Paying Your Employees in Crypto? It’s Not as Weird as It Sounds.

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Cryptocurrency is one of the biggest trends in the world right now, and many workers are interested in how cryptocurrency can be used in their lives as both a medium of exchange and a potential investment. On the employer side, paying in cryptocurrency could actually make compensation easier, especially if you hire employees from around the world.

Here are a few things to think about as you consider whether to offer to pay employees in cryptocurrency.

3 Reasons to Offer Employees a Crypto Salary Option

1. It’s Good for Recruitment

Depending on the types of candidates you want, offering cryptocurrency as part of your compensation package could be one way to attract top employees. Mentioning cryptocurrency as an option definitely makes your job posts more interesting, especially for those candidates who are early adopters of technology, on top of financial trends, or just generally in tune with cultural movements.

In addition, offering crypto compensation promotes a certain company culture. It indicates yours is a company that thinks outside the box — which means similarly creative candidates will take notice.

Offering to pay employees in crypto could send a powerful signal to the types of candidates you want to recruit while simultaneously setting you apart as a company with a unique approach to company culture.

2. You Don’t Have to Deal With Exchange Rates

When you hire staff members from different countries, trying to translate pay from your currency to the employee’s currency can be frustrating. With cryptocurrency, though, you don’t have to worry about exchange rates. Depending on the crypto you’re using as payment, you might also see lower fees when it comes to transactions.

In some cases, sending cryptocurrency via the blockchain could also result in faster payment. Employees are then free to immediately convert some or all of their crypto to their local currency if they’d like.

3. You Can Help Employees Learn About Investing

Perhaps your employees are openly wondering how to buy cryptocurrency or how to invest money. What you’re seeing could be signs that your workers are part of a growing movement in favor of employer-sponsored financial wellness programs.

When you add crypto as a payment option, it can have the side benefit of improving your employees’ financial literacy and educating them about different types of investing. Your workers receive crypto without needing to buy it. They can then explore whether it makes sense to keep their money in crypto, or they are better off converting it to fiat currency and investing in other assets.

The Complications of Crypto

If you’re thinking of offering to pay employees with crypto, you’re not alone. In fact, some big-name cryptocurrency payment processors are expanding into employee payroll services. But before you decide to launch cryptocurrency as a compensation option, it’s important to understand some of the issues that come with it.

1. Taxes

Using crypto as a way to get around payroll taxes won’t work. The IRS still expects you to withhold the appropriate taxes on any amount you pay to employees. However, there’s an added wrinkle with crypto, as the IRS views it as property rather than currency.

As an employer, if you hold cryptocurrency before sending it to your employees, you will need to log a gain or a loss — and be responsible for any resulting capital gains taxes — depending on the difference in value from when you acquired the cryptocurrency and when you paid your employees.

Your US employees will also need to pay attention to the tax consequences. Their taxes will be based on the fair market value of the cryptocurrency when they receive it. They will pay income taxes as if they received property, and they will still have to pay capital gains tax later if the cryptocurrency gains value.

2. Legality

You need to make sure the cryptocurrency you’re using meets the fair wage standards set forth by the relevant laws in whatever state or country your employees are located. Note that when it comes to international employees, not every country allows cryptocurrency transactions.

3. The Volatility of Crypto Value

Cryptocurrency prices are extremely volatile. The crypto you send might be worth your employee’s salary on the day you send it, but it could drop by quite a lot the next day. This could cause issues when your employee tries to convert their crypto to a fiat currency. They might feel like their pay isn’t fair if the cryptocurrency value plummets right after they receive it. On the flip side, if the cryptocurrency’s price surges following payday, the recipient might be subject to higher capital gains taxes when converting the crypto to fiat currency.

Paying in cryptocurrency could be one way to attract certain kinds of employees and make paying them easier. However, some very real complexities come with paying employees in crypto. If paying with crypto is something you want to offer, consider consulting with a business tax professional or payroll expert before moving forward.

Kris Osborne is chief of staff for FinanceBuzz.

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By Kris Osborne