Employment Laws

 Paying Employees with Something Other Than Dollars

Some employers, as an alternative to furloughs and lay-offs, have recently begun to think creatively about how they compensate employees.  To supplement wages and salaries paid in dollars, some employers have considered paying employees with gift certificates, store credits, food, goods, services, or a local currency.  There are a few things to acknowledge with regard to the payment of employees in forms other than dollars.

First of all, minimum wage, at the very least, probably needs to be paid in U.S. dollars, except under limited circumstances where board, lodging, and food can be credited against wages, as I’ll describe below.  Federal law provides that “payment of the prescribed wages” (which I take to mean the legally required minimum wages) must be “in cash or negotiable instrument payable at par,”1 (which I take to mean cash or something immediately convertible to cash, such as a check or direct deposit). The definition of “cash,” however, is not clear, but I suspect that small-scale local and complementary currencies might not be acceptable.  The regulations go on to say that “[s]crip, tokens, credit cards, ‘dope checks,’ coupons, and similar devices are not proper mediums of payment under the [Fair Labor Standards Act].”2 One reason for the adoption of this law is that some employers have tried to pay their employees in coupons redeemable only at the “company store.”

The irony of this, of course, is that dollars themselves were created to act as coupons redeemable in gold.  President Nixon nixed that in 1971, officially ending our right to redeem dollars for gold.  Of course, today everyone uses dollars so much that, even without official backing, they are redeemable in practically anything.  Nevertheless, there remains a need for more research into what is meant in labor codes by “cash” versus “scrip” or “coupon.”  I would argue that a local currency that reaches a high level of circulation – meaning it can be redeemed at hundreds or thousands of independent businesses, and not just at the “company store” – should be considered “cash” and allowed to be used for at least some portion of legally prescribed wages.3

Not all minimum wages must be paid in cash, however, as the Fair Labor Standards Act does allow employers, under limited circumstances, to deduct from prescribed wages “the ‘reasonable cost,’ or ‘fair value’ […] of furnishing such employee with board, lodging, or other facilities.”4 State and federal wage orders and regulations set limits on the value that an employer can claim for certain meals, and also set minimum standards for when, where, and how such lodging, food, and facilities are provided.

When an employer pays wages and salaries partially with something other than cash, such payments or benefits are generally taxable at their fair market value as employment income, unless they are excludable from taxation.  IRS Publication 15-B5 examines the varieties of fringe benefits employers commonly provide to employees, and lists the types of benefits that are excludable, which includes things like contributions toward health savings accounts, the use of on-site athletic facilities, certain meals, certain transportation credits, and “de minimus fringe benefits,” such as donuts, occasional personal use of the office copier machine, and small non-cash “holiday gifts.”  (Note that it’s not clear what a holiday is and how far an employer could go in declaring many occasions to be special.)

Non-cash benefits or local currency payments will need to be tracked and given a fair market value not only for the purposes of deducting payroll taxes, but also for the purpose of calculating overtime wages.  If an employer pays an employee wages partially in the national currency and partially in a local currency (as was done in the city of Worgl, Austria during the depression6) all payments must be added together for the purposes of calculating overtime wages.  It appears, although it’s hard to be entirely certain, that overtime wages may be paid partially in a local currency, in the same way that they can also be paid partially in board, lodging, and other facilities.  The Code of Federal Regulations provides:

 “It should not be assumed that […] all overtime compensation must be paid in cash and may not be paid in board, lodging, or other facilities. There appears to be no evidence in either the statute or its legislative history which demonstrates the intention to provide one rule for the payment of the minimum wage and another rule for the payment of overtime compensation.”7

research neededHowever, more research is necessary to determine how courts or departments of labor have treated situations where an employer sought to pay overtime wages with a benefit other than dollars.

  1. 29 C.F.R. 531.27(a)
  2. 29 C.F.R. 531.34
  3. The definitions of money, legal tender, and current money are discussed in Chapter 5 as well as here.
  4. 29 C.F.R. 531.27(a)
  5. IRS Publication 15-B, “Employers Tax Guide to Fringe Benefits
  6. See “Comment on the Wörgl Experiment with Community Currency and Demurrage,” by Thomas H. Greco, Jr.  May 9, 2002
  7. 29 C.F.R. 531.27(b)