Remote work has made it easier for talent around the world to find their place in your organization. It raises new and complicated challenges, especially in how international teams are compensated. One particularly promising alternative is the use of cryptocurrency, which could provide advantages such as speeding up transaction times and lowering costs. Paying remote workers in crypto isn’t exactly simple. It means strategic tripping through a legal minefield, where laws governing data privacy, ownership, copyright, and use are different and widely contradictory from country to country. BlockchainShock Back from the future — a deep dive into its pitfalls and tips for making compliant crypto payroll solutions.

Understanding the Regulatory Landscape

The greatest barrier to implementing crypto payroll is the absence of global consistency in regulation. Because cryptocurrency is not accepted as legal tender in nearly any country, this puts a serious damper on its potential usage as a payment method. The reaction within each jurisdiction has varied, from total prohibition to go-slow embrace.

Similar to the recent Chinese financial crackdown on crypto, financial companies there are unable to process bitcoin transactions. Secondly, regulations block financial firms from trading or holding cryptocurrencies themselves. Argentina’s Central Bank has similarly prohibited financial institutions from facilitating cryptocurrency-related transactions. In stark contrast to the above, El Salvador has fully adopted Bitcoin by adopting it as legal tender with the Bitcoin Law. Ecuador permits the purchase and sale of bitcoins, while Russia is exploring the use of crypto payments in international trade to circumvent sanctions.

Key Considerations for Compliance

This includes:

  • Jurisdictional Evaluation: Assessing the legal status of cryptocurrency in each country where employees or contractors are located, which is crucial.
  • Licensing Requirements: Determining whether any specific licenses are required to operate a crypto payroll system in those jurisdictions.
  • AML/KYC Compliance: Understanding and adhering to anti-money laundering (AML) and know-your-customer (KYC) requirements imposed by local authorities.

Essential Steps for Implementing Crypto Payroll

Even in jurisdictions that accept crypto payments, employers still need to do a few things. This way, they are always upholding regulations and best practices and are protecting the interests of their company and employees.

Obtaining Consent and Ensuring Transparency

Written, transparent consent from employees or contractors is absolutely essential. This consent should explicitly outline:

  • The amount to be paid in cryptocurrency.
  • The specific cryptocurrency to be used.
  • The method of payment.
  • The mechanism for determining the exchange rate between the cryptocurrency and fiat currency.

Adhering to Labor Laws

Companies should be responsible for following all labor laws, wherever they are. These state, county, and city laws usually require that minimum compensation be delivered in fiat money. Even when crypto payments are allowed, minimum wage and overtime payments must be made in U.S. dollars or equivalent negotiable instruments. To address this, businesses can leverage third-party services to enable post-payroll remarketing into digital assets.

Providing Financial Education

Employers need to look for ways to educate employees financially on the risks and rewards of alternative assets like Cryptocurrency. This education should cover topics such as:

  • Understanding cryptocurrency volatility.
  • Managing crypto wallets.
  • Protecting against scams and fraud.

Stablecoins pegged to stable, fiat currencies such as the US dollar keep a 1:1 exchange rate. They do a terrific job of helping to smooth out price volatility.

Navigating Tax Implications

Attracting talent with cryptocurrency payment poses additional challenges from a tax perspective itself. It’s critically important for both employers and employees to understand how these types of payments are treated under the tax code.

Income Tax

Wages received as an employee in cryptocurrency are considered ordinary income and are taxed at the marginal tax rate (10-37%). Its dollar value equals its fair market value at the time you receive it. This value is fixed on that date and time. The digital asset income is captured as part of the payer’s ordinary gross income on a Form 1040, U.S. Individual Income Tax Return.

Capital Gains and Losses

Anytime you trade one crypto for another or sell crypto, you need to report your capital gains and losses. Schedule D and Form 8949 may be required.

Record Keeping

Taxpayers are required to maintain sufficient records to establish the positions taken on federal income tax returns, including records of digital asset transactions. Businesses need to keep data for a minimum of seven years, at least to keep up with global regulatory requirements.

Checklist for Evaluating Crypto Payroll Solutions

Here's a checklist for evaluating different jurisdictions and crypto payroll solutions:

  • Legal Compliance: Does the solution ensure compliance with local labor laws and cryptocurrency regulations?
  • Reporting Capabilities: Does it provide comprehensive reporting for tax purposes?
  • Security Measures: What security measures are in place to protect against fraud and theft?
  • User Experience: Is the platform user-friendly for both employers and employees?
  • Customer Support: Does the provider offer adequate customer support?

Leveraging Third-Party Solutions

Companies can use third-party vendors like Coinbase or Bitwage to handle conversions from fiat currency to cryptocurrency, simplifying the process and ensuring compliance.

Employers must familiarize themselves with their legal and tax advisors to understand the scope of all reporting requirements and obligations and make sure they’re complying with local employment laws.

  • Pros:
    • Streamlined Conversions: Automates the conversion process from fiat to crypto.
    • Compliance Assistance: Helps navigate complex regulatory requirements.
    • Reduced Administrative Burden: Simplifies payroll management.
  • Cons:
    • Fees: Third-party services typically charge fees for their services.
    • Dependency: Reliance on an external provider.
    • Data Security: Potential concerns about data security and privacy.

Paying remote workers in cryptocurrency is not all upside. Crypto payments need to be implemented thoughtfully and strategically. By understanding the legal and regulatory landscape, implementing transparent processes, and partnering with experienced advisors, companies can navigate the complexities and unlock the advantages of crypto payroll.

Paying remote workers in cryptocurrency offers potential benefits, but it requires careful planning and execution. By understanding the legal and regulatory landscape, implementing transparent processes, and partnering with experienced advisors, companies can navigate the complexities and unlock the advantages of crypto payroll.