Benefits of Paying Independent Contractors in Cryptocurrency: Challenges and Solutions

What
defines
an
independent
contractor,
and
how
does
it
affect
your
work
and
finances
in
today’s
digital
economy? 

From
legal
classifications
to
tax
responsibilities
and
the
intriguing
new
trend
of
getting
paid
in
cryptocurrency,
this
article
offers
a
no-nonsense
guide
to
being
or
employing
independent
contractors.

Get
ready
to
gain
valuable
insights
into
the
independent
contractor
landscape,
including
practical
tips
to
navigate
these
professional
waters
seamlessly.

Key
Takeaways

• 
  The
  IRS
  and
  FLSA
  categorize
  independent
  contractors
  
  based
  on
  the
  degree
  of
  control
  exerted
  on
  the
  worker,
  focusing
  on
  the
  behavioral
  and
  economic
  aspects
  of
  the
  working
  relationship
  to
  ensure
  correct
  classification
  and
  prevent
  misclassification.

• 
  Cryptocurrency
  payments
  to
  independent
  contractors
  
  are
  becoming
  popular
  due
  to
  benefits
  such
  as
  reduced
  transaction
  fees
  and
  faster
  processing,
  but
  they
  come
  with
  challenges
  like
  volatility
  and
  regulatory
  uncertainty.

• 
  Misclassification
  of
  workers
  
  can
  have
  severe
  legal
  and
  financial
  consequences
  for
  employers;
  identifying
  red
  flags
  and
  implementing
  corrective
  measures
  are
  crucial
  for
  compliance
  and
  avoiding
  liabilities.

Defining
the
Independent
Contractor

 

 

The
term
‘independent
contractor’
conjures
images
of
autonomy
and
freedom—attributes
central
to
the
nature
of
these
self-reliant
professionals. 

Navigating
through
their
work
life
as
self
employed
individuals,
with
self-employment
tax
liabilities,
wielding
their
tools
of
the
trade,
and
issuing
invoices
for
services
rendered,
independent
contractors
are
the
epitome
of
self-employment. 

Yet,
what
truly
anchors
their
independent
status
is
not
merely
the
tools
they
wield
or
the
invoices
they
issue,
but
the
degree
of
control
they
retain—or
relinquish—in
their
professional
engagements.

The
relationship
between
an
independent
contractor
and
their
client
or
potential
employer
can
be
likened
to
walking
a
tightrope. 

This
comparison
emphasizes
the
delicate
equilibrium
of
control:
clients
should
only
dictate
the
work’s
end
result,
while
the
contractors
should
have
the
freedom
to
choose
their
work
methods
and
procedures. 

It
is
this
nuanced
balancing
act
that
determines
their
independent
contractor
status
and
defines
the
independent
contractor
agreement.

The
Essence
of
Control
in
Determining
Independent
Contractor
Status

The
IRS
casts
a
discerning
eye
on
the
nature
of
control
within
the
independent
contractor
relationship.
When
the
question
arises
whether
a
worker
is
an
employee
or
an
independent,
the
answer
often
lies
in
the
degree
of
behavioral
control
exerted
over
the
worker. 

The
IRS’s
definition
of
an
employee
stretches
to
include
remote
workers
if
the
employer
holds
the
reins
on
what
will
be
done
and
how
it
will
be
accomplished. 

Such
a
level
of
control
could
transform
an
independent
contractor
into
what
the
IRS
considers
an
employee,
even
if
their
desk
isn’t
physically
anchored
within
the
employer’s
business
premises.

But
control
is
no
single-factor
determinant;
it’s
the
entirety
of
the
relationship
that
comes
under
scrutiny. 

A
pervasive
presence
of
company
control
over
when,
where,
and
how
the
work
is
performed
may
point
to
a
misclassification,
signaling
that
the
worker
is
economically
dependent
on
the
employer
and
not
truly
in
command
of
an
independent
business. 

The
right
to
direct
and
control,
therefore,
becomes
a
focal
point
in
determining
the
employment
status
and
ensuring
that
workers
are
not
independent
contractors
in
name
only.

Autonomy
Over
Work:
The
Key
Indicator

Autonomy
is
the
lifeblood
of
the
independent
contractor
status. 

For
those
who
ply
their
trade
in
the
gig
economy,
be
they
graphic
designers
or
freelance
writers
–
autonomy
over
work
tasks
is
not
merely
a
perk;
it
is
the
foundation
of
their
professional
existence. 

This
autonomy
is
often
manifested
in
the
ability
to
juggle
multiple
clients,
offering
services
to
a
diverse
roster
that
can
span
the
globe,
a
freedom
that
is
heavily
tied
to
their
classification
as
independent
contractors.

However,
not
all
that
glitters
is
gold.

A
worker
might
find
themselves
misclassified
if
they
find
their
wings
clipped,
unable
to
soar
with
other
clients
or
subject
to
restrictions
that
confine
their
work
to
a
single
employer. 

Such
constraints
can
tarnish
the
sheen
of
independence
and
indicate
that
the
worker
is
an
employee
in
disguise. 

The
autonomy
over
work
tasks,
therefore,
stands
as
a
key
determinant
and
a
beacon
for
those
navigating
the
gig
economy
waters,
ensuring
that
the
worker
is
an
independent
in
more
than
just
name.

Navigating
the
Legal
Landscape:
FLSA
and
IRS
Guidelines

The
legal
landscape
surrounding
the
classification
of
workers
is
a
complex
one,
marked
by
guidelines
from
institutions
like
the


Fair
Labor
Standards
Act
(FLSA)

and
the
Internal
Revenue
Service
(IRS).
These
guidelines
serve
as
the
compass
for
navigating
the
murky
waters
of
the
employer-employee
relationship. 

The
FLSA’s
‘economic
reality
test’
focuses
on
the
degree
to
which
a
worker
is
economically
dependent
on
the
business
they
serve,
which
in
turn
illuminates
the
path
to
their
true
classification
as
either
an
employee
or
an
independent
contractor.

However,
classification
isn’t
solely
based
on
surface-level
factors
like
job
titles
or
work
location;
the
FLSA
focuses
its
attention
on
the
working
relationship’s
economic
realities.

Employers
must
adhere
to
these
guidelines
to
ensure
accurate
classification
according
to
the
FLSA’s
criteria. 

They
should
also
seek
legal
expertise
for
compliance
verification,
a
complex
yet
vital
task.

Fair
Labor
Standards
Act:
Minimum
Wage
and
Overtime
Concerns

Under
the
watchful
eye
of
the
FLSA,
the
distinction
between
an
independent
contractor
and
an
employee
is
a
critical
one,
with
far-reaching
implications
for
minimum
wage
and
overtime
pay. 

The
Act
mandates
a
federal
minimum
wage
and
overtime
pay
at
a
time-and-a-half
rate
for
hours
exceeding
the
40-hour
workweek
mark,
but
these
protections
are
reserved
for
those
correctly
classified
as
employees
and
not
independent
contractors.

A
verbal
agreement
on
the
independent
contractor
status
between
employers
and
workers
isn’t
sufficient.
The
actual
work
relationship
must
align
with
the
FLSA’s
criteria
to
prevent
misclassification
issues. 

Should
an
employer
willfully
misclassify
an
employee
as
an
independent
contractor,
they
may
find
themselves
on
the
hook
for
up
to
three
years
of
back
overtime
payments,
a
risk
that
underscores
the
gravity
of
proper
classification.

Internal
Revenue
Service:
Tax
Implications

The
IRS
draws
a
distinct
line
in
the
sand
when
it
comes
to
the
tax
implications
of
worker
classification. 

Independent
contractors,
unlike
employees,
bear
the
brunt
of
self-employment
tax
and
receive
their
income
without
withholdings
for
social
security
tax,
Medicare
taxes,
or
income
tax. 

Conversely,
for
employees,
these
taxes,
including
income
tax
withholding,
are
deducted
at
the
source,
along
with
unemployment
tax
contributions.

For
employers
who
misclassify
workers,
the
consequences
can
be
substantial.
They
might
be
held
accountable
for
all
the
unwithheld
taxes,
plus
interest
and
penalties,
a
sobering
reality
that
underscores
the
need
to
determine
employment
status
for
careful
classification. 

To
aid
in
this
endeavor,
either
party
can
request
an
IRS
determination
on
the
worker’s
status
using


Form
SS-8,
although
patience
is
a
virtue,
as
the
determination
process
can
take
upwards
of
six
months.

The
Growth
of
Cryptocurrency
Payments
to
Contractors

The
digital
age
has
ushered
in
a
seismic
shift
in
how
companies
engage
with
independent
contractors,
with
cryptocurrency
payments
becoming
an
increasingly
popular
method
in
the
gig
economy. 

Thanks
to
platforms
like

Rise,
businesses
are
finding
new
ways
to
compensate
freelancers
for
their
specialized
skills,
transcending
traditional
boundaries
and
embracing
the
fluidity
of
digital
currency.

Cryptocurrency
presents
a
fresh,
innovative
alternative
to
traditional
payment
methods. 

As
the
gig
economy
continues
to
expand,
so
too
does
the
appeal
of
cryptocurrency,
offering
a
glimpse
into
a
future
where
transactions
are
not
only
borderless
but
also
swift
and
secure,
thanks
to
the
transformative
power
of
blockchain
technology.

Advantages
of
Crypto
Compensation

The
allure
of
cryptocurrency
compensation
lies
in
its
numerous
benefits
for
independent
contractors.
Some
of
these
benefits
include:

• 
  Faster
  payment
  processing,
  circumventing
  the
  delays
  and
  fees
  associated
  with
  traditional
  banking
  systems

• 
  Reduced
  transaction
  fees

• 
  Anonymity,
  as
  freelancers
  do
  not
  have
  to
  disclose
  sensitive
  personal
  information

These
benefits
are
a
testament
to
the
decentralized
nature
of
digital
currencies
and
the
advantages
of
blockchain
technology.

Moreover,
cryptocurrency
payments
offer
contractors
the
following
benefits:

• 
  Freedom
  to
  work
  
  from
  anywhere
  in
  the
  world

• 
  Receiving
  compensation
  
  without
  the
  need
  for
  currency
  exchange

• 
  Eliminating
  the
  risk
  
  of
  fraudulent
  transactions

This
level
of
independence
and
global
accessibility
is
not
just
a
convenience;
it’s
a
game-changer
for
the
modern
workforce.

Challenges
and
Risks
with
Cryptocurrency
Transactions

Despite
its
benefits,
cryptocurrency
payments
come
with
challenges
and
risks. 

The
volatile
nature
of
digital
currencies
can
lead
to
dramatic
value
fluctuations,
threatening
the
financial
stability
of
gig
workers
whose
earnings
could
dwindle
overnight. 

Security
is
another
concern,
with
the
potential
for
wallet
or
exchange
hacking
leading
to
the
loss
of
funds—a
reminder
that
the
digital
realm
is
fraught
with
its
own
unique
perils.

The
regulatory
landscape
for
cryptocurrency
is
also
fraught
with
uncertainty,
with
legal
implications
that
could
impact
the
working
relationship
between
companies
and
contractors. 

As
the
gig
economy
matures,
so
must
the
infrastructure
that
supports
it,
ensuring
that
workers
and
employers
alike
can
navigate
the
crypto
waters
with
confidence
and
clarity.

Rise
to
the
Occasion:
How
Rise
Facilitates
Contractor
Payments

To
address
the
unique
challenges
of
global
contractor
payments,
Rise
offers
a
comprehensive
payroll
system
specifically
designed
to
handle
the
complexities
of


international
hybrid
payroll.

With
a
focus
on
efficiency
and
compliance,


Rise

simplifies
the
payment
process,
supporting
both
fiat
and
cryptocurrency
transactions.
The
platform’s
features
include:

• 
  A
  one-click
  mass
  payout
  
  feature
  that
  exemplifies
  the
  ease
  with
  which
  payments
  can
  be
  made
  to
  teams
  anywhere
  in
  the
  world

• 
  Support
  for
  multiple
  currencies
  
  and
  payment
  methods

• 
  Compliance
  
  with
  international
  regulations
  and
  tax
  requirements

• 
  Robust
  security
  measures
  
  to
  protect
  sensitive
  financial
  information

Rise
caters
to
the
fluid
nature
of
the
modern
workforce,
providing
a
seamless
and
reliable
solution
for
global
contractor
payments.

Rise’s
value
proposition
extends
beyond
its
payment
capabilities.

The
platform
only
charges
$2.5
on
Layer
1s
and
FREE
on
Layer
2s.

By
addressing
the
intricacies
of
onboarding,
tax
regulation
compliance,
and
currency
conversion,
Rise
stands
out
as
a
facilitator
of
seamless
contractor
payments.

Streamlining
Onboarding
and
Compliance

Rise’s
automated
onboarding
process
streamlines
the
entry
of
new
contractors
into
a
company’s
ecosystem. 

By
offering


efficient
KYC
checks

and
simplifying
the
generation
of
legal
and
tax
documents,
Rise
ensures
a
smooth
transition
for
contractors
from
across
the
globe. 

The
platform’s
commitment
to
compliance
is
evident
in
its
robust
identity
verification
services,
which
manage
global
compliance
issues
across
190
countries
while
adhering
to
KYC/AML
regulations.

Rise’s
comprehensive
range
of
features
includes:

• 
  Ability
  to
  handle
  tax
  forms
  
  such
  as
  1099
  and
  W9/W8BEN

• 
  One-stop
  solution
  
  for
  contractor
  onboarding
  and
  payment
  processing

• 
  1-click
  mass
  payouts
  
  for
  prompt
  and
  accurate
  compensation

• 
  Streamlining
  
  the
  payment
  process

These
features
further
solidify
Rise’s
role
as
a
one-stop
solution
for
contractor
onboarding
and
payment
processing.

Multi-Currency
Convenience:
Fiat
and
Crypto
Solutions

The

multi-currency
support
of
Rise

is
a
cornerstone
of
its
convenience,
offering
businesses
the
flexibility
to
pay
contractors
in

over
150
countries.

Whether
teams
prefer
to
be
paid
in
fiat
or
cryptocurrency,
Rise
supports
payroll
in
both,
demonstrating
its
versatility
and
responsiveness
to
the
needs
of
a
diverse
workforce.

Rise
offers
the
following
features:

• 
  Allows
  teams
  
  to
  receive
  payments
  in
  their
  chosen
  currency

• 
  Facilitates
  the
  exchange
  
  of
  cryptocurrencies,
  including
  stablecoins,
  into
  a
  variety
  of
  other
  digital
  currencies

• 
  Provides
  the
  option
  
  to
  be
  paid
  in
  local
  or
  preferred
  fiat
  currency

These
features
highlight
Rise’s
commitment
to
accommodating
a
multitude
of
payment
preferences.

Smart
Strategies
for
Managing
Independent
Contractor
Agreements

Managing
independent
contractor
agreements
effectively
is
vital
for
establishing
a
transparent
and
compliant
working
relationship. 

These
agreements
should:

• 
  Articulate
  that
  the
  relationship
  is
  that
  of
  an
  independent
  contractor,
  not
  an
  employee,
  emphasizing
  the
  contractor’s
  autonomy
  and
  the
  specialized
  skills
  they
  bring
  to
  the
  table.

• 
  Explicitly
  state
  that
  contractors
  are
  responsible
  for
  adhering
  to
  laws
  and
  securing
  their
  own
  insurance.

• 
  Serve
  as
  a
  bulwark
  against
  potential
  legal
  challenges.

Additionally,
such
agreements
can
include
provisions
for
indemnification
and
remedies,
serving
to
deter
contractors
from
pursuing
employee
status
claims. 

The
inclusion
of
clauses
that
allow
or
restrict
the
delegation
of
contractor
tasks
also
plays
a
pivotal
role
in
mitigating
the
risk
of
misclassifying
subcontractors
as
employees. 

The
choice
of
governing
law
is
another
strategic
consideration,
with
the
potential
for
certain
court
decisions
to
override
these
choices
based
on
factors
such
as
service
locations
or
party
citizenship.

Crafting
Clear
Contracts

For
confidently
navigating
the
complexities
of
contractor
agreements,
it’s
essential
to
create
clear
and
comprehensive
contracts. 

Such
contracts
should
include:

• 
  Unequivocally
  stating
  the
  legal
  right
  of
  independent
  contractors
  to
  their
  work,
  unless
  otherwise
  assigned
  to
  the
  employer—a
  consideration
  rooted
  in
  the
  
  
  Copyright
  Act
  of
  1976.

• 
  Incorporating
  cryptocurrency
  payments
  into
  these
  agreements
  with
  precision.

• 
  Providing
  detailed
  written
  contracts
  that
  provide
  a
  layer
  of
  security
  for
  both
  parties,
  ensuring
  that
  terms
  are
  understood
  and
  agreed
  upon.

Cryptocurrency’s
flexibility
can
be
harnessed
within
contract
terms,
linking
payments
to
project
milestones
and
thereby
aligning
compensation
with
progress
as
this
can
prevent
delays
and
foster
a
mutual
sense
of
achievement. 

Additionally,
contracts
should
outline
clear
conditions
for
termination
and
reference
separate
statements
of
work,
enabling
contractors
to
accept
or
reject
projects
with
clarity
and
confidence.

Maintaining
Records
and
Upholding
Responsibilities

The
saying
“the
devil
is
in
the
details”
is
particularly
relevant
when
it
comes
to
maintaining
records
and
fulfilling
responsibilities
within
the
contractor-employer
relationship. 

Accurate
record-keeping
is
not
just
a
bureaucratic
necessity;
it
is
a
cornerstone
of
transparency
that
tracks
the
progress
and
intricacies
of
work
carried
out
by
independent
contractors. 

For
contractors,
diligent
documentation
of
income
and
business
expenses
is
not
just
about
financial
responsibility;
it
also
ensures
compliance
with
tax
obligations,
safeguarding
their
independent
status.

On
the
flip
side,
employers
are
tasked
with
providing
accurate
tax
forms,
such
as
the


1099-MISC,
and
honoring
contract
terms
like
payment
rates
and
project
durations,
all
crucial
aspects
of
an
employer’s
business. 

When
both
contractors
and
employers
hold
up
their
end
of
the
bargain,
an
employer
employee
relationship
exists
that
is
marked
by
trust
and
minimal
disputes—a
win-win
scenario.

The
Impact
of
Misclassification:
Risks
and
Remedies

Misclassifying
a
worker
as
an
independent
contractor
can
lead
to
severe
consequences,
from
employers
being
liable
for
employment
taxes
to
facing
substantial
penalties
and
fines.

It
is
the
employer
who
shoulders
the
burden
of
proof
in
demonstrating
the
correct
classification
of
a
worker;
failure
to
do
so
can
lead
to
significant
legal
exposure,
including
damages
and
penalties. 

For
workers,

misclassification
means
losing
access
to
critical
statutory
benefits

such
as
paid
sick
leave,
workers’
compensation,
and
unemployment
benefits—a
stark
reminder
of
what’s
at
stake.

Moreover,
wage
theft
looms
as
a
potential
risk
of
misclassification,
where
workers
may
not
receive
the
proper
wages
and
benefits
they
are
legally
entitled
to,
including
unemployment
insurance. 

To
combat
this,
misclassified
workers
can
utilize
Form
8919
to
report
their
share
of
uncollected
Social
Security
and
Medicare
taxes,
a
corrective
measure
that
also
serves
as
a
wake-up
call
for
employers
to
scrutinize
their
classification
practices
and
pay
employment
taxes
accordingly.

Identifying
Misclassification
Red
Flags

Identifying
red
flags
for
worker
misclassification
is
similar
to
catching
early
warning
signs
in
a
patient—it
can
prevent
a
crisis
from
fully
developing. 

Some
common
red
flags
to
look
out
for
include:

• 
  The
  provision
  of
  work
  equipment,
  such
  as
  computers
  and
  phones,
  to
  those
  classified
  as
  independent
  contractors

• 
  Carrying
  out
  tasks
  identical
  to
  employees

• 
  A
  working
  relationship
  that
  lacks
  contracted
  diversity

• 
  Resembling
  employee
  permanence

• 
  Not
  involving
  invoice
  submissions
  for
  payment

These
signs
may
indicate
a
misclassified
worker
status.

Engaging
workers
in
a
manner
akin
to
employees,
such
as
for
extended
durations
of
similar
work
or
re-engaging
former
employees
as
consultants
for
identical
duties,
could
be
misclassification
red
flags. 

These
scenarios
underscore
the
importance
of
being
vigilant
and
proactive
in
maintaining
the
integrity
of
the
independent
contractor
status
and
avoiding
the
creation
of
an
unintended
employment
relationship.

Corrective
Measures
and
Compliance
Strategies

Businesses
must
respond
quickly
and
decisively
when
confronted
with
potential
misclassification.
The
first
step
involves
a
thorough
review
of
existing
contracts
and
work
arrangements
to
identify
any
discrepancies
in
classification. 

Should
misclassifications
be
uncovered,
organizations
are
tasked
with
reevaluating
the
working
relationship
against
federal
and
state
criteria,
paying
close
attention
to
the
degree
of
control
over
work
and
the
independence
of
the
worker
in
business
decisions.

Once
classifications
have
been
corrected,
it’s
crucial
to
implement
compliance
strategies
to
prevent
recurrence. 

This
may
include:

• 
  Defining
  work
  agreements
  more
  clearly

• 
  Updating
  agreements
  in
  line
  with
  legal
  developments

• 
  Regularly
  reviewing
  these
  agreements

• 
  Consulting
  legal
  experts
  when
  necessary

These
steps
will
help
businesses
stay
ahead
of
the
curve
and
maintain
compliance
in
an
ever-evolving
regulatory
landscape.

Summary

The
journey
we’ve
embarked
upon
has
illuminated
the
importance
of
understanding
the
nature
of
independent
contractors,
navigating
the
legal
complexities,
and
embracing
innovative
payment
solutions
like
Rise. 

We’ve
also
delved
into
the
challenges
and
risks
that
accompany
cryptocurrency
transactions,
highlighting
the
need
for
smart
strategies
in
managing
contractor
agreements
and
the
perils
of
misclassification.

In
this
brave
new
world
of
work,
it
is
essential
for
businesses
and
contractors
alike
to
remain
vigilant,
informed,
and
adaptable. 

By
crafting
clear
contracts,
maintaining
accurate
records,
and
ensuring
compliance
with
regulatory
standards,
we
can
harness
the
potential
of
cryptocurrency
to
create
a
more
agile,
efficient,
and
rewarding
working
environment. 

Let
this
be
an
invitation
to
rise
to
the
occasion,
embracing
the
opportunities
and
navigating
the
challenges
with
confidence
and
foresight.

Frequently
Asked
Questions

What
is
Rise?

Rise

is
a
comprehensive
payroll
and
compliance
solution

designed
to
streamline
payments
and
onboarding
for
companies
hiring
globally.
It
aims
to
simplify
the
process
for
businesses
operating
across
different
locations.

Can
Rise
process
payroll
in
both
fiat
and
cryptocurrency?

Yes,
Rise
can
process
payroll
in
both
fiat
and
cryptocurrency,
offering
businesses
the
flexibility
to
accommodate
their
contractors’
currency
preferences.

How
does
Rise
ensure
legal
compliance?

Rise
ensures
legal
compliance
by
offering
robust
identity
verification
services
and
managing
global
compliance
issues
while
adhering
to
KYC/AML
regulations.
This
helps
the
company
to
maintain
legal
compliance.

What
are
the
advantages
of
using
cryptocurrency
for
contractor
payments?

Using
cryptocurrency
for
contractor
payments
provides
advantages
such
as
reduced
transaction
fees,
faster
processing,
and
increased
anonymity,
making
it
an
appealing
option
for
both
contractors
and
businesses.

What
are
the
challenges
associated
with
cryptocurrency
transactions
for
contractors?

Contractors
face
challenges
with
cryptocurrency
transactions
including
volatility,
security
risks,
and
regulatory
uncertainty,
impacting
financial
stability
and
legal
compliance.
It
is
important
to
carefully
consider
these
factors
before
engaging
in
cryptocurrency
transactions.

Image
source:
Shutterstock

.
.
.

Tags