26th August 2019
Cryptocurrencies are a digital money system that allows people to send or receive money globally across the internet. Bitcoin payments are processed through a private network of computers all linked through a shared program. Each transaction is simultaneously recorded in a “blockchain” on each computer that updates and informs all accounts.
Cryptocurrencies such as Bitcoin allows for fast, secure and low-cost transactions, which is very attractive to many companies. This has led to some businesses exploring the possibilities of paying their employees in cryptocurrency, with some already using Bitcoin to incentivize their employees.
However, there are some complications to consider that could arise when paying employees with it, including the volatility of cryptocurrency and how the value of it fluctuates dramatically all the time. But paying our employees with cryptocurrency is just a thing of the future… or is it?
New Zealand has become the first country to legally back companies that are paying employees in cryptocurrencies. The ruling by New Zealand’s tax authority allows salaries and wages to be paid in cryptocurrencies such as Bitcoin from September 1, as long as the payments are in regular, fixed amounts. The digital currency of choice must also be pegged to at least one regular currency and must be able to be converted directly into a standard form of payment. Companies that choose to pay their employees in crypto will be able to deduct tax under New Zealand’s pay as you earn income tax scheme.
Although we might be a long way away from global legality of paying employees in cryptocurrency, and no matter where you stand on paying in cryptocurrencies, it is definitely something that could happen more readily in the future and is something you might need to consider embracing.
If you are thinking of using cryptocurrencies to pay or incentivize your employees, you need to consider:
- Whether this would be something your employees would actually want. Weigh up the pros and cons of cryptocurrency against other options.
- Look at how the cryptocurrency is regulated in the countries in which you intend to use it; whether it is permissible to pay or give it as an employee benefit, and what the tax treatment will be (both from your perspective, and from that of your employees)
- Doing some due diligence to decide which cryptocurrency would be the best fit for your company. Look closely at which currencies to offer, which exchange to use and which provider or broker you should appoint to deal with the administrative side of things (similar to a pensions provider). Remember to conduct due diligence on any third party to ensure you are compliant with anti-money laundering requirements
- How volatile cryptocurrencies can be, as it may mean it is difficult to understand the value an employee may receive in regard to their salary.
- Reviewing your payroll and CRM systems to understand how it can be integrated and managed, if at all.
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