the more radical move of paying salaries in alternative currencies. Careful consideration will be needed in relation to the tax treatment of such benefits and the way in which the payment of the benefit is documented and administered.
Where next for the UK and digital currency?
The UK government has expressed support for such emerging technology, while emphasising the need to ensure that the risks of criminal use are minimised. At this stage, the government has opted for the drafting of best practice standards as opposed to legislation, although anti-money laundering regulation will now apply to digital currency exchanges.
Employers who shy away from using the decentralised bitcoin may be more enticed by the prospect of digital sterling. With both the Bank of England and private sector businesses investigating the possibility of developing bitcoin-esque technology to create a central bank-issued digital currency, there may come a point where employees could be paid a digital salary. In the meantime, innovative employers aiming to set themselves apart by offering payment or benefits in bitcoin should ensure that they have considered the wide range of legal and practical implications.
Hannah Netherton is a senior associate at Olswang
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