The opportunities, the problems and the potential

You may not know exactly what it is, but chances are you’ve heard of cryptocurrency before: “a digital or virtual currency protected by cryptography and based on a network distributed across a large number of computers,” according to Investopedia. Cryptocurrency types include Bitcoin, Ethereum (ETH), USD Coin (USDC), and others.

Cryptocurrency has become more present in the mainstream economy, said Quentin Vassas, vice president of payroll and benefits with Remote, which recently introduced crypto payroll. Since July, Vassas shared, “all workers employed in the United States through the Remote platform, including Remote employees themselves, have the option to have a portion of their salary paid in the cryptocurrency of their choice through a partnership with Coinbase.”

Cryptocurrency has been gaining traction in the retail world, getting a big boost in 2021 when Elon Musk announced he would accept cryptocurrency as payment for Tesla vehicles. Major players including Microsoft, Starbucks, Whole Foods and others have since followed suit.

But while its use as a currency in exchange for goods and services is growing, its use in workplaces as a form of payment for employees is much less common, at least for now.

Vassas said interest tends to be higher “in the tech sector, where many workers already have crypto wallets.” Crypto also has particular applications for global employers, she noted. “As a fully decentralized form of currency, cryptocurrencies have the potential to play a huge role in the future of global payroll and can remove barriers to international hiring, allowing companies to easily manage globally distributed teams.”

Benefits of cryptocurrency

The benefits of cryptocurrency payment solutions are becoming more widely understood, said Tim Savage, CPA, partner in tax services at Weaver, a national accounting and consulting firm, based in Dallas. For example, he noted, “Compared to average credit card processor fees, which can range from 1.5% to 3.0%, cryptocurrency payments offer low transaction fees, often as low as 1%. % or less depending on the service provider and the blockchain networks facilitating payments.” Also, he said, cryptocurrency payments are final transactions, often finalized within a minute or less. As a result, he added, “companies no longer have to wait up to several weeks for payments to clear or to be subject to refunds.”

Another plus: Appeal to younger employee demographics. “Younger generations are more comfortable with cryptocurrency transactions,” Savage said. “Enabling these types of payments will drive brand recognition to a new customer base that is looking to make frictionless payment mechanisms more accessible.”

Vassas noted that “the highest rate of cryptocurrency ownership globally is among people aged 25-34.” It is, she said, a “good modern benefit, one that employees actually use and see as helping to improve their quality of life.”

Savage points to a recent study by Deloitte, which indicates that “85% of senior executives in retail organizations expect digital currency payments to be ubiquitous among customers and suppliers in their respective industries within five years or less.” Additionally, she said, 75% indicated they plan to accept payments in cryptocurrency or stablecoins (a type of cryptocurrency whose value is tied to an asset such as the US dollar or gold) within the next 24 months.

Disadvantages and risks

Laura Fuentes, the operator of Infinity Dish in Boca Raton, Florida, said she has asked some employees for cryptocurrency paychecks in recent years, but less frequently as the economy has been in a recession. As her company looked into the matter, she said, “We just weren’t comfortable with the whole process.”

One drawback, Fuentes said, is the volatility of the cryptocurrency’s value. “The value of cryptocurrencies is always changing, so figuring out how much to pay someone has been a real headache because in the morning it could be 2.5 ETH and in the afternoon it could be 4 ETH,” he said, adding, “it would really complicate our situation. fiscal in a way we weren’t prepared for.”

Another problem is security. In September, the White House released a fact sheet warning that “digital assets pose significant risks to consumers, investors and businesses.” The fact sheet goes on to state that: “Fraud, scams, and outright theft in digital asset markets are on the rise: According to FBI statistics, reported monetary losses from digital asset scams were nearly 600 percent higher in the 2021 over the previous year.”

“In practice, a lot of things can go wrong with cryptocurrency transfers,” said Alex More, an attorney at Carrington Coleman in Dallas. For example, he said:

  • User error may result in the encryption being sent to the wrong address and may therefore be unrecoverable.
  • Companies using third parties to facilitate payment would be subject to processing fees and additional counterparty risk.
  • Due to high price volatility, there may be risk-bearer issues if the value declines rapidly between when a payment is due, made and finally received.
  • Employees compensated in cryptocurrencies would have to report it on their taxes, which would be more complicated than reporting traditional payments.

There are also legal risks, More said:

  • The legal status of cryptocurrencies is still evolving and can vary depending on the cryptocurrency.
  • Some states, such as California, require employers to pay wages in cash or negotiable instruments in the form of US currency, which cryptocurrencies are not.
  • The IRS does not recognize cryptocurrencies as fiat currency, but rather as property.
  • The Securities and Exchange Commission treats some cryptocurrencies as securities, which raises other legal issues related to securities compensation.

“In general, rather than paying employees directly in cryptocurrencies, it would be safer for an employer to pay employees in cash, but offer employees a route to convert cash into cryptocurrencies if they prefer,” More advised.

Whether or not cryptocurrency options are something you’re considering as part of your clearing practices, it’s important to stay in tune with what’s happening in this area.

What HR professionals need to know

“Businesses are becoming increasingly interested in the idea of ​​transacting in cryptocurrency,” Savage said. “As payment solutions are becoming more understood, it is important for HR professionals to learn the nomenclature and workings of these new resources. … HR professionals will also need to gain knowledge about the regulatory environment surrounding payments in cryptocurrency as new compliance requirements are assessed.”

There are a growing number of service providers, like Remote, that can help solve these and other problems, Savage said, pointing to companies like BitPay, NYDIG and BitWage.

“These service providers help reduce logistical challenges by removing the impact of price volatility while also helping ensure payroll is done without errors,” he said. “If an employer doesn’t use a service provider, it’s a more manual process that requires purchasing digital assets, maintaining them on balance, and performing price conversions to ensure employees are paid correctly.”

Additionally, More recommended, “any company considering paying workers in cryptocurrencies should engage a compliance expert to ensure they are complying with applicable state and federal laws.” Employees, he said, also “should engage a tax advisor who is familiar with cryptocurrencies to ensure they are reporting it correctly to the IRS, or alternatively familiarize themselves with the IRS guidelines on this issue, just because others are not doing so. means you’re doing it correctly.”

There are services that help streamline the process. Such services can mitigate but likely will not eliminate the risks involved. Employees who want to be paid in cryptocurrencies can pitch it to their employers, and there are success stories of people getting their employers to pay them entirely in cryptocurrencies.

It is important, at a minimum, that HR professionals are prepared to answer potential employee questions and requests related to payment with cryptocurrencies, even if the answer is “no”.

As Fuentes put it: “Perhaps in the future, when cryptocurrencies become a bit more stable and there are more established practices for paying employees in cryptocurrencies, we will jump on board, but for now we will stick with the USD.”

Lin Grensing-Pophal is a freelance writer in Chippewa Falls, Wis.

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