This year has been quite eventful for bitcoin, as the cryptocurrency enters the mainstream market on a larger scale.
Bitcoin (abbreviated as ‘BTC’) reached its historic high in April 2021, having surpassed $60,000 in value. On top of that, the digital currency has attracted the interest of major market players, including the likes of Tesla, Microsoft, Home Depot, PayPal, and Xbox, who’ve announced plans to accept Bitcoin as a standard means of payment for their products and services.
While opinions are still divided on whether bitcoin will earn the status of a regular currency in the long run, in this post we look at the digital currencies from the perspective of global payroll, examine the current regulatory landscape, and look at the changes that the global payroll needs to solve before the bitcoin wallet replaces bank accounts.
What is crypto payroll?
Crypto payroll refers to the use of cryptocurrencies as means of payment of employee wages.
Already now, there is employee-driven interest to get paid in bitcoin, as both full-time employees and freelancers hope to make substantial earnings on bitcoin down the line.
Plus, bitcoin is simple to exchange. People can easily send bitcoin via their bitcoin address, while all these bitcoin transactions are permanent and traceable and stored in the bitcoin network. This makes it a popular and fast way to get paid. Meanwhile, as household commercial brands embrace bitcoin, employers are tempted to offer it as an attractive part of a bonus package.
But despite their budding popularity as means of wage payments, cryptocurrencies are fraught with volatility. Bitcoin alone has seen massive surges and plummets in the span of only a few months. When Tesla CEO and billionaire, Elon Musk, publicly supported bitcoin and disclosed he spoke to the North American bitcoin miners, only to later support Dogecoin, the price of the cryptocurrencies went wild within less than a day. This volatility makes it difficult for bitcoin to become a reliable basis for wages and other fringe benefits.
In addition, cryptocurrencies are often associated with illicit activities, such as money laundering or drug trafficking. As a result, companies are reluctant to get involved in the intricate bitcoin network and risk heavy regulatory fines and reputational risk.
Finally, the fluid nature of cryptocurrencies, as well as diverse treatments and terminology used to describe it, makes it difficult to execute transactions across borders. It’s also difficult to tie bitcoin to the existing legal money flows.
For instance, bitcoin and other blockchain-based tokens, are called ‘digital currency’, ‘virtual commodity', ‘payment token’, ‘cyber currency’, or ‘virtual asset’. This different treatment of bitcoin across countries signals different treatment under tax, compliance, and labor laws.
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Overview of coin wallets
Bitcoin may be the most popular cryptocurrency, but far from the only one that employees would find attractive if it were part of their income package.
Already now, there are over 5,000 digital currencies, which range in value from several dozen thousand USD, and include well-established names such as Ethereum (ETH), Bitcoin Cash, and Litecoin, to more obscure crypto, that’s currently worth almost nothing, but might repeat the success of more prominent digital currencies.
Is crypto wage legal?
The biggest challenge with cryptocurrencies from a payroll perspective is that there is no yes or no answer to the question of the legality of cryptocurrencies, bitcoin included. No central bank in the world has approved crypto as an established means of payment, which makes it difficult for payroll departments to rely on bitcoin as a payment method on par with traditional or fiat currencies.
At the moment, cryptocurrencies are largely not regulated worldwide, with the exception of several countries, including China, Russia, Vietnam, Bolivia, Ecuador, and Columbia, where trading or mining bitcoin is considered illegal.
On the other hand, the US, the EU, Canada, and Australia have adopted generally positive views of bitcoin exchanges, but no country still treats bitcoin as money. And last year, Nigeria came to prominence, as it surpassed all other nations, save for the US and Russia, in bitcoin trading.
Crypto regulations: how is bitcoin regulated?
Bitcoin, like most less prominent cryptocurrencies, is still not considered real money, which only exacerbates the issue of using it to pay employee wages.
Even in the most crypto-friendly regulatory landscapes, such as the US, bitcoin is treated as “money services business”, which means it falls under more stringent regulations, and is taxed differently compared to traditional currencies. Plus, the IRS treats bitcoin as property for taxation purposes.
Meanwhile, in the EU, bitcoin has been exempt from VAT in light of the Court of Justice of the European Union ruling, where it is considered to be “a supply of services“. Within the EU, in countries like Germany, bitcoin has a legal status, but is taxed differently in the case of bitcoin miners, end-users, exchanges, or enterprises.
Speaking of tax treatment, a comparative study by the Library of Congress’ Global Legal Research Directorate, surveyed 130 countries to define a global government and central bank stance on bitcoin mining and bitcoin payments and identified quite diverging treatments.
For example, in Israel, bitcoin is taxed as an asset, while in Switzerland it’s treated as a foreign currency. At the same time, Argentina and Spain treat it as income tax, while Denmark also treats it as income tax and losses are deductible. In the UK, on the other hand, corporations pay corporate tax, unincorporated businesses pay income tax, and individuals pay capital gains tax.
This dissonant tax treatment of bitcoin signals the difficulty of offering bitcoin salaries to employees. As there is no alignment between national legislation, payroll teams might face substantial difficulties in understanding which of these regulations to follow when paying employee salaries.
How to get paid in cryptocurrency?
While bitcoin is still not used for salaries on a significant scale, there have been cases of employees accepting bitcoin as their income currency. Back in 2020, the NFL player Russell Okung of the Carolina Panthers got part of his salary paid in the digital currency, with some other sports clubs also announcing the option of offering crypto as the means of payment.
According to Reuters, such a salary (i.e. paid in bitcoin) would be treated like other income. And if an employee was to sell the bitcoin once its value jumps, they would be subject to pay tax at a capital gains rate of 20%, which is a lot lower compared to the current top income levy of 37%.
The appeal of bitcoin salary is in the near-instant receipt of funds, lack of overhead expenses, and third-party services. It’s a one-on-one interaction between the employer and employee, where both parties only need to secure their bitcoin wallets before they can get paid.
In terms of paying individual contractors, bitcoin invoicing is also becoming a reality. There are a number of services that allow creating standardized bitcoin invoices that can be automatically generated and sent, which speeds up the entire payment process.
Solving cryptocurrency payroll challenges
But as the crypto community wages on bitcoin going up in value in the long run, the global payroll would have a potentially substantial amount of work if the bitcoin’s value was to plummet, most likely leading to disgruntled employees looking for additional compensation.
After all, as bitcoin comes with a heightened sense of volatility, the question is how payroll teams should respond to changes in the price of bitcoin, whichever way it went. While there are bitcoin ATMs and online platforms, such as Coinbase or Bitwage, to buy and sell crypto, it’s still difficult, on a global scale, to tie it with the traditional payroll.
Since cryptocurrency payroll is a pioneering work, there is a scarcity of cases in point from which to draw inspiration, but companies would need to build a broad framework to tackle the fluid nature of cryptocurrencies, working extensively with legal and compliance departments, sourcing input from the crypto community, and allowing employees to have a say in how their salaries tied to crypto should be regulated.
While this puts additional strain on payroll, it increases the attractiveness of a company's hiring prospects and allows companies to source top talent worldwide.
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