Want To Pay Your Employees in Cryptocurrencies? Consider These Pros and Cons

Cryptocurrencies are gaining much importance among professionals. Irrespective of what they are called — a fad or the future of finance — digital currencies are gaining acceptance as a payment option among corporates. While companies like PayPal, Xbox, Microsoft, Gucci, and Spotify accept Bitcoin and other cryptocurrencies as payment for goods and services, a few companies offer them to their employees and new hires as part of their compensation plans. Several independent contractors and freelancers, too, are demanding crypto payments. So, given the popularity, should more companies offer cryptocurrencies as payment to their employees?

Before jumping onto the crypto payment bandwagon, companies should consider several things. Here are a few pros and cons of cryptocurrencies companies should consider before deciding to go ahead with them as part of their compensation plan.

The following are a few benefits of paying employees in cryptocurrencies.

See more: Why Crypto Payments Could Strengthen Your Creator Partnerships

Pros of Cryptocurrency-based Compensation

1. Faster payments and fee rebates

Cryptocurrency transactions are almost instantaneous, unlike checks and ACH deposits. On the other hand, the traditional forms of payment may take a few hours to a few days depending on the location of your employees, payroll, and central offices. Further, traditional payments involve additional costs or exchange fees. Since cryptocurrency transactions do not take place in conventional routes, employers can also avoid these extra costs.

2. Possible tax rebates

When it comes to tax laws, some countries are very lenient or have very low taxes on crypto payments. For example, Portugal is known to be a cryptocurrency tax havenOpens a new window as it charges 0% tax on bitcoin. Similarly, in Germany, the rules are such that crypto investors can avoid taxes. According to Tony JarvisOpens a new window , director of enterprise security in Asia-Pacific and Japan, Darktrace, “When you consider how much these assets are increasing over time, they are significant gains to be made if you’re saving on that tax side of the equation.”

3. Independence

Bitcoin, Ethereum, and other cryptocurrencies are peer-to-peer transactions without involving a third party like a bank, financial institution, or government. Any payments go directly to the person being paid. This potentially has positive implications in terms of increased speed and lower bureaucracy. Thus, it can become a useful way of making payments for a globally-dispersed workforce.

4. Workforce appeal

Many employees are investing in cryptocurrencies such as Bitcoin and Etherium today. According to a study by InvestopediaOpens a new window , about 38% of Millennials and 23% of Gen Z people have a cryptocurrency investment. Even 28% of Gen X people own cryptocurrency investments. Hence getting paid in a popular cryptocurrency can be a good draw to employees who already understand and invest in these digital currencies. Given that a significant percentage of Gen Z candidates are entering the workforce, it can also be a good way to attract them. Cryptocurrencies may also be an excellent way to attract independent contractors and freelancers in certain niche fields.

5. Volatility — a positive side

The crypto market is more volatile than the traditional stock market or regular currency market. The recent sudden fluctuations in Bitcoin’s value show how volatile the crypto market can be. This can be a good thing, as it provides high return on investment. It can also be seen that the crypto market is booming. By offering a part of salaries in the form of cryptocurrency and teaching the employees the necessary investment skills, companies can help improve their employees’ financial position. 

While crypto payments have several advantages, there are also several disadvantages. Here are a few disadvantages of cryptocurrencies.

Cons of Cryptocurrency-based Compensation

1. Volatility — a double-edged sword

While volatility can be a positive thing for a few, a significant percentage of investors are risk-averse. The Investopedia study mentioned above found that Baby Boomers may be the most risk-averse generation, with only 6% investing in cryptocurrencies. Further, it could be that a sizable number of other generations stay away from investing in cryptocurrencies. Hence, crypto payments may not suit everyone in the workforce. Companies can also consider offering it to employees as a bonus instead of regular salaries.

2. Different tax laws

While certain countries and geographies act as tax havens for cryptocurrencies, that is not necessarily true about all geographies. A few countries even impose heavy taxes on cryptocurrency transactions. For example, India imposed a 30% taxOpens a new window on the income earned through digital assets earlier this year. In the U.S., individuals must report any cryptocurrency transactions to the Internal Revenue Service (IRS). Hence, companies must be cognizant of a country or state’s tax laws to stay compliant before making payments through cryptocurrencies. 

Further, the terminologies surrounding cryptocurrencies, too, change across geographies. For example, they may be called digital currencies, digital assets, virtual assets, or payment tokens. The dissimilarities in terminology and tax laws may create barriers for companies from setting up a global payment system for their dispersed workforce.

3. Potential loss of reputation

As no government agency regulates the crypto market, it becomes attractive to money launderers, financial scammers, and cybercriminals. For example, many cybercriminals have been demanding ransomOpens a new window in the form of cryptocurrencies since digital currencies picked up steam. This makes cryptocurrencies inherently disreputable, making many people wary of accepting them in the form of payments.

See more: 65% of SMB Employees Value Being Able To Choose Their Own Benefits

4. Inconsistent mainstream integration

Cryptocurrency still lacks integration with the established financial system. Most banks and businesses do not recognize cryptocurrencies as real money and do not offer any means to tie crypto payments to the legal flows of goods and services. This can create problems when someone wants to use it for purchases or financial transactions.

Besides these disadvantages, there are a few other things businesses should consider. For example, labor laws in certain states and countries state that employees can be paid wages only in the form of cash, direct deposit, check, or payroll debit card. Some laws may also make it mandatory to make payments in a particular currency.

Paying It Forward With Crypto

Cryptocurrency has undoubtedly made a significant impact on the compensation and benefit plans of many companies due to its potential advantages. That said, there are several disadvantages and factors companies should carefully consider before jumping on the crypto payment bandwagon. Hence, have a detailed discussion with your employees about the preferred payment options, and consult your tax advisor and attorney before making the jump.

Do you pay your employees in cryptocurrencies? What pros and cons do you see? Share with us on FacebookOpens a new window , TwitterOpens a new window , and LinkedInOpens a new window .

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