Cash or crypto – can I pay my employees in crypto?

Bitcoin reached an all-time high of over $68,000 in November 2021, despite starting the year below $30,000. There is no doubt that cryptocurrency is a volatile market as prices can fall and rise at any time, so why is cryptocurrency at the forefront of most investment discussions, and should employers consider paying employees in such a way?

While the concept of paying employees in cryptocurrency is still in its infancy, some major businesses including PayPal, Starbucks, and Microsoft have begun to embrace the use of cryptocurrency to pay for apps and games. The Starbucks app also allows customers to reload their Starbucks card with bitcoin and other cryptocurrencies. With major players embracing cyrptocurrencies, we have to ask how they will be used going forward.

It is possible for businesses to pay their workforce in cryptocurrency; However, unless a person has an extremely strong stomach and a positive view of risk, it is unlikely that any employee will accept 100% of their salary in cryptocurrency, given its volatility and currently limited use cases. That does not mean that paying partial salary and/or bonuses in cryptocurrency will be dismissed as easily.

The benefits

• Speed – In a post-pandemic world, it is not unusual for employees who work from home to be located all over the world. Cryptocurrency transactions are realized and settled almost instantly unlike standard bank transactions which usually take longer.
• The workforce appeal – payment in the form of cryptocurrency can give a company an edge in the competitive recruitment market when looking to recruit and retain employees, especially where you pay independent contractors or use freelancers in computing and other high-tech fields.
• Investment potential – It is common knowledge that unlike cash payments, cryptocurrency can fluctuate significantly in value. When markets are high, employees can effectively find that their payment is worth more than if they would have received it via wire transfer.

As a result, we may start to see a move towards paying bonuses and other benefits with crypto. It’s also a good opportunity for employers to start educating employees about investments as they try to protect assets for their future and/or retirement.

It is also an opportunity to teach employees about the fundamentals of crypto as it becomes more prominent. Given its relative newness, people are usually less educated about how it works. Through proper education, employees will have the confidence to use crypto and how to spot what is legitimate and what is not, better protecting any crypto assets they have.

The disadvantages

• Volatility – The volatility of cryptocurrency is a double-edged sword. Although it may increase in value, there is an increased risk that the asset rapidly decreases in value, so that employees are underpaid without warning. Understandably, this would be a major concern where employees receive their salary in crypto, but if it is used for bonuses or partial payment, this could reduce the risk. Since employees will not rely on bonuses to pay bills, the impact of any volatility will be lower.
• Compliance – if you are considering paying employees in cryptocurrency, you must ensure that you comply with the laws of the country in which you operate, as well as the country where the employee is based. Failure to comply with the law can lead to fines and legal proceedings if, for example, the employer fails to calculate the gross and net salary correctly.

Tax

The next plausible question around paying employees in crypto is around taxation, and there are a few things to consider here. Under UK law, paying employees in crypto will be considered “income” and will therefore be taxed at source in the same way as regular wages. Tax and national insurance would be deducted, then employees would receive the net amount in crypto.

The other tax consideration for employers is that they may have to pay capital gains tax if they hold crypto to pay wages and it gains value. The solution to this would be to buy bitcoin – of an agreed value in regular currency, say £250 – as close as possible to when needed, rather than storing in advance. Outsourcing the crypto payment to a third party is another viable option to avoid capital gains tax, but it is worth noting that a third party will likely charge a fee for each transaction.

Tools for a global workforce

Paying employees in crypto appeals to organizations with a global workforce. Transferring crypto does not usually involve large banks or financial institutions, meaning it is sent and received in a much shorter time frame than regular currencies such as pounds sterling or US dollars. It is also more resistant to conversion fees charged by large financial institutions when money is transferred from the organization’s native currency to the employee’s local bank, which can be different, especially for global organizations.

It is important to consider where crypto can be used. In some countries, such as China, Nepal and Tunisia, crypto is illegal. Employers will therefore have to confirm that crypto is acceptable in the home country of each employee, or else have separate rules for employees in different territories, which somewhat counteracts the simple nature of paying employees in crypto.

Choose cryptocurrency

Given that there are now an estimated 20,000+ cryptocurrencies on the market, choosing the right cryptocurrency to pay employees is another important consideration. The simplest choice would be for employers to make this choice for their employees. When considering which one to choose, employers should think about the utility of a cryptocurrency, its support, whether it has a high market cap (total value), and how well established it is.

Some predict that the cryptocurrency market could grow from $950 million in 2022 to $6.5 trillion in 2025. This in turn creates huge investment opportunities for those who hold cryptocurrency.

Conclusion

In summary, it is possible to pay employees in the form of cryptocurrency; however, if you are considering using cryptocurrency to incentivize employees, either through bonus payments or partial salary payments, you should consider any compliance issues and check if this is something your employees want. Do your employees have the knowledge or experience to accept crypto investments, and is this something your company can implement to be more future-proof?

Over time, it will be interesting to see if paying employees with crypto becomes more popular as the sector grows in general, and if we will see some larger companies adopt this practice. It is already possible, and mostly a question of who takes the leap first.