How to Properly Organize Cryptocurrency Payments to Employees

As a small business owner or as the manager of a bigger company, are you thinking of paying your remote workers or the freelancers who work for you with cryptocurrency? Perhaps you’re a gig worker, interested in how to get paid in crypto. This guide is for you. We will work through the do’s and don’ts of crypto payments, including the infamous sticking points such as legal risks, tax obligations, and how to actually set the new payment method up. By the end, you'll have a clear understanding of whether paying salaries in crypto is right for your business and how to do it safely and effectively.

Why are Companies Interested in Paying with Cryptocurrency?

Work is evolving, and workplaces must, too. An increasing number of businesses are developing distributed teams, with employees and freelancers dotted around the world. Conventional international transfers are slow, expensive and sometimes complicated. That’s where cryptocurrencies such as Bitcoin and Ethereum provide a tantalising alternative.

Here are some of the primary drivers behind why businesses are experimenting with crypto payments:

• Speed and Efficiency: International bank transfers can take several days to clear, and they often come with high transaction fees. Crypto transactions, especially on modern networks, can be processed in minutes, and fees are usually a fraction of the cost.
• Reduced Transaction Costs: Sending money across borders with traditional financial institutions can be costly, with hidden fees and unfavorable exchange rates. Paying for work with crypto can significantly cut these expenses, benefiting both the company and the recipient.
• Accessibility: A sizable part of the population is unbanked in various parts of the world. One use case for cryptocurrencies is that you can pay people who don’t have access to traditional financial services.
• Global Access: MNCs can pay from one system to anyone worldwide without worrying about managing multiple currencies, complex regulations or high conversion fees.
• Talent Attraction: For companies in the tech and blockchain sectors, offering salaries in crypto can be a powerful way to attract and retain top talent who are passionate about the industry.

Can You Legally Pay a Salary in Crypto?

The answer here is not simple. The legal status of cryptocurrency varies wildly from country to country. In many places, crypto is not considered a legal tender, meaning you can't use it to pay mandatory obligations like taxes or wages in the same way you would with a national currency.

• Countries with Clear Regulations: Some countries, like El Salvador, have made Bitcoin legal tender. Others, such as the United States, view cryptocurrencies as property or assets. In these cases, you can't technically pay a salary directly in crypto; you can, however, offer it as a supplemental payment or as a form of compensation in a contract.
• Countries with Strict Prohibitions: A few nations, like China, have outright banned crypto transactions, making it illegal to use it for any form of payment.
• The Gray Zone: The vast majority of countries fall into a gray area. There are no specific laws addressing crypto salary payments, but there are no explicit prohibitions either. This is where legal advice is essential. The safest approach is to treat the crypto payment as a bonus, an asset transfer, or a "gift" rather than a direct salary. The primary salary should still be paid in the local currency to fulfill legal obligations.

Methods for Paying Salaries and Services in Cryptocurrency

Since direct salary payments in crypto can be legally complex, companies typically use one of two main models:

• Model 1: The Hybrid Approach. The company pays the employee their base salary in traditional fiat currency (e.g., USD, EUR) to cover all legal requirements and taxes. A portion of their compensation, or a bonus, is then paid in crypto. This is a great way to start, as it mitigates legal risks.
• Model 2: The Fiat-to-Crypto Conversion Service. This is the most common and legally compliant method. The company pays the employee's salary in fiat to a third-party service provider. This provider then automatically converts the fiat into the cryptocurrency of choice and transfers it to the employee's digital wallet. This process ensures the company meets all its tax and legal obligations, while the employee receives the desired crypto.

Practical Tools and Platforms for Cryptocurrency Payments

Don't try to manage crypto payments manually. It's too risky and complicated. Using specialized platforms and tools is the best way to ensure security, compliance, and ease of use.

• Payment Gateways: Services like BitPay, Coinbase Commerce, and CoinPayments are designed for businesses to accept crypto payments. They can also be used for outbound payments. They handle the conversion and provide detailed transaction records.
• Payroll Services: Specialized payroll platforms like Request Finance, Deel, and Rippling are specifically designed for paying international teams and freelancers. They often include the option to pay in crypto, handling the legal complexities and ensuring compliance with local laws.
• Crypto Wallets: Employees will need their own secure crypto wallets to receive and store their payments. You can recommend reputable wallets like Metamask, Ledger, or Trust Wallet, but it’s crucial that employees understand how to manage their private keys securely.

Tax and Legal Considerations for Crypto Payments

Ignoring the tax and legal aspects of paying salaries in crypto is a recipe for disaster. The moment you start making payments with crypto, you enter a complex world of regulations.

• Taxation of Crypto Payments: The tax treatment of crypto payments depends on your country. In many places, crypto is considered property, so when you pay someone with it, it's often seen as a sale of property. The company might have to calculate capital gains or losses on the crypto at the time of the transaction. For the employee, the payment is typically taxed as income based on its fair market value at the time of receipt.
• Employer Responsibilities: As an employer, you're responsible for withholding taxes and social security contributions from your employees' salaries. This is why the fiat-to-crypto conversion service is the most reliable model. It ensures you can meet these obligations before the crypto is transferred.
• Employment Agreements: It's essential to have a clear, legally sound agreement with your employees. This document should explicitly state that a portion of their compensation will be paid in cryptocurrency, specifying the amount, the type of crypto, and the valuation method. We recommend a legal review of this document to protect your business.

Advantages and Risks for Companies

What Documents Are Needed for Crypto Salary Payments?

To ensure your business is protected and compliant, you should have the following documents in place:

• Employment or Contractor Agreement: A legally binding document that clearly outlines the compensation structure, including the portion of the salary to be paid in crypto. It should also include a clause acknowledging the volatility of the crypto market and how it affects the value of the payment.
• Consent Form: A signed document from the employee or freelancer stating they consent to receive part of their compensation in cryptocurrency and understand the associated risks.
• Third-Party Service Agreement: If you are using a payroll or payment gateway, you will have a contract with them that outlines their services, fees, and responsibilities for compliance.
• Tax Documentation: Keep meticulous records of all crypto transactions, including the date, value at the time of payment, and the recipient's wallet address. This will be crucial for tax reporting.

Is It a Good Idea to Pay a Salary in Crypto?

Paying for work with crypto is an innovative and forward-thinking approach that can offer significant benefits for global businesses. It's not a silver bullet, but with the right legal advice, proper documentation, and the use of reliable platforms, it can become a powerful tool for managing your global workforce.

By understanding the legal landscape and using a structured, compliant approach, you can harness the benefits of cryptocurrency while minimizing the risks. Are you ready to take the next step in modernizing your payroll?