Companies that hope to excel in the fight for talent while saving money on fees for payroll transactions through financial intermediaries have an alternative method to explore: incorporating cryptocurrencies into their compensation plans.
For some organizations – such as startups and those in the tech and media sectors that recruit digital nomads, or those with employees in developing countries – cryptocurrencies can provide an intriguing value proposition and opportunity to position themselves at the forefront. However, such a move is not without risk for those companies and their employees who choose to participate in such payments, especially in the face of significant regulatory ambiguities and huge fluctuations in the value of many leading cryptocurrencies. What are the risk-balanced benefits in this topic – and can they be mitigated?
Is there a business case for cryptocurrency payroll transfers?
Among US stock market investors aged 18 to 40, 40% own cryptocurrencies, making it the third most popular type of investment (before bonds, options and index funds), according to a survey conducted in April 2021 by The Motley Fool. For Gen Z investors in particular – the oldest of whom are around 25 years old – this figure rises to 47% in the same survey, with crypto being the second most popular investment, even more so than mutual funds.
Among American adults, a separate May 2021 poll also showed a big call for crypto payments: just over 40% would consider it as part of their salary, and 31% for their entire salary. It was also noted that 20% of people who have never owned crypto say they are likely to buy it next year, representing over 50 million people.
Meanwhile, since the pandemic, more and more companies are broadening their horizons and building a global workforce that goes beyond physical offices – and there is always the risk that the best suited or profitable talent may live in a country with local currency problems. Years of double-digit inflation are rapidly destroying the fruits of labor of many workers around the world, and in such cases, cryptocurrency payments can be the optimal alternative.
Some cryptocurrencies can be very volatile, which can be a serious drawback and can also be part of their attractiveness. For example, bitcoin fell from around $ 63,000 in mid-April 2021 to around $ 35,000 a month later, but this is still soaring from $ 7,000 over a year ago. to the value of fiat money or commodities, such as the US dollar or gold, which typically do not fluctuate suddenly, ensuring consistency that can be elusive with direct payments in developing countries.
Salary in cryptocurrencies – understanding the nuances
The US Department of Labor requires employees to be paid “in cash or in a negotiable instrument payable at par.” But whether or not cryptocurrencies are compatible as a tradable instrument has not been finally settled. Some states explicitly require wages to be paid in US dollars, although there may even be exceptions to these rules.
The IRS defines cryptocurrencies as property, not currencies, which has tax implications and reporting issues for employees and employers – for example, risk of forfeiture and how to withhold tax from wages.
Acquiring cryptocurrencies and keeping them on balance can expose your organization to risk from fluctuations in value, especially for bitcoin and ether (to a lesser extent for stablecoins). To safely manage and store cryptocurrencies, there are important technical considerations to consider – not only protection against cyber attacks, but also self-inflicted issues such as loss of keys required for a transaction.
The optimal solution for individual organizations would be to implement a special pilot program. It would allow cryptographic payments to be made without any possible legal ambiguities, while also being able to use an external tool. Thanks to such cooperation, the organization would not have to acquire and store digital currencies on its own. It is an external entity that would exchange fiat currency for cryptocurrency at the current rate and transfer it to the employee’s digital wallet.
Crypto salary – step by step
Here is an example of a step-by-step process implementation for companies that will rethink their risk management policy and decide they want to pay employees in cryptocurrencies:
– verify how many employees would be interested in participating in the pilot program for receiving remuneration in bitcoin. It will be necessary to involve the leaders of individual departments;
– consider using a third-party bitcoin payment provider to mitigate some of the liquidity risks of the cryptocurrency. The transaction cost varies depending on the cryptocurrency provider. However, in the end it should be much lower than in the case of banking institutions. Payroll must be properly reported and taxed in accordance with national laws.
Blockchain is penetrating more and more into everyday life, as evidenced by, inter alia, willingness to accept salaries in digital currencies. What awaits us in the future and how will this technology develop? For the latest news, follow Kanga Kantor’s blog!