• Ashleigh Green, Employment Solicitor at Napthens Solicitors


• 26.10.2022 03:30 am
#crypto

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

Whilst the concept of paying employees in cryptocurrency is still in its infancy, some major businesses including PayPal, Starbucks, and Microsoft have started to embrace the use of cryptocurrency for the payment of apps and games. The Starbucks app also allows customers to reload their Starbucks card with bitcoin and another cryptocurrency. With major players embracing cryptocurrencies we must ask how they will be used next.

It is possible for companies to pay their workforce in cryptocurrency; however, unless an individual has an extremely strong stomach and a positive outlook on risk, it is unlikely any employee would accept 100% of their wages in cryptocurrency considering its volatility and currently limited use case. That’s not to say paying partial salary and/or bonuses in cryptocurrency would be dismissed as easily.

The benefits

• Speed – in a post-pandemic world it is not unusual for employees who are working from home to be located all over the world. Cryptocurrency transactions are realised and settled almost immediately unlike standard banking transactions which can typically take longer.
• Workforce appeal – payment in the form of cryptocurrency could 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 significantly fluctuate in value. When the markets are high, employees could effectively find their payment is worth more than if they would have received it via a bank transfer.

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

It is also an opportunity to teach employees about the basic principles of crypto as it grows in prominence. Given its relative newness, people are typically less educated on how it works. Through proper education, employees will have confidence in using crypto and how to spot what is legitimate and what is not, better protecting any crypto assets they hold.

The drawbacks

• Volatility – The volatility of cryptocurrency is a double-edged sword. While it can increase in value,  there is an increased risk in the asset quickly decreasing in value, leaving employees underpaid without warning. Understandably, this would be a huge concern where employees are receiving their salary in crypto, but if this is used for bonuses or part-payment, this may reduce the risk. Because employees won’t be relying on bonuses to pay bills, the impact of any volatility would be lower.
• Compliance – if you are considering paying employees in cryptocurrency, you must ensure you are complying with the laws of the country in which you operate as well as the country where the employee is based. A failure to comply with the law could result in fines and legal cases if an employer fails to correctly calculate gross and net pay, for example.

Taxation

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 would be considered ‘income’ and would therefore be taxed at the source the same way regular salaries are. 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 for the purpose of paying wages and it gains value. The solution to this would be to buy bitcoin - of an agreed value in a regular currency, for example, £250 – as close as possible to when it is needed, rather than stockpiling ahead of time. 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 on each transaction.

Utility for a global workforce

Paying employees in crypto has appeal to organisations with a global workforce. Transfer of crypto doesn’t typically involve major banks or financial institutions, meaning it is sent and received in a much shorter timeframe than regular currency, such as pound sterling or US dollars. It is also more resistant to conversion fees, charged by major financial institutions when money is transferred from the organisation’s native currency to the employee’s local bank, which can be different, especially for global organisations.

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

Choosing cryptocurrency

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

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

Summary

In summary, it is possible to pay employees in the form of cryptocurrency; however, if you are considering using cryptocurrency to incentivise employees, either through bonus payments or part-payments of salaries you should consider any compliance issues and check if this is something your employees want. Do your employees have the knowledge or experience to soundly agree to crypto investments and is this something your business can implement to be more futureproof?

In time, it will be interesting to see whether paying employees with crypto becomes more popular in-line with the sector’s growth in general, and whether we will see any major corporations adopt this practice. It’s already possible, and mostly a question of who will take the leap first.