Bitcoin Payroll: Weighing the Pros and Cons for Small Businesses

Do you know how to pay employees? There are several methods, like checks, direct deposit, and … bitcoin? You have most likely heard of bitcoin or cryptocurrency while watching the news, reading a newspaper, or searching the internet. You may be asking yourself, What exactly is bitcoin? And, Is there such a thing as bitcoin payroll?

Bitcoin is not your average currency and can be difficult to comprehend. Learn about what bitcoin is, how to pay employees using bitcoin, and bitcoin-related regulations below.

What is bitcoin?

Bitcoin is a type of digital currency that is encrypted, anonymous, and likely untraceable. Bitcoins are like a digital version of a cash transaction. Assigning and transferring bitcoins is a very public process. Every bitcoin in existence is listed on a ledger for anyone to view.

Bitcoins have no set value. Global exchanges and how bitcoin is purchased and sold online affect its value. Bitcoin’s value really derives from people trusting, using, and accepting it as a currency. Unlike other forms of currency, government entities do not formally support bitcoin.

Since the introduction of bitcoin, the interest and value have fluctuated immensely. Bitcoins are generally considered a digital asset versus a currency, like cash.

Because bitcoin is still developing, it is usually only accepted as payment at a few places. You can use bitcoin for legitimate online transactions (e.g., or you can trade it online.

Over the past few years, more purchases, payments, and exchanges have become possible with bitcoin. A cloud- or app-based bitcoin wallet holds information about your bitcoin account.

Using bitcoin for payroll

The interest in using bitcoin for payroll grows more each day. Some employers might be searching for innovative monetary solutions versus using cash, checks, or even direct deposit service to stand out.

Some employers use bitcoin as a valid payment solution. Over time, bitcoin has evolved into a real interest and option for business owners.

Bitcoin payroll options

Some options you may consider for bitcoin payroll include:

  • Purely bitcoin-based payroll
  • Offering a traditional payroll currency (e.g., cash) which employees can convert to bitcoin
  • Using payroll services to combine bitcoin payroll with other payment types

Bitcoin payroll pros and cons

Employers may be skeptical of bitcoin. Weigh the pros and cons before deciding to use bitcoin payroll.


Bitcoin’s acceptance increases as it becomes more valuable and grabs more attention. The more businesses on board with bitcoin, the more likely it will become a regularly used currency.

If you decide to use bitcoin for payroll, consider offering a purely bitcoin-based payroll to make it less challenging. Although bitcoin is becoming more popular, your employees may not want to get paid with bitcoin. Consider your employees’ preferences before implementing bitcoin payroll.


Availability for bitcoins is increasing. Although options are limited compared to other currencies, bitcoin ATMs are available in almost every state. Bitcoin ATMs allow people to exchange bitcoin for cash. There are over 30,000 bitcoin ATMs nationwide.

Employers must take bitcoin availability into account before offering bitcoin as a payment method.


Many employers may question the long-term use of bitcoin. It has not been around nearly as long as other payment methods and may bring some concern to first-time bitcoin users. The understanding of bitcoin by employers, and even the government, may progress as technology and framework further develop.

It can be challenging to use bitcoin payroll since values, tax rates, and regulations are developing every day.


Using bitcoin payroll may be risky due to fluctuating bitcoin values. Employers may not be compliant with minimum wage laws if a bitcoin value drops. For example, the price of a single bitcoin could go from $500 to $50 in one day. Employers may risk violating minimum wage laws when a bitcoin value decreases.

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Bitcoin IRS requirements

Bitcoin may seem like an innovative way to pay your employees. However, you must keep up with federal and state laws when offering bitcoin payroll.

The IRS considers bitcoin as “virtual currency” payroll and treats it as property. According to the IRS, bitcoin value will be subject to investment or property tax rates instead of true wages. The IRS specifically states employers must do the following regarding bitcoin:

  • Report wages on Form W-2
  • Contractors paid with virtual currency must receive IRS Form 1099
  • Any bitcoin payments require information reporting like any other payment

Since bitcoin fluctuates so frequently, you may risk breaking FLSA requirements with bitcoin if the value goes below the minimum wage. Make sure the bitcoin value does not go below your state’s minimum wage requirement. Check with your state for additional information regarding minimum wage and bitcoin laws.

If you want to involve bitcoin when paying employees, consider offering bitcoin as bonus payments before fully committing to bitcoin payroll.

Need an efficient way to keep track of employee wages? Let Patriot’s online payroll software save you time. It uses a simple three-step process to make payroll quick to complete. Try it for free today!

This article was updated from its original publication date of 8/25/2014.

This is not intended as legal advice; for more information, please click here.

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