March 30, 2022

Authors: Kevin Stenner and Mihai Beschea

If you have been following the word of sports, you have likely heard of many brand-name athletes taking a portion of their salary in a crypto currency. Another interesting recent example is the major of New York City, Eric Adams, who recently announced he would receive compensation in cryptocurrency. Although this type of compensation agreement is still unique and new in the workplace, it is becoming more mainstream and carries with it several advantages over fiat currency.

These advantages include ease and speed of transfers, avoiding exchange rates when dealing with increasingly international workforces, simplifying the process for employers to access the global workforce, and allowing employees to receive payment in a currency that is less susceptible to inflation. Further, it cuts out intermediary financial institutions and any fees associated with traditional banking and there is a potential for windfall gains with this investment.

Legal Challenges to Paying Employment Earnings in Crypto

However, there are also legal challenges to paying employment earnings in crypto and these will need to be considered and addressed before an employer makes the jump to paying employment earnings in crypto.

This blog will provide a basic overview of three issues that employers in Alberta may face in paying their local employees in crypto. However, and although the issues will be similar in many jurisdictions, there are endless nuances and options for creativity when addressing these issues and you should consult with a lawyer with knowledge of your jurisdiction.

Minimum Wage and Crypto Currency

First, in Alberta “an employer must pay an employee at a wage rate that is at least the minimum wage established by regulation.”[1] This minimum wage is currently $15 per hour in Alberta. It seems simple enough to pay an employee the equivalent of their fiat wage in a crypto currency; but this could be problematic. The problem is with the volatility of the crypto market. If the price of the crypto suddenly fell, there is a real risk that this will have caused the employer to have paid the employee less than minimum wage. This would put the employer off-side employment standards legislation and open them up to unnecessary risk.

However, this issue could likely be overcome by paying the employee minimum wage in Canadian dollars with the remainder of the employee’s compensation coming in the form of a discretionary bonus paid in crypto. In addition, employers should consider using stable crypto coins or less volatile crypto coins when using them to compensate employees.

Crypto Earnings Must Be Paid in Canadian Dollars

Second, employers in Alberta must pay employees in Canadian dollars:

An employee’s earnings must be paid by an employer in Canadian currency

• (a)    in cash or by cheque, bill of exchange or order to pay, payable on demand, drawn on an authorized financial institution, or
• (b)    if the employer so chooses, by direct deposit to the employee’s account in an authorized financial institution of the employee’s choice.[2]

The Alberta Employment Standards Code defines “earnings” as “wages, overtime pay, vacation pay, general holiday pay and termination pay.”[3] Wages are defined as:

•  “wages” includes salary, pay, money paid for time off instead of overtime pay, commission or remuneration for work, however calculated, but does not include
• (ii)    a payment made as a gift or bonus that is dependent on the discretion of an employer and that is not related to hours of work, production or efficiency [emphasis added].[4]

Based on the above definitions, discretionary bonuses are not wages and so do not have to be paid in Canadian dollars. Accordingly, an employee can be paid a certain amount in Canadian dollars with a discretionary bonus paid in crypto.

From an employee perspective, taking a portion of your salary in cryptocurrency, such as a bonus, may be the safest way to transition into this pay scheme. The volatile nature of cryptocurrencies might result in too much risk for employees with respect to their base salary. However, when it comes to bonus compensation it may be worth taking that risk. Given that this is still new technology, it may be prudent for employees to only accept payment in crypto currencies for the part of their salary they can afford to lose.

Crypto Earnings Tax and Deductions

Third, just because an employee is being paid a portion of their compensation in crypto, neither they nor the employer are exempt from paying tax on that amount in Canadian dollars.  Employers will still be responsible for all source deductions in Canadian dollars and employees will still be responsible for reporting employment income in Canadian dollars. Although this creates an administrative challenge, it can be overcome with proper planning. We would also suggest  consulting with a tax professional on these issues.

In addition, if an employee is being paid in crypto, an employer will need to determine how to pay into that employee’s benefit program. This may result in the employee’s base pay in Canadian dollars being raised, with a corresponding drop in the crypto payment, so that the deductions can come from the employee’s fiat salary.

Base Salary in Canadian Dollars – Bonuses in Crypto

There is no question that challenges exist to employees being paid in crypto, but the transition to crypto payments is on the horizon (and already here in some cases) .Although the hurdles to paying employees in crypto will vary by jurisdiction, in Alberta, employers should consider paying an employee a base salary in Canadian dollars with discretionary bonuses being paid in crypto.

This article is not financial advice.

[1] Employment Standards Code, RSA 2000, c E-9 at s 8.1

[2] Ibid at s 11.

[3] Ibid at s 1(1)(j).

[4] Ibid at s 1(1)(x)(ii).