As crypto becomes more mainstream, more and more businesses are exploring the option of paying their employees using cryptocurrency. From startups to well-established companies with global teams, having a crypto payroll can offer unmatched speed, flexibility, and borderless payments; it nonetheless possesses very real accounting and tax obligations. In this post, the team at Onchain Accounting will explain the accounting and tax standpoint of paying employees in crypto, what businesses should watch out for, and how a crypto CPA can help.
Yes, you have the option of paying your employees using cryptocurrencies. However, the approval process to do so can be quite complicated. This is because the Federal Fair Labor Standards Act (FLSA) requires all employers to pay their employees regular and overtime wages in “cash or non-negotiable” instruments. This has historically been represented by fiat currency such as the U.S. dollar.
Therefore, using cryptocurrency to pay minimum and overtime wages for non-exempt employees and minimum weekly salaries for exempt employees with cryptocurrency could be a violation of the FLSA. That being said, if you are insistent on paying using crypto, the best strategy would be to pay at least regular wages in fiat currency while paying any additional compensation through crypto.
If you’re planning on switching from a traditional currency-based payroll to a crypto payroll, here are some best practices that can improve the process:
Get prior authorization from your employees—While there is no strict requirement to get prior authorization from employees, it’s a good idea to inform your employees about the change through HR and your legal department, draft authorization forms, and resolve any issues.
Paying minimum wage and overtime with USD—To avoid any trouble with the Labour Department, we recommend that you continue to pay your regular wages and overtime using USD. Any bonuses or incentives may be paid through cryptocurrencies.
Use third-party vendors—If handling and transferring crypto becomes too complicated, consider partnering with a third-party vendor who can convert your USD into crypto and transfer the assets into your employees' digital wallets.
Speed—Cryptocurrency transactions can be processed almost immediately, and employees do not have to wait days for the bank to process the transaction.
Hiring incentive—Employees who are young and tech-savvy may prefer to receive their payments in crypto since they are more familiar with the digital assets than the previous generations.
Potential gains—The volatility of cryptocurrencies is one of their defining features. On a good day, there is the potential for your crypto assets to experience considerable gains.
Compliance—Laws and regulations involving cryptocurrency, even in the United States, are in their infancy, and sometimes it's better to wait until more laws have been adopted.
Potential losses—The volatility of crypto is a double-edged sword. Not only does it have the potential to generate great gains, but also great losses. There is always the possibility that the crypto you possess will have a lesser value compared to the previous day.
Lack of regulatory protection—The decentralized nature of crypto as well as the lack of government oversight means that there is very little a person can do if something goes wrong and they lose their assets.
The use of cryptocurrency for paying employees is a relatively new idea, and it promises a range of benefits not seen with traditional payrolls. But before you jump ship, take a moment to take stock of all the tax and accounting implications you will have to deal with during this transition. If you’re looking for a cryptocurrency accountant who can help keep your books in order, then Onchain Accounting is the firm for you.
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