Crypto payroll: The complete guide for global businesses
A guide to unlocking cross-border payments efficiency with crypto payroll.
Crypto payroll, also known as crypto paychecks, is a sign of the growing popularity of cryptocurrencies. Today over 420m people own cryptocurrencies, with the total market cap of all cryptocurrencies worth $1.4tr. What was predominantly viewed as an investment asset is increasingly being used as a medium of exchange; 93% of cryptocurrency owners say they would use it for purchases, while 59% who have never held cryptocurrency would consider doing the same.
Some people also want to get their salaries paid in their favoured cryptocurrency. One study suggests that more than a third of millennials (those aged between 26 and 42) and half of Generation Z (25 and below) would be happy to receive half their salary in bitcoin or other forms of cryptocurrencies.
In this article, we’ll provide a guide to what businesses need to know before they set up a crypto payroll, including the key benefits, the risks, and how to get started.
What is crypto payroll?
Crypto payroll, also known as cryptocurrency payroll, refers to the practice of compensating employees or contractors with cryptocurrencies such as bitcoin, ethereum, and stablecoins.
The concept of crypto payroll is relatively new, emerging as cryptocurrencies have gained popularity and mainstream acceptance as a form of payment. Adoption is growing, with an increasing number of companies offering crypto payroll to their employees, though these tend to operate in the cryptocurrency space. Coinbase, Blockchain.com and GMP Group are some notable examples. In parallel, we are seeing the rise of specialist crypto payroll providers, such as Bitwage, Gilded, Deel and others, that are enabling more companies to pay their workers in crypto.
The most popular method for crypto payroll is for a company to send a cryptocurrency directly to an employee’s crypto wallet. An alternative method is to fund an employee’s account held on a cryptocurrency exchange, which then automatically triggers the purchase of their chosen cryptocurrency, often at a lower fee than a typical exchange.
Let’s take a look at some of the benefits, and risks, to a business that enables a crypto payroll.
Pros and cons of using crypto payroll in your business
There are a range of benefits for businesses that give their employees and contractors the option to get paid in crypto:
Offering crypto payroll can be attractive to crypto enthusiasts. This cohort is typically young, tech-savvy and forward-thinking. These traits are valuable, even if your business does not provide crypto or blockchain services. Crypto payroll can be particularly advantageous for employees and workers in regions with limited access to traditional banking services, or where the domestic fiat currency is unstable.
Lower operating costs
Global businesses must pay staff around the world. When paying salaries in fiat, businesses will face the costs of making international transactions, including bank processing fees and currency conversion. Cryptocurrency payments take place across blockchains, which are country-agnostic and carry much lower transaction costs.
Another drawback of traditional payroll systems is the time it takes to process fiat salaries. This is especially true when paying employees with overseas bank accounts, where the wait can be up to a week from the moment the payment is initiated. Cryptocurrency payments are much faster, and often settle within a matter of hours. Whereas full-time staff typically receive their salary payments monthly, and so speed is not so much an issue, freelance and contractor staff will favour businesses that pay their invoices immediately.
Whereas fiat salaries depreciate in value against inflation, cryptocurrencies have the potential to rise in value. This can boost the real value of an employee’s salary (although the opposite is also true).
Now here are some risks that businesses need to consider before deciding to enable crypto payroll.
A major criticism of cryptocurrency as a medium of exchange is price volatility. For example, bitcoin, the largest cryptocurrency by market cap, has been as high as $31,446 and as low as $15,814 in the last 12 months. What’s more, the price can swing very dramatically in a very short window. This volatility can impact the real value and spending power of employees’ take home pay. Stablecoins – a type of cryptocurrency that pegs its price to a fiat currency, typically the US dollar – can mitigate this risk. Read more about the benefits that stablecoins offer versus other cryptocurrencies, such as bitcoins.
Employers must navigate complex and evolving cryptocurrency regulations to ensure compliance with tax laws and financial reporting requirements. The state of cryptocurrency regulation varies internationally, as does the tax status of crypto salary payments, with some jurisdictions treating it as income, and others as an asset transfer. What’s more, in most countries the standard is to report salary and staff payments in the local currency. Without uniform agreement on these matters, it is hard for companies to establish global policies and protocols for crypto salary payments.
Receiving salary in cryptocurrency requires employees to be comfortable using the associated technology and to understand concepts such as public and private keys, as well how to off-ramp into fiat currencies as needed. Employees who are not familiar with blockchains and cryptocurrencies run the risk of mismanaging their salary payments, or even losing them completely. Businesses should invest in ongoing education and risk-management to ensure their workers are protected adequately, otherwise they may be held liable and/or face damage to their employee brand.
While many businesses are adopting crypto payroll, most do so alongside traditional fiat payroll. It can be difficult to integrate the two systems, and also plug in crypto payroll software with other enterprise systems such as HR and finance. So crypto payroll can add operating complexity and costs, which limits scalability.
How to start using crypto payroll
Implementing a crypto payroll system requires careful planning and consideration. Here are 7 steps that your business should follow if it wants to start paying its staff in cryptocurrencies.
1. Survey your staff
Before diving into the world of crypto payroll, it's essential to gauge your employees' interest and willingness to receive their salaries in cryptocurrencies. Conduct surveys or engage in open discussions to understand their preferences and concerns. This step will help you determine whether a crypto payroll system aligns with the expectations of your workforce, and whether it’s worth the investment.
2. Select the most appropriate cryptocurrencies
Choosing the right cryptocurrencies for your payroll system is crucial. While bitcoin and ethereum are well-known options, you should also consider stablecoins like Tether (USDT), USD Coin (USDC), PayPal USD (PYUSD) or Dai (DAI), which offer price stability and so reduce the volatility risk to employees and your business. While diversifying the variety of cryptocurrencies offered on your payroll can help your business match employee preferences and mitigate risks, there may be a balance between choice and operational complexity.
3. Check the tax laws in each country
Cryptocurrency taxation can be a complex and evolving landscape, and it varies from one country to another. Some may treat a crypto payment to a worker as income (and so subject to income tax), while others may regard it as an asset (subject to capital gains tax). Ensure you have a clear understanding of the tax laws and regulations regarding crypto employments in the jurisdictions where your employees are located. Consult with tax professionals or legal experts if necessary to ensure compliance.
4. Choose the right crypto payroll software solution
As with traditional fiat payroll, cryptocurrency payroll is typically outsourced to a specialist provider. Selecting the right crypto payroll software is a multifaceted decision. Security, choice of cryptocurrencies, compliance and the user experience are all important criteria. Also look for systems that offer easy integration with your incumbent payroll solution, as well as treasury and HR systems.
5. Agreement and setup with employees
Once you've chosen a crypto payroll solution, it's time to set up agreements with your employees. Clearly outline the terms and conditions of crypto payroll, including the frequency of payments, the cryptocurrencies offered, the expected speed of settlement, and any costs and liabilities. These may be different according to employee status and location. Also educate your employees on how to create cryptocurrency wallets and manage their digital assets securely. Be willing to offer different levels of training and support depending on the familiarity and expertise that employees have.
6. Record keeping
Accurate record-keeping is vital for compliance and transparency. Keep detailed records of all cryptocurrency transactions, including when employees are paid, the cryptocurrency's market value at the time of payment, and transaction IDs. These records will be invaluable for tax reporting and financial audits.
7. Review and futureproof
After implementing your crypto payroll system, regularly review its performance and seek feedback from employees. This will help you identify any issues or areas for improvement. Stay updated on changes in cryptocurrency regulations and technologies to ensure your system remains compliant and efficient.
How is crypto regulated?
Crypto regulation varies from country to country, including their financial status (ie as a security or currency), legaility as a medium of exchange, and requirements for fraud and money laundering checks of payers and payees. In the context of payroll, and especially for employees, taxation is a key piece of regulation. Some countries tax crypto as property, while others treat it as a currency, which requires different tax treatments.
Is being paid in crypto safe?
While cryptocurrencies do not afford the same consumer protections as fiat, it is a safe way to get paid. What’s key for employees is a clear understanding of how blockchain and cryptocurrencies work, including wallets and public/private keys, and how to safeguard against scams, theft and accidental loss.
Why do employees want to be paid in crypto?
Employees have a variety of motivations for wanting to get paid in cryptocurrencies. These include faster payments (especially when the employee is based abroad), lower processing costs (if the worker takes on the burden of banking fees), financial inclusion for those who may not have traditional banking services, and as a potential investment opportunity.
Do employees get taxed if they get paid in crypto?
Yes, employees typically get taxed when they are paid in cryptocurrency. The tax treatment of cryptocurrency payments varies from country to country and can depend on several factors. For example, some jurisdictions treat cryptocurrency payroll as taxable income, while it can also attract capital gains tax when sold. Employers may also have reporting obligations, such as providing employees with tax documents that detail their cryptocurrency earnings.
Can I pay my employees in both crypto and fiat?
Yes, it is possible to pay your employees in both cryptocurrency and traditional fiat currency. This approach is often referred to as a "hybrid payroll" system and provides flexibility for both employers and employees. However, this approach also comes with the added complexity of managing multiple payroll systems, payment channels and tax implications.
Doing better business with crypto payroll
Enabling crypto payroll is a decision that holds both promise and prudence for global businesses. The benefits of speed, reduced transaction costs, and exposure to talent are enticing. However, it's important to mitigate the risks, including regulatory uncertainties, price volatility, and the necessity for robust security measures.
Businesses venturing into crypto payroll should do so with careful consideration of their specific circumstances, the preferences of their employees, and adherence to local laws and regulations. As with other crypto use cases, a crypto payroll specialist provider can bring essential expertise and infrastructure to facilitate the transition to crypto payroll, ensuring a secure, compliant, and user-friendly experience for businesses and their employees.