Introduction
With the increasing fanfare around Blockchain technology and the potential it holds for the future, commercial enterprises – Blockchain based and otherwise – are experimenting with paying salaries in cryptocurrency. This initiative broadens the cryptocurrency ecosystem[1] and also helps retain the best tech talent.[2] This post outlines the current cryptocurrency payment ecosystem, industry experience as well as certain important considerations before choosing to switch to crypto.
This blog post is not exhaustive on the subject and must not be considered as professional advice.
Are people doing it?
Yes, in fact payments of salaries in cryptocurrency is far from a novel phenomenon. Danish company SC5, which provides digital services, has been paying its employees in cryptocurrency since March 2013.[3] Bitwage, a payroll and international wage payments solutions company has been using cryptocurrency to pay salaries since 2013 as well.[4] Several other examples may be found here.
Why do it?
Paying salaries in cryptocurrency provides a host of benefits. Foremost, it ensures that you save on fees of transfer and conversion. Regular fees such as transfer fees or overdraft fees are replaced with a negligible 0.5% to 1% processing fees per transaction.[5] Cryptocurrency also makes it convenient to hire remote workers since payments can be made almost instantly and around the globe, even without access to a banking institution.[6] Further, many experts believe that paying in cryptocurrency may help attract and retain talent, especially information technology professionals.[7] Another reason is that there is a comprehensive ecosystem that is being built to aid the payment of salaries and wages in cryptocurrency. As mentioned earlier, Bitwage[8] offers payroll services and handles a company’s cryptocurrency payments for it. While such platforms are absent in India as of now, that simply indicates the huge potential India holds as a market for cryptocurrency payments. Some other benefits may arise from switching to Blockchain based payments systems generally. For instance, the Ethereum protocol might be leveraged to create smart contracts which allow for automatic payments of salaries and wages, subject to the fulfilment of pre-decided conditions.[9] This helps create trust between employers and employees and further attracts talent.
What to be wary of?
While regulatory frameworks of several countries do not pose any hindrance to using cryptocurrencies for making payments, there are some country and cryptocurrency related considerations one should keep in mind.
First and foremost, one must educate oneself of the ongoing debate around whether and which cryptocurrencies may be deemed to be securities. Essentially, the Securities and Exchange Commission (“SEC”) of the United States of America (“US”) has taken the stand that since the value of any given cryptocurrency may appreciate due to the efforts of third parties, it is as good as a speculative instrument and therefore must be regulated as such.[10] The Howey test[11] is used in the US to distinguish those cryptocurrencies which may be deemed to be securities from those which may not. The Monetary Authority of Singapore (“MAS”) has similar concerns about cryptocurrencies invariably being in the nature of securities. The MAS has even issued a guide on digital token offerings.[12] Other countries may soon follow in the footsteps of these countries, while many already have.[13]
If salaries are paid in a native cryptocurrency, which is mined and issued by the employer, and the said cryptocurrency is ultimately declared to be a security, then the employers would be directed to fulfil further compliances under the applicable securities laws. It is also noteworthy that if an American citizen is being paid in cryptocurrency, the SEC can exercise jurisdiction in case any grievance is raised by said citizen.[14]
Secondly, if employers hire remote workers then they may be required to comply with the tax requirements governing cryptocurrency in such jurisdictions. Further, many legislations may require wages to be necessarily paid in cash or cheque.[15]
Thirdly, the logistics of it all may be too time-consuming and thus employers may not see value in paying in cryptocurrency.
Fourth, the value of a cryptocurrency is suspect to fluctuations which may make both employers and employees wary of utilising them.[16]
Are there any workarounds?
Several countries such as Australia[17] and Japan[18] are taking up salary payments in cryptocurrency essentially since their respective regulatory frameworks allow for it. One may thus study the laws applicable to cryptocurrency in their jurisdiction to understand this aspect better.
Secondly, companies globally have been paying in Bitcoin[19] and Ethereum[20], since these have been declared to be non-securities by the SEC, thereby obviating the risk of complying with additional requirements.
Another solution is to avail services such a Bitwage to process payments in cryptocurrency as and when such services become available in your jurisdiction.
Conclusion
Cryptocurrencies provide immense scope for safe and secure payment of salaries and wages and also promotes the employment of competent remote workers. It is an encouraging trend that the wage payment ecosystem is growing by the day. This further propels the decentralisation of employment and provides exciting opportunities for the future. An important factor in the development of this ecosystem will be actual uptake by industry participants, which will invariably lead to favourable policy making by the relevant government.
[1] Ana Alexandre, Payment service square is hiring crypto engineers, offers salaries in bitcoin, available at https://cointelegraph.com/news/payment-service-square-is-hiring-crypto-engineers-offers-salaries-in-bitcoin (Last accessed on March 22, 2019).
[2] Julio Gil-Pulkar, Paying salaries in bitcoin is becoming trendy, available at https://bitcoinist.com/paying-salaries-bitcoin-becoming-trendy/ (Last accessed on March 22, 2019).
[3] Julio Gil-Pulkar, Paying salaries in bitcoin is becoming trendy, available at https://bitcoinist.com/paying-salaries-bitcoin-becoming-trendy/ (Last accessed on March 22, 2019).
[4] Dasha Fomina, Top employers that pay in crypto, available at https://ihodl.com/investment/2018-11-09/top-employers-pay-crypto/ (Last accessed on March 22, 2019).
[5] Eight reasons to use cryptocurrency payments in 2019, available at https://news.bitcoin.com/eight-reasons-to-use-cryptocurrency-payments-in-2019/ (Last accessed on March 22, 2019).
[6] Eight reasons to use cryptocurrency payments in 2019, available at https://news.bitcoin.com/eight-reasons-to-use-cryptocurrency-payments-in-2019/ (Last accessed on March 22, 2019).
[7] Julio Gil-Pulkar, Paying salaries in bitcoin is becoming trendy, available at https://bitcoinist.com/paying-salaries-bitcoin-becoming-trendy/ (Last accessed on March 22, 2019).
[8] Bitwage Inc., https://www.bitwage.com/ (Last accessed on March 22, 2019).
[9] Mayank Pratap, Everything you need to know about smart contracts: a beginner’s guide, available at https://hackernoon.com/everything-you-need-to-know-about-smart-contracts-a-beginners-guide-c13cc138378a (Last accessed on March 22, 2019).
[10] Chairman Jay Clayton, Statement on cryptocurrencies and initial coin offerings, available at
https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 (Last accessed on March 22, 2019).
[11] Mina Down, How to determine if a cryptocurrency is a security or not using the Howey test, available at https://medium.com/altcoin-magazine/how-to-tell-if-cryptocurrencies-are-securities-using-the-howey-test-da18cffc0791 (Last accessed on March 22, 2019).
[12] Guide to digital token offerings, available at http://www.mas.gov.sg/News-and-Publications/Monographs-and-Information-Papers/2018/A-Guide-to-Digital-Token-Offerings.aspx (Last accessed on March 22, 2019).
[13] Cryptocurrency regulations around the world, available at https://complyadvantage.com/blog/cryptocurrency-regulations-around-world/ (Last accessed on March 22, 2019).
[14] Christian Auty, ICOs and the SEC’s extraterritorial jurisdiction: A brief primer, available at https://cryptoslate.com/icos-and-the-secs-extraterritorial-jurisdiction-a-brief-primer/ (Last accessed on March 22, 2019).
[15] Kayla Matthews, why employers can’t pay you in cryptocurrency, available at https://cointelegraph.com/news/why-employers-cant-pay-you-in-cryptocurrency (Last accessed on March 22, 2019).
[16] Kayla Matthews, why employers can’t pay you in cryptocurrency, available at https://cointelegraph.com/news/why-employers-cant-pay-you-in-cryptocurrency (Last accessed on March 22, 2019).
[17] We pay employees in crypto and it’s awesome!, available at https://bitedge.com/blog/we-pay-employees-in-crypto-and-its-awesome/ (Last accessed on March 22, 2019).
[18]Japanese company to start paying employees in bitcoin, available at https://www.theguardian.com/technology/2017/dec/15/japanese-company-paying-employees-bitcoin (Last accessed on March 22, 2019).
[19] Neeraj Agrawal, SEC Chairman Clayton: Bitcoin is not a security available at https://coincenter.org/link/sec-chairman-clayton-bitcoin-is-not-a-security (Last accessed on March 22, 2019).
[20] Jamie Redman, SEC Chairman Says Cryptocurrencies Like Ethereum Are Not Securities, available at
https://news.bitcoin.com/sec-chairman-confirms-cryptocurrencies-like-ethereum-are-not-securities/ (Last accessed on March 22, 2019).
