Cryptocurrency has made remarkable progress over the past few years. Bitcoin peaked at over $ 60,000 this year, a jump of over $ 50,000 from the previous year. Services like PayPal are also expanding support for crypto as the once-specialized resource enters the mainstream.
It wasn’t that long ago that companies were reluctant to enter the world of cryptocurrency. It looked like a fad, was too volatile, or lacked legitimacy to be a profitable business investment. Now, with the big banks and other companies embracing crypto, more and more people are starting to believe that its benefits are finally outweighing its risks.
Many companies now accept cryptocurrency payments for their products and services. However, some have gone further. For example, there is a growing trend for companies to pay their employees with Bitcoin or other cryptocurrencies.
If you’ve heard of this trend, you probably have a few questions. Is it legal to pay employees with crypto? Is it practical? How could a business do this? Here’s a closer look.
Benefits of paying with Crypto
Why a business would want to set up cryptocurrency payroll may not be immediately clear. Crypto clearing is a complicated process, but it can also have several advantages. One of the most important is its security and efficiency, especially for international payments.
With fiat currency, cross-border payments have to go through conversions and intermediaries, which can incur 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 any middleman.
The distributed and transparent nature of blockchains also gives crypto payments some security advantages. Anyone can see blockchain transactions, but no one can edit them. This transparency and security helps build greater trust in payments, which is especially 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 rise, then sell it and make a profit. This easy extra cash could help workers like nurses, teachers, chefs, and truck drivers who face more challenges and risks than most occupations in America.
Companies in certain competitive fields like the tech industry could allow crypto payments to attract top talent. By offering this type of compensation, companies are showing they are forward-thinking technology pioneers, attracting like-minded employees.
The best and the brightest, interested in new and exciting technologies, would bring their talents where they think they are welcome.
Challenges with crypto clearing
Despite all of its advantages, crypto clearing still faces considerable hurdles. In particular, its legal status is unclear at best. The Fair Labor Standards Act requires employers to pay in cash or its equivalent. One could argue that cryptocurrency is a legitimate substitute for cash, but without much legal precedent the Department of Labor might 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 them have exceptions, but would still need potentially complicated legal loopholes to pay workers in crypto.
Crypto clearing can also be a headache when it comes to filing taxes. Regulations are still unclear on the taxable status of cryptocurrency, and they could change as crypto becomes more and more popular. Businesses may have the resources to understand and handle these bizarre tax situations, but individual employees may not.
The volatility of cryptocurrency 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 drops before the payment reaches the worker’s bank account. Rapid value changes like this can result in employees not receiving their full pay.
If companies use crypto clearing to attract tech-savvy workers, they could run into interoperability issues. Different blockchains lack interoperability, so much so that users cannot transact Bitcoin to Ether without a centralized crypto exchange. So, if businesses pay in a different cryptocurrency than an employee uses, it would quickly lose its luster.
Is it worth paying employees with crypto?
It seems that for every benefit of crypto clearing, it’s hard to match. Still, it’s hard to say if anything is worth it based entirely on hypothetical situations. Examining real-life examples of companies that have instituted some level of crypto payments may offer more guidance.
An employee of an anonymous US company described his experience with crypto payments to MarketWatch. After paying this person for contract work, the CEO of the company asked him 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 issues with crypto clearing.
The rising or falling value of crypto can make employers feel like they have overcompensated workers or workers feel like employers have underpaid them. While these transactions may be perfectly legal, provided the employee has chosen to receive payment in this manner, they can create tension. So even if you’ve figured out the legality, taxes, and logistics, crypto payroll can still be a risk.
Of course, this story may not represent how crypto clearing would play out for other companies. However, other organizations are interested and could serve as useful examples.
In February, Twitter’s CFO said he was considering paying employees with Bitcoin and would continue to monitor it. Likewise, the city of Miami is exploring Bitcoin payments for municipal workers.
As larger organizations adopt crypto payroll, the practice will gain legitimacy. In addition, standards for doing so will evolve and legal regulations may change to accommodate these payments. So while crypto clearing may be a risky business now, it may not be in the future.
How crypto payroll could work
Setting up a crypto payroll system today could require considerable preparation. It is always a risky business, so companies should plan carefully to mitigate the associated challenges. First, there is the issue of legality. There are a few 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 would then quickly convert 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 for independent contractors are less stringent, these workers are ideal for crypto clearing. Regardless of the type of worker who receives crypto payments, it must be voluntary. Additionally, employees must choose to receive cryptocurrency payments. Otherwise, employers could have legal problems.
Employers and employees may need to create a crypto wallet to facilitate payment. Fortunately, this process is getting easier and 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 companies must first make sure they are secure.
Businesses also need to make sure that everyone involved also understands the risks. All parties should be aware of the potential complex tax implications and accept the volatility of crypto. Everyone should also record the conversion rates at the time of payment to help with their taxes later.
Cryptocurrency becomes more legitimate
Crypto clearing is still a new concept, so it will be some time before it becomes a reliable and secure business practice. As more companies look into it, the process, as well as the cryptocurrency itself, will gain legitimacy. As time goes by, the regulations will become clearer and new services will appear to facilitate these payments. So in the future, crypto clearing might not come with much risk.
At this point, it’s clear that cryptocurrency is more than a trend. It’s a well-established and growing resource that businesses may not want to ignore any longer. Soon, this could become a central part of how businesses operate.
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