payroll

Getting Paid in Bitcoin: Crypto Payroll 101

Bitcoin is becoming an accepted means to pay employee wages, but there are plenty of challenges ahead for crypto payroll. As cryptocurrency enters the mainstream market on a larger scale, it's time to look at how feasible it is to get paid in crypto like bitcoin.

Owen Yin
Written by Owen Yin
January 25, 2022
Contents
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Crypto is shaking up our concept of money. Bitcoin (BTC), the leading digital currency, reached a historic high in November 2021, surpassing USD 68,000 in value. Companies like Tesla and Microsoft have announced plans to accept Bitcoin as a standard means of payment for products and services. So if you can buy things with crypto, can you get paid in it?

The short answer is yes: some companies now offer their employees the option of getting paid in bitcoin (or other cryptocurrencies). Crypto payroll is an exciting in-road for employees looking to break into digital currency. But regulations around cryptocurrency are complex and still in flux. If you’re interested in offering your employees and contractors crypto payroll, you’ve found the right guide. We’ll explore:

  • How cryptocurrency works in global payroll
  • The current regulatory landscape on cryptocurrencies
  • Problems that global payroll needs to solve before the bitcoin wallet can replace the bank account
  • How Deel is integrating crypto into payment systems

What is cryptocurrency payroll?

Crypto payroll is the use of cryptocurrencies as a means of payment of employee wages.

Bitcoin is the most popular option for crypto payroll, but it’s not the only option. Coins range from established names like Ethereum (ETH) and Litecoin (LTC) to rapidly growing ones like Solana (SOL) and Cardano (ADA). Crypto is still new, so obscure coins may emerge and even overtake today’s currencies.

Advantages of cryptocurrency in payroll

Getting paid in bitcoin appeals to workers and companies with global workforces because it offers near-instant transfers and low fees. Advantages include:

It’s fast

Cryptocurrency’s most significant benefit is speed: transactions settle almost instantly, compared to traditional SWIFT transactions, which can take weeks.

It’s direct

Crypto transactions take place on a peer-to-peer network without an intermediary financial institution. If I send you bitcoin, it goes directly to you. Thanks to the peer-to-peer structure, all bitcoin transactions are permanent, visible, and secure.

It’s decentralized

Crypto’s peer-to-peer network sidesteps centralized authorities that control the supply of traditional currency, like banks and governments. In other words, crypto’s value is independent of government or financial institutions. 

It’s an investment

Unlike traditional fiat payments, crypto has the potential to rise in value. Employees could end up collecting far more than their base salary if the value of crypto appreciates. (Of course, it also has the potential to depreciate over time, which we’ll discuss below.)

It’s enticing

Almost nine in ten American adults have heard of crypto, and about 40% of American millennials own them. For that reason, many employees, independent contractors, and freelancers now pursue crypto payments. A signing bonus paid in crypto could make for an attractive offer. At the same time, flexible payment options like crypto withdrawals might make some organizations—such as startups and those in the tech and media sectors recruiting digital natives—stand out from their competitors and attract talent.

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Disadvantages of cryptocurrency in payroll

Cryptocurrency is still finding its place in financial and governance systems, so it’s prone to volatility and limited in many areas. Disadvantages include:

It’s volatile

Cryptocurrencies are volatile. Bitcoin alone sees significant price surges and plummets in the span of only a few months. This volatility makes bitcoin an unreliable basis for wages and fringe benefits. Employees could potentially walk away with less than their base salary by accepting payments in crypto.

It has a suspicious reputation

Crypto user addresses are pseudonymous, so crypto is often associated with illicit activities such as money laundering. As a result, companies may refuse to participate in the bitcoin network to avoid reputational risk.

It’s not globally accepted

Varied cryptocurrency regulations across countries make it difficult to establish crypto payroll services on a global scale. Countries use inconsistent terminology to describe crypto, have unique rules and tax treatments, and change regulations often. For instance, the language to describe bitcoin and other cryptocurrencies might be “digital currency,” “virtual commodity,” “payment token,” “cyber currency,” or “crypto assets.”

Inconsistent verbiage adds complexity to international transactions that must comply with financial regulations, like wage payments.

It’s not integrated with existing systems

It’s challenging to tie bitcoin to existing legal money flows. The vast majority of banks don’t support crypto—it’s impossible to send bitcoin through your local bank, for example. Although crypto-based systems (decentralized finance) are growing, existing financial systems like credit cards and loans don’t work with crypto, limiting usability.

Crypto regulations: how is bitcoin regulated?

Bitcoin and other cryptocurrencies are not real money or legal tender in many countries. The exception is El Salvador, which legislated bitcoin as its official currency in September 2021.

One of the most comprehensive reviews of global crypto acceptance was conducted in 2018 by the Library of Congress’ Global Legal Research Directorate. The review surveyed 130 countries regarding their government and central bank stance on bitcoin mining and payments. It identified very diversified treatments, ranging from permissive to restrictive.

Countries with friendly regulation

In the most crypto-friendly regulatory landscapes such as the US, bitcoin is a “money services business.” It falls under more stringent regulations and is taxed differently than traditional currency by the IRS. The IRS treats bitcoin as property for taxation purposes.

Countries with restrictive regulation

Many countries ban cryptocurrency altogether. As of November 2021, nine countries have an absolute ban on crypto, meaning owning or trading crypto is considered illegal. The nine countries with complete bans are:

  • Algeria
  • Bangladesh
  • China
  • Egypt
  • Iraq
  • Morocco
  • Nepal
  • Qatar
  • Tunisia

42 countries have implicit bans on cryptocurrencies, meaning the government has placed restrictions on banks and financial institutions from dealing with crypto or offering services to crypto providers.

These broad restrictions currently make it impossible to offer a bitcoin wage on a global scale.

Taxes on cryptocurrency

Cryptocurrencies are taxed differently from country to country. In the European Union, bitcoin is exempt from VAT (value-added tax) in light of a 2015 Court of Justice of the European Union ruling. They consider bitcoin “a supply of services.”

In Israel, bitcoin is a taxable asset. In Switzerland, it’s a foreign currency. Argentina and Spain treat it as income tax, while Denmark treats it as income tax with deductible losses. In the UK, on the other hand, corporations pay corporate tax, unincorporated businesses pay income tax, and individuals pay capital gains tax on crypto profits.

Accepting a salary in crypto would be treated like any other income for tax purposes. Companies must report payments in local currency for income tax purposes. Crypto could have additional tax appeal for high earners. In the US, profits from bitcoin have capital gains tax rates of 20%, which is lower than the current top income tax bracket of 37%.

Bitcoin’s dissonant tax regulations signal the difficulty of offering bitcoin salaries to employees. Payroll departments for international teams may struggle to track which regulations to follow when paying employee salaries.

Is crypto wage legal?

Even in countries where Bitcoin is legal, it may not be legal to pay employees in Bitcoin—at least directly. Many countries, including the US and Canada, require wage payments to be made in fiat currency to comply with labor standards. Because of this, it’s better to offer base pay in fiat currency and then partner with cryptocurrency exchange services like Coinbase or Bitwage that provide streamlined payroll solutions. These crypto exchange services can convert local currency into the crypto of the worker’s choosing using crypto accounting software.

At Deel, contractors receive pay in their local currency into their Deel balance. They can then withdraw through Deel’s Coinbase integration. The funds are directly converted into their chosen crypto and arrive into their Coinbase account in minutes.

How to get paid in cryptocurrency?

There are three major categories of crypto payments: traditional peer-to-peer exchanges, custodial wallet exchanges, and DIY conversions.

Peer-to-peer via non-custodial wallets

Both parties need to set up a digital “wallet” to store their coins to make cryptocurrency transactions. Different coins require different wallets—you can’t mix and match. These wallets are non-custodial (also called self-custodial), meaning you’re in charge of the wallet address and its accompanying private key.

Once each party has a digital wallet, they can start to make crypto transactions using decentralized blockchain technology. A blockchain is a system that records transactions made in bitcoin or another cryptocurrency.

Crypto network transactions require some technical expertise. Tools such as Metamask simplify procedures.

Adding a transaction to the blockchain takes computing power, so the network charges a fee. Network fees can vary significantly by the hour, so take this fluctuation into account. 

The infrastructure behind bitcoin payments has developed significantly. Services like BitPay can automatically generate and send standardized crypto invoices, speeding up the payment process.

Once your crypto arrives, the coins are yours to keep. Nobody can move these funds unless they possess your private key, so you must keep it in a safe place.

Exchange via custodial wallets

Alternatively, transfers through a custodial wallet exchange minimize network fees and simplify the payment process. Exchanges provide you with a crypto address to use with a custodial wallet, but they store the key for you.

DIY crypto pay

Suppose an employer isn’t offering crypto as a form of payment yet. In that case, you can convert your paycheck dollars into crypto by buying crypto from an exchange. Keep an eye out for extra transaction fees or network charges in the blockchain. For example, you usually incur a charge for buying crypto with a credit card.

Who typically gets paid in bitcoin?

Bitcoin salaries don’t exist on a significant scale. But notable examples of employees accepting bitcoin as their income currency exist. Typically, individuals who accept bitcoin have high net worths and disposable income to absorb any depreciation.

In 2020, NFL player Russell Okung got part of his salary paid in digital currency. Several sports clubs also announced the option of offering crypto as a means of payment.

In 2022, New York City mayor Eric Adams converted his first paycheck into bitcoin and ethereum, following similar moves by crypto-enthusiastic political figures like Miami mayor Francis Suarez.

Should I pay my workforce in crypto?

Whether or not you choose to pay your workforce in crypto depends on the location and characteristics of your workforce.

For workforces with little tech knowledge or those that reside in countries with restrictive regulations, paying employees in crypto may be impossible or not financially viable.

On the other hand, for a company with a large number of tech-savvy workers located in countries where regulations broadly support cryptocurrency integration, paying workers in cryptocurrency could save the company time and money while boosting employee engagement.

The viability of global payroll through crypto also depends on the stability of the cryptocurrency. Crypto markets are often too volatile for most workers—few people want paychecks in a volatile currency if they rely on it to pay rent. Therefore, if you decide to pay in crypto, it’s a good idea to offer it alongside traditional payment methods to enable those who can take the risk a choice.

Alternatively, stablecoins—virtual currencies backed by fiat—work well as a substitute because they combine the operational advantages of crypto with the price stability of bank-issued money. USDC, for example, is a US-dollar stablecoin: 1 USDC represents $1USD in assets stored off-chain.

Securing cryptocurrency payments is also a challenge. If the private key tied to a crypto wallet is lost, the user can never access those funds. While the responsibility of securing digital assets ultimately falls on the worker, no company wants to encounter a situation where workers lose access to their earned salary. Exchanges are strong alternatives to non-custodial wallets because users can recover their accounts and regain access.

Ultimately, companies that choose to pay workers using cryptocurrency payroll need to develop a framework for the fluid nature of cryptocurrencies. Specifically, they must comply with local laws and allow employees to determine the details of their crypto salaries.

Offer cryptocurrency withdrawals with Deel

At Deel, our mission is to create a more equitable worldwide workforce and build tools to empower companies to hire globally. We think paying your international team shouldn't be an obstacle, and crypto can be part of the solution.

Deel has integrated with Coinbase to offer flexible cryptocurrency withdrawals direct to a Coinbase account. Contractors paid through the Deel platform can currently withdraw funds in Bitcoin, Ethereum, USDC, Dash, and Solana. Deel doesn’t charge any additional fees to withdraw to Coinbase. Note that EOR employees currently don't have this withdrawal option.

Deel’s payroll solution simplifies payments for companies with a distributed workforce. Make one mass payment and fund an entire global team on time and in minutes. Employers can now even fund payroll in USDC on Deel. To learn more about hiring and paying your international team, book a demo today.

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