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Or those judges will be employees, thus getting a minimum wage and WotC will stop giving out cards as incentives.

Oh, I think WotC would try and keep handing out promo cards - keeps their costs down and forces the extra tax burden onto individuals rather than the corporation. Everyone*'s a winner.

*who matters.

But the cards won't count towards the minimum wage, so getting rid of them would reduce the costs to compensate for having to pay minimum wage.

Excuse me, but why wouldn't those cards count toward minimum wage? The employee agreed to be paid in company scrip, not USD as payment in kind. And at this stage of the game, they have an established general market value. Now, if those cards turn out to translate into something less than minimum wage, then WotC would be liable for the difference. But if they're valued higher than the equivalent minimum wage, then WotC should be fine.

If I were WotC, I would simply allow all of those Judges to redeem their cards for cash at minimum wage for those hours worked. Simple and easy.

 JohnHwangDD wrote:
Excuse me, but why wouldn't those cards count toward minimum wage?

I was under the impression the law didn't allow people to be underpaid in exchange for goods. If that's not correct then my apologies.

If the value of those goods is greater than minimum wage, they they're not underpaid.

The fact that those Judges continued to voluntarily accept such payment for future work suggests that the value was at least fair, if not at least equivalent to minimum wage.

The only issue is convertibility, which eBay provides. As would the redemption process I outlined above.

Are you sure about that? I'm not that familiar with law but just googling...

Wikipedia wrote:"Scrip became illegal under the Fair Labor Standards Act of 1938."

It links to an artical on Cornell law, but not being a lawyer (and it being almost 4am and needing sleep ) I'm not sure how a couple of the terms should be interpreted.

§ 531.34 Payment in scrip or similar medium not authorized.
Scrip, tokens, credit cards, “dope checks,” coupons, and similar devices are not proper mediums of payment under the Act. They are neither cash nor “other facilities” within the meaning of section 3(m). However, the use of such devices for the purpose of conveniently and accurately measuring wages earned or facilities furnished during a single pay period is not prohibited. Piecework earnings, for example, may be calculated by issuing tokens (representing a fixed amount of work performed) to the employee, which are redeemed at the end of the pay period for cash. The tokens do not discharge the obligation of the employer to pay wages, but they may enable him to determine the amount of cash which is due to the employee. Similarly, board, lodging, or other facilities may be furnished during the pay period in exchange for scrip or coupons issued prior to the end of the pay period. The reasonable cost of furnishing such facilities may be included as part of the wage, since payment is being made not in scrip but in facilities furnished under the requirements of section 3(m). But the employer may not credit himself with “unused scrip” or “coupons outstanding” on the pay day in determining whether he has met the requirements of the Act because such scrip or coupons have not been redeemed for cash or facilities within the pay period. Similarly, the employee cannot be charged with the loss or destruction of scrip or tokens.

Magic cards aren't "scrip", though. Scrip, as I understand the term means you're being paid in some form that is worthless except at establishments run by the paying organisation themselves (like working in Tesco and getting paid in Tesco Clubcard points, for example). In this case, assuming it turns out to be legal, they're being paid in something that is accepted to have a value by the market at large. it's no different to being paid in shares, gold bars or sacks of spuds. The difference is that WotC pay fractions of a cent to print a card, which the Judge then sells on for $50. Much cheaper for WotC to do and the Judge is now liable for all the income tax (I don't know if there are taxes that companies in the US need to pay based on their employees, analogous to National Insurance in the UK).

The first card as payment-in-kind would be scrip-equivalent. However, now that there's an established market for those particular cards, with a relatively well-defined market value, the employee's time can be fairly valued against the value of the card(s) to be received.

As for what it costs WotC to produce, it's not really relevant in terms of compensation, unless the employee now wants to redeem their card(s) for minimum wage pay with COLA interest.

There would be some corporate income tax liability to WotC, and that would be retroactive. But I doubt there would be big penalties, as the law changed out from under them - most likely, the late payment penalties would accrue as of the date of the decision that made the Judges employees.

I was thinking more that WotC would be paying the judges, say "$50", while only spending 0.5c to do so.

If you got paid with the signed football jersey used by the Superbowl MVP, it might be worth quite a bit more than the what it cost the team to buy it.

In the UK it's explicitly illegal to replace pay with goods like this.

Magic cards have no fixed value and are dependent on a secondary market and forced scarcity. You can't give coupons of indeterminate value as wages.

I always love how people go straight to 'but what about people taking their wages in stock options'. Shares via salary sacrifice are legal in the UK, and you could potentially sacrifice your entire salary. I imagine it is similarly legal in the US.

Walmart was taken to court in 2008 for paying workers part of their wages in Walmart vouchers. It's companies who don't want to pay the minimum wage that do this.

Would this affect WOTC's other games? DnD in particular since they have a DM program.

This is why it is important first to establish are they employees or are they independent contractors. If they are employees they should be paid an actual wage, magic cards don't count towards that value as a wage. If they are contractors then they can accept other things in lieu of a wage, so if they agree to it then that is on them for agreeing to it.

Although magic cards have a value, it is a secondary value and market. The reason the card market value will not equate to a wage is because it isn't a stable value. $1 paid to me today, will more or less still be $1 in 10 years. $100 magic card today, can be $0.10 tomorrow or next year. There are multiple factors that effect and keep $1 at the value, while for a card there is only one factor.

Although you could compare it to stocks, stocks themselves are a primary market. There is a secondary market to stocks to where investors trade amongst themselves, but that is different than the primary market itself.

Does the nature of the market even matter? Aren't payments in the form of stock options an exception to the general law? Why would it apply to giving collectibles in lieu of wages at all?

Ben2 wrote:
In the UK it's explicitly illegal to replace pay with goods like this.

It just feels like something that should be illegal everywhere, it just sounds dodgy as all hell Is there examples of any employees being paid entirely in goods? I figure if it was legal I'd hear about a bunch of overweight fast food employees being paid in food

There's employee benefits and reimbursement in stocks and whatnot, but I can't think of any examples where this is the only form of payment such that the employee is earning less than minimum wage. They're usually offered as an incentive on top of a regular wage, not instead of it.

And if you do pay exclusively in cards, isn't it the responsibility of the employer to withhold tax? Normally for an employee with mixed income the tax for goods would be withheld from the cash portion, but if you pay them only in cards wouldn't they have to pay the tax man separately?

Like the cards, the actual taxable value of the employee's stock option is determined by the secondary market, not the primary market (which determines the cost basis for the employer).

It most likely doesn't matter other than establishing that although equivalent in value, they aren't equivalent as a stable wage.

If I read the law, like a MtG Judge would read a card. Then in the case of wages, it says:

Wages

The Department of Labor enforces the Fair Labor Standards Act (FLSA), which sets basic minimum wage and overtime pay standards. These standards are enforced by the Department's Wage and Hour Division.

Minimum Wage

Current Minimum Wage: $7.25 per hour

Applies to workers covered by the FLSA

Effective as of July 24, 2009

Overtime Pay: Not less than one and one-half times regular rate of pay

Required after 40 hours of work in a workweek.

Certain exemptions apply to specific types of businesses or specific types of work.

Minimum Wage by State

According to the rules on the card, the wage must be an actual dollar amount. Although if it said "can't be X" then the can't would obviously win. However in this case, the card says "can" in terms of, this is a wage and what must be paid. And no where does it define "may take something else instead of wage".

It does state what it "can do" but also states what it "can't do" in terms of, the FLSA does not however require any of the following:

While the FLSA does set the minimum wage for certain workers, it does not, however, require any of the following:

Severance pay

Sick leave

Vacations

Holidays

The FLSA does not address nonproduction cash bonuses, payments that are not production-based. These bonuses are generally a matter of agreement between an employer and an employee (or the employee's representative).

Benefits such as educational assistance, life insurance, or travel accident insurance are generally a matter of agreement between an employer and an employee (or the employee's representative).

So the only place where it mentions "nonproduction cash bonuses" or other equivalent, although a matter of agreement it considers it a "bonus" which means on top of the actual requires minimum wage. I'd have to check but I'm out of time. I do believe as an Independent Contractor though it does state they can agree to other forms and methods of payment, unlike an employee relationship.

OK, I see. Due to the level of control, these will definitely be interpreted as employees instead of ICs.

As WotC won't be able to supervise them as employees except at the highest-level WotC-run events, the entire lower tier of Judges is going to disappear. The liability risk is way too high for a co-employer. Imagine, for example, that one of these Judges says or does something - suddenly, WotC is legally liable as a co-employer for the actions of their "employee".

I'm beginning to think a non profit between WotC and the events might have a lot of utility. Keeps WotC at arms length for liability reasons as well.

 OrlandotheTechnicoloured wrote:

 odinsgrandson wrote:

-The cards Judges got can easily be called of nominal value in a legal sense- the only reason that they're more valuable on the secondary market is due to the rarity (which is the point, right?).

But honestly, if they had a retail price, it would be pretty cheap.

The problem with that is I'm pretty sure they can't, especially when the IRS becomes officially 'aware' of a situation as is going to happen here with the court case,

I think this paraphrase (actually relating to their own art being given/donated by an artist even when the materials used are of negligible value not magic cards says it best)

"Now for the sticky part:

How do you determine the fair market value of the art you're gifting or donating?

According to Internal Revenue Code, fair market value is defined as "the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts." With art, dollar amounts are not written in stone. Nevertheless, how you interpret or determine prices may well be scrutinized by the IRS which means that you have to be careful in stating dollar values."

so once cards that have pretty decent secondary market value become part of a 'salary' people who volunteer as judges and are working so have other taxable income may well have to think carefully about whether to declare them too

Except they aren't filing a W2 for cards if you get my drift. There is no legal proof anyone is receiving any card at any time in any quantity. So good luck enforcing a tax on them. Wouldn't be worth the man hours on the IRS side.

So these promo cards aren't mentioned anywhere in the documentation for signing up as a Magic judge? someone at WotC just hands them over in a brown envelope?

It might not be worth it when you consider an individual, but I'm sure there's something along the lines of conspiracy to evade taxation that would be worth the IRS' time when you look at the system as a whole.

 AndrewGPaul wrote:
So these promo cards aren't mentioned anywhere in the documentation for signing up as a Magic judge? someone at WotC just hands them over in a brown envelope?

It might not be worth it when you consider an individual, but I'm sure there's something along the lines of conspiracy to evade taxation that would be worth the IRS' time when you look at the system as a whole.

The people in this thread act as if the IRS is as big as the dakka community or has the same free time In reality, the IRS is TINY. My original post was only highlighting how unrealistic the idea of taxing promo cards is. More likely, Wizards is forced to stop giving out promo cards as gifts. But here's the other problem, Wizards give out regular gifts to the player base, for example alt art foil FNM packs and generally the judge keeps the remainder, how on earth would you track that? That's the real reason they don't want you bartering, big brother can't reliably get his pound of flesh from each exchange. It would be an absolute mess trying to prove the judges were keeping cards rather then giving them all out to players, in reality it would be impossible.


Automatically Appended Next Post:
Further food for thought as well is this idea of the cards having a certain value? I mean, based on what? It sure as feth isn't who the artist is OR the rarity, I have mythics worth a buck and in the past uncommons like Blood bride elf or vampire nighthawk rings a bell that were worth several collars, both were promo cards BTW. So it is dependent upon a constantly shifting meta. You can't treat it like a commodities exchange, so how on earth would you deal with it?

Yes- in actuality, I think the Magic Judges cards are just not worth the IRS's time, and they fall well below the IRS radar.

The IRS doesn't just audit everyone all the time. They have a list of things that set off red flags, and audit based on that. Being a magic judge isn't knowledge that they have access to.

The IRS looks for large fluctuations in pay, large write offs compared to income and things like that. The only reason they MIGHT come after magic judges is if they win this case and are given HUGE bundles of back pay cash- and even then, I'm not sure it would happen.

And after all of that- it is even possible that the cards would fall below the auditor's radar (if either the judge did not sell them, or if he regularly buys and sells magic cards at profit, or if he just sold them for less than about $600).

The IRS doesn't really like to advertise this, but their omniscience is exaggerated.

 JohnHwangDD wrote:
Excuse me, but why wouldn't those cards count toward minimum wage? The employee agreed to be paid in company scrip, not USD as payment in kind. And at this stage of the game, they have an established general market value. Now, if those cards turn out to translate into something less than minimum wage, then WotC would be liable for the difference. But if they're valued higher than the equivalent minimum wage, then WotC should be fine.

Is it even legal for employees to agree to be paid in company scrip? I know that the practice was popular back in the 1890s, but I thought they made it illegal after Standard Oil and such got out of control (the company would pay employees in company credit, then mark up their own prices- and offer credit plans to their employees).

To be fair- the reasons why we have employee protection laws are a lot more terrible than what Wizards is doing. Actually, I got to live in Brazil for a while, where many employers will only hire 'off the books' thus allowing them to skip wage restrictions and benefits laws. And there are enough poor starving folks in the country that they can always find someone willing to work for less than what's legal.


Correct me if this sounds crazy, but I believe that stock options on small startups are different since you are essentially making the employee into a part owner. Is that correct? Because the law doesn't prevent company owners from overworking themselves without compensation.

And my understanding is that there are a LOT of laws about exactly how stock options are to be handled, so it is not unreasonable to think that they can be handled differently from other items.

If I were WotC, I would simply allow all of those Judges to redeem their cards for cash at minimum wage for those hours worked. Simple and easy.

I don't know that it is either simple or easy- but it definitely seems like it ought to be.

Right now, their stance is that Judges are just enthusiastic fans who have little do to with Wizards of the Coast. I don't think that will hold up, and I think they're likely going to settle this one before it gets out of hand.

 Red Corsair wrote:
You can't treat it like a commodities exchange, so how on earth would you deal with it?

Absolutely, you can, and it's the owner's responsibility to report the value of income to the IRS, and then to pay taxes on it.

It's not like people don't make income and pay taxes based on being a commodities trader.


Automatically Appended Next Post:

 odinsgrandson wrote:
The only reason they MIGHT come after magic judges is if they win this case and are given HUGE bundles of back pay cash- and even then, I'm not sure it would happen.

 JohnHwangDD wrote:
Excuse me, but why wouldn't those cards count toward minimum wage? The employee agreed to be paid in company scrip, not USD as payment in kind. And at this stage of the game, they have an established general market value. Now, if those cards turn out to translate into something less than minimum wage, then WotC would be liable for the difference. But if they're valued higher than the equivalent minimum wage, then WotC should be fine.

Is it even legal for employees to agree to be paid in company scrip?

Correct me if this sounds crazy, but I believe that stock options on small startups are different since you are essentially making the employee into a part owner. Is that correct? Because the law doesn't prevent company owners from overworking themselves without compensation.

And my understanding is that there are a LOT of laws about exactly how stock options are to be handled, so it is not unreasonable to think that they can be handled differently from other items.

If I were WotC, I would simply allow all of those Judges to redeem their cards for cash at minimum wage for those hours worked. Simple and easy.

I don't know that it is either simple or easy- but it definitely seems like it ought to be.

Right now, their stance is that Judges are just enthusiastic fans who have little do to with Wizards of the Coast. I don't think that will hold up, and I think they're likely going to settle this one before it gets out of hand.

Sometimes the IRS goes fishing, and they also do spot checks. In this case, courtroom testimony will likely expose a tax issue that the IRS may wish to explore if only to make an example out of someone, just to remind the rest of us that we are supposed to pay taxes on these sorts of things. As one wise man said, "It's not about money, it's about sending a message."

I think that maybe "company scrip" isn't the right analogy, as there is an obvious secondary market to convert cards to cash, and, most obviously, the Judges don't redeem the cards against their company-provided housing or food allowances in the company store.

I think that stock options are probably the closest from a monetary standpoint, but the equity thing is very different, as you can work at a loss. OTOH, you have CEOs and the President saying that they'll work for a dollar... So there's some oddity from a minimum wage standpoint when you look at that kind of thing. Legally, could Lee Iacocca have run Chrysler for a dollar? Probably not without stock options. OTOH, Trump as President for a dollar? I guess it's OK if he doesn't disclose his finances.

Anyhow, I think a redemption (with interest!) will be part of the settlement.

Let's just say they are ruled as employees. That means that WotC would need to start issuing W-2 forms. So then WotC would be responsible for assigning a value to cards to create the W-2, right? (Yes, they'd determine it using the secondary market. But judge promo cards will now effectively have a set value.)

Let's go with something like assigning $50 value to every card. If you run one event a week, that is like $2,500 of income that WotC is reporting to the IRS. So if your tax bracket is around 15%, you are now responsible for paying about $375 to the IRS despite never actually earning a single penny in cash. Do you still want to be a judge? Especially if you're the kind of judge that trades your promos for other cards to build decks?

 Lucky Logician wrote:
Let's just say they are ruled as employees. That means that WotC would need to start issuing W-2 forms. So then WotC would be responsible for assigning a value to cards to create the W-2, right? (Yes, they'd determine it using the secondary market. But judge promo cards will now effectively have a set value.)

Let's go with something like assigning $50 value to every card. If you run one event a week, that is like $2,500 of income that WotC is reporting to the IRS. So if your tax bracket is around 15%, you are now responsible for paying about $375 to the IRS despite never actually earning a single penny in cash. Do you still want to be a judge? Especially if you're the kind of judge that trades your promos for other cards to build decks?

If they are ruled as employee's, the The Department of Labor enforces the Fair Labor Standards Act (FLSA) which outlines at a minimum they have to be paid a minimum wage. In no-where in how or what an employer must pay an employee does it even mention something other than actual dollars (real money). The only place it does mention a product or something else, other than real money refers to "bonuses" which is something on top of the minimum.

Now if they aren't determined to be employee's and are instead Independent Contractors, then there is a different tax form for that. They could assign a value to the cards. This actually ends up being worse than an employee honestly.

If they are determined to be "volunteers", which I is a big if considering they are a profit organization. Then there would be other rules that would have to be stipulated by them. In other words they couldn't create "schedules" for the volunteers at events, they couldn't enforce or technically require certain 'training' levels. It is more of a gray area in many aspects.

None of this should effect in store volunteers, tournament organizers and judges since they do run the event. This would only effect larger events usually at a convention or regional level. However quite a few of those are handled by a 3rd party groups like Star City Games if I recall. It has been many years since I've been part of the Magic judge team so I could be wrong. I was never involved with logistics at Magic events. I didn't start getting involved with logistics until World of Warcraft TCG Darkmoon faire events, regional and conventions but that is a different company with similar circumstances.

I know that when my LGS runs events which actually merit getting Judges in - such as a PPTQ or higher, I think - the TO does make sure to pay the Judges he gets in with cash, rather than product. As well as making sure breaks are scheduled in, etc.

I think he's been doing that since the first PTQ (on the old event structure) he ran, and it apparently was a discussion point at the time that he was paying in money rather than a box of boosters.

 Lucky Logician wrote:
Let's go with something like assigning $50 value to every card. If you run one event a week, that is like $2,500 of income that WotC is reporting to the IRS. So if your tax bracket is around 15%, you are now responsible for paying about $375 to the IRS despite never actually earning a single penny in cash. Do you still want to be a judge? Especially if you're the kind of judge that trades your promos for other cards to build decks?

Yeah, that's pretty much it -- except that an IRS auditor may be the one assigning value, and who knows what will happen! You are taxed on the "fair market value" of your compensation, regardless if it's liquid cash, or a hard-to-sell collectible. Just ask all those taxpayers who can't pay their estate taxes and have to sell off the stuff they inherited.

Remember when great-grandma got a "free" set of kitchenware for opening an account at the local bank? Then she got a 1099 and had to pay tax on it!

That's why banks don't give out free toasters, and grocery stores don't give away free tableware / free serving sets / free encyclopedias any more!

Note, we got a full encyclopedia set!