The cryptocurrency has made remarkable progress in recent years. Bitcoin reached a peak of more than $ 60,000 this year, a jump of more than $ 50,000 from the previous year. Services like PayPal are also expanding crypto support as the once-niche resource bursts into the mainstream.
Not long ago, companies were hesitant to dip their feet into the world of cryptocurrencies. It seemed like a passing fad, was too volatile, or lacked legitimacy to be a worthwhile business investment. Now, with major banks and other companies embracing cryptocurrencies, more are beginning to believe that its benefits finally outweigh its risks.
Many companies now accept cryptocurrency payments for their products and services. However, some have gone a step further. For example, there is a burgeoning trend of companies paying their employees with Bitcoin or other cryptocurrencies.
If you’ve heard of this trend, you likely have a few questions. Is it legal to pay employees with crypto? It is practical? How could a company do that? Here’s a closer look.
Benefits of paying with crypto
The reason a business wants to establish a cryptocurrency payroll may not be immediately clear. Crypto clearing is a complicated process, but it can also have several benefits. One of the most significant is its security and efficiency, especially for international payments.
With fiat currency, cross-border payments must go through conversions and intermediaries, which can lead to fees and slow things down. Since cryptocurrencies run on decentralized blockchains, they can reduce the costs associated with these payments. For example, employers can send money to international employees instantly without intermediaries.
The distributed and transparent nature of blockchains also gives crypto payments some security benefits. Anyone can see blockchain transactions, but no one can change them. This transparency and security help build more trust in payments, which is particularly useful for independent contractors and freelancers.
Employees may want crypto payments because it can help them earn more money without additional work. For example, instead of immediately converting their crypto, workers could wait for its value to increase, then sell it and make a profit. This extra easy money could help workers like nurses, teachers, chefs, and truck drivers who face more challenges and risks than most professions in America.
Companies in some competitive fields like the tech industry could allow crypto payments to attract top talent. By offering this type of compensation, companies demonstrate that they are pioneers in adopting forward-thinking technology and that they attract like-minded employees.
The best and the brightest, interested in new and exciting technology, would take their talents where they think they are welcome.
Challenges with crypto compensation
Despite all its benefits, crypto compensation still has some considerable hurdles in its path. In particular, their legal status is confusing at best. The Fair Labor Standards Act requires employers to pay cash or its equivalent. One could argue that cryptocurrency is a legitimate substitute for cash, but without many legal precedents, the Department of Labor may not see it that way.
There are also state laws to consider. For example, some states require employers to pay wages in US currency, which would disqualify decentralized alternatives like Bitcoin. Many of these have exceptions, but they would still need some potentially tricky loopholes to pay crypto workers.
Crypto clearing can also be a headache when it comes time to file taxes. Regulations are not yet clear on the taxable status of cryptocurrencies, and could change as cryptocurrencies become more popular. Companies may have the resources to understand and handle these strange tax situations, but individual employees may not.
Cryptocurrency volatility can benefit employees by giving them “free” money, but it can also have the opposite effect. For example, imagine if a company pays a worker in Bitcoin, but the value of Bitcoin falls before the payment reaches the worker’s bank account. Quick value changes like this can lead to employees not getting their full compensation.
If companies use crypto compensation to attract tech savvy workers, they could run into interoperability issues. Different blockchains lack interoperability, so much so that users cannot transact Bitcoin for Ether without a centralized crypto exchange. So if companies pay in a different cryptocurrency than an employee uses, it will quickly lose its luster.
Is it worth paying employees with crypto?
It seems that for every benefit of crypto compensation, there is a challenge to match. Still, it’s hard to say whether something is worthwhile based entirely on what-if situations. Looking at real-life examples of companies that have instituted some level of crypto payments can offer further guidance.
An employee of an unidentified US company described his experience with crypto payments to MarketWatch. After paying this person for contract work, the CEO of the company asked to return the crypto after its value rose 700%. Of course, the CEO cannot enforce this as it would be a breach of contract, but the situation highlights some of the crypto compensation issues.
The increasing or decreasing value of cryptocurrencies can make employers feel like they have overcompensated workers or that workers feel like employers have paid them less. While these transactions can be perfectly legal, as long as the employee has chosen to be paid in this way, they can create tension. So even if you have the legality, taxes, and logistics figured out, crypto payroll can still be a risk.
Of course, this story may not represent how crypto compensation would play out for other companies. However, other organizations are taking an interest in it and could serve as useful examples.
As more prominent organizations embrace crypto payroll, the practice will gain legitimacy. Additionally, standards will be developed to do so and legal regulations may change to accommodate these payments. So while crypto compensation may be a risky venture now, it may not be in the future.
How Crypto Payroll Could Work
Setting up a crypto payroll system today could require a considerable amount of preparation. It’s still a risky endeavor, so companies must plan thoroughly to mitigate the associated challenges. First, there is the issue of legality. There are some prerequisites for these payments to be legal.
Since many states require employers to pay workers in US currency, they could use a conversion service. In this system, employers would send a payment in dollars, which is then quickly converted to crypto at the current exchange rate. Alternatively, crypto payments could function as bonuses or overtime payments, while US currency represents the paychecks of most workers.
Since the regulations on independent contractors are less stringent, these workers are ideal for crypto compensation. However, no matter what type of worker receives crypto payments, they must be a volunteer. Additionally, employees must choose to receive payments in cryptocurrencies. Otherwise, employers could get into legal trouble.
Both employers and employees may need to create a crypto wallet to facilitate payment. Fortunately, this process is getting easier. Businesses can even use peer-to-peer payment apps like PayPal to send crypto payments, which may be the easiest option. These third-party services come with built-in crypto wallets, but businesses need to make sure they are secure first.
Companies also need to ensure that everyone involved understands the risks as well. All parties must be aware of the possible complicated tax implications and accept the volatility of cryptocurrencies. Everyone should also record conversion rates at checkout to help with their taxes later.
Cryptocurrency is getting more legitimate
Crypto compensation is still a new concept, so it will be some time before it is a reliable and safe business practice. However, as more companies investigate it, the process, as well as the cryptocurrency itself, will gain legitimacy. As that happens, the regulations will become clearer and new services will appear to facilitate these payments. Therefore, in the future, crypto compensation may not carry many risks.
At this point, it is clear that the cryptocurrency is more than a trend. It is a well established and growing resource that companies may not want to ignore for much longer. Before long, it could be a central part of how businesses operate.
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