Pros and cons of paying employees in cryptocurrency
Paying employees in cryptocurrency has many potential advantages and disadvantages.
Pros
- Transaction speed – Cryptocurrency transactions can be completed instantly without any time-consuming procedures, for example through the banking system that allows employees to receive their wages immediately.
- Transaction fees – Cryptocurrency processing has lower transaction costs, enabling companies to pay employees without incurring high fees.
- Tax efficiency – Laws regarding cryptocurrencies vary according to the company’s region of operation. Paying employees in cryptocurrency can create tax efficiencies for many employees. For example, Bitcoin is treated as property in the United States. Bitcoin owners are required to pay capital gains tax (CGT) which is applied to the sale of any cryptocurrency that has appreciated in value since it was acquired. Therefore, many high-salaried employees prefer to receive cryptocurrency compensation instead of cash salary when CGT is below the high income tax bracket.
- Manpower Call – Paying employees in the form of cryptocurrency acts as a recruitment incentive for young individuals and the global workforce in general who understand and use cryptocurrencies and want to reduce their dependence on other authorities, such as financial intermediaries. Therefore, earning rewards in cryptocurrencies can provide a distinct recruiting advantage for any company.
- Potential gains – One of the unique features of the cryptocurrency market is the constant fluctuation in value. Therefore, they carry great investment potential that allows employees to obtain better value than they would have obtained through cash payments.
cons
- compliance – Laws surrounding cryptocurrencies are constantly evolving and vary greatly by location. Therefore, it is difficult to ensure that companies that pay their employees in cryptocurrencies comply with federal law as well as local laws.
- Volatility – The world of virtual currencies experiences significant fluctuations, which can cause the value of payments to increase or decrease over a short period of time, rendering them worthless. Therefore, paying employees’ basic salaries in cryptocurrency carries a great deal of risk.
- The paradox of global integration Cryptocurrency lacks integration with banking and financial systems which makes it a big challenge on the logistical side, such as paying cryptocurrency as salaries. Many financial institutions, including banks, do not recognize virtual currency and do not offer any option to integrate payments for goods and services.
Furthermore, cryptocurrency is not treated as legal money or legal tender in many countries, making paying employees in cryptocurrency a global challenge.
Are cryptocurrency payments subject to taxes?
Payments made in cryptocurrencies are treated differently according to legal regulations in different countries and carry different tax implications for employees and how employers choose to distribute cryptocurrencies.
For employees
The tax implications for employees receiving cryptocurrencies vary depending on the type of payment. For example, if employers pay bonuses, they are treated as fringe benefits and are treated in accordance with the Fringe Benefits Tax Assessment Act of 1986, which is 47% of the taxable value. Cryptocurrency gifts and rewards of less than $300 per year are exempt from this tax.
For employers
Simply purchasing and holding cryptocurrencies is not taxable in the US, as all capital gains taxes apply if you sell or use cryptocurrency. However, in the UK, cryptocurrency taxes apply to the current market value at the time of making payments.
Companies that pay wages in cryptocurrency
The growing demand and acceptability of cryptocurrency payments by major companies, including Microsoft and Tesla, has encouraged companies to pay wages in cryptocurrency. Some companies offering cryptocurrency compensation include GMO Group, BitShares, SC5, Fairlay, and Bitwage.
- GMO group- Focuses on online advertising, online media and finance.
- BitShares- A cryptocurrency exchange platform that allows the trading of virtual currencies and pays its employees in cryptocurrencies.
- SC5 – A Finnish company that provides application and software development services.
- Fairly- A cryptocurrency exchange and forecasting platform pays its employees in Bitcoin.
- Bit fee- A solutions provider that provides services such as payroll and invoicing.
FAQ: Is it worth paying employees in cryptocurrencies?
What is the legal status of paying employees with cryptocurrencies?
Laws regarding cryptocurrencies vary around the world, and they may be treated as legal tender in some countries, such as El Salvador, while they are banned in others, such as China. Even if a cryptocurrency exchange is accepted in a country, it does not necessarily mean that it can be used to pay wages.
What are the tax implications of making cryptocurrency payments to employees?
The state law for making an employee payment in cryptocurrency varies depending on each country’s regulations. For example, tax is due on all profits in the UK, which means that cryptocurrency holders are responsible for paying taxes according to the fair market value at the time of payment.
On the other hand, the IRS treats cryptocurrencies as property, and owners are responsible for paying taxes on capital gains.
How to be smart about paying employees with cryptocurrencies?
Cryptocurrency compensation could be a suitable option with multiple potential benefits, but it will take time to be well understood and coordinated among various governmental and legal authorities.
Moreover, this process still needs organizational guidance and trust so that it can be completed without any inconvenience. Employers must take into account multiple aspects when making their decision on bonuses, such as tax implications, legal aspects and the regulatory environment.
Final thoughts
There is no doubt about the feasibility, and cryptocurrency has made a positive impact on the global financial model, including payroll procedures in many companies, such as in the United States.
However, the use of cryptocurrencies is still banned in many countries, including China, which puts a question mark over the use of cryptocurrencies as a compensation option.
Since using cryptocurrencies to pay employees is a relatively new concept, it will take some time for it to become a reliable business practice. Therefore, the decision to pay employees in cryptocurrency should be considered through a holistic perspective by taking into account all factors of concern such as tax implications, legal aspects, and employee well-being.
Finally, please note that this is not financial advice, and employees and employers should understand the risks of cryptocurrencies before making their decisions.
