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Cryptocurrency: The Opportunities, Problems and Potential

A stack of bitcoin coins on top of a dollar bill.

​You may not know exactly what it is, but chances are you've heard of cryptocurrency by now—"a digital or virtual currency secured by cryptography and based on a network that is distributed across a large number of computers," according to Investopedia. Types of cryptocurrency include Bitcoin, Ethereum (ETH), USD Coin (USDC) and others. 

Or you may have followed the recent news regarding the bankruptcy of FTX, a major cryptocurrency exchange. Prosecutors in New York and the U.S. Securities and Exchange Commission are examining the firm's collapse, which unleashed a new wave of financial stress in the cryptocurrency industry, reports The Wall Street Journal

Despite FTX's meltdown, cryptocurrency remains a growing presence 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 U.S. through the Remote platform, including Remote employees themselves, have the option to have part of their paycheck paid in the cryptocurrency of their choice through a partnership with Coinbase."

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

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

Vassas said interest tends to be higher "in the tech industry where a lot of workers already have crypto wallets." Crypto also has particular applications for global employers, he noted. "As an entirely decentralized form of currency, crypto has the potential to play a huge role in the future of global payroll and can remove the barriers of 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, a partner in tax services with Weaver, a national accounting and advisory firm, based in Dallas. For instance, he noted, "compared to average credit card processor fees, which can range from 1.5 percent to 3.0 percent, cryptocurrency payments offer reduced transaction fees, often 1 percent or less depending on the service provider and blockchain networks that facilitate the payments." In addition, he said, cryptocurrency payments are final transactions—often finalized within a minute or less. Consequently, he added, "businesses no longer have to wait up to several weeks for payments to be cleared or be liable for clawback."

Another benefit: appealing to younger employee demographics. "Younger generations are more comfortable with transacting in cryptocurrencies," Savage said. "Enabling these types of payments will push brand recognition to a new customer base that is seeking to make frictionless payment mechanisms more accessible."

Vassas noted that "the highest rate of crypto ownership globally is among people 25-34 years old." It is, he said, a "good modern benefit—one that employees actually use and view as helping to improve their quality of life."

Savage points to a recent study from Deloitte, indicating that "85 percent of senior executives at retail organizations expect digital currency payments to be ubiquitous among customers and suppliers in their respective industries in five years or less." Further, he said, 75 percent indicated they had plans to either accept cryptocurrency or stablecoin (a type of cryptocurrency whose value is tied to an asset such as the U.S. dollar or gold) payments within the next 24 months.

Drawbacks and Risks

Laura Fuentes, the operator of Infinity Dish in Boca Raton, Fla., said she's had some employees inquire about getting paychecks in cryptocurrency over the past few years but less frequently as the economy has been in a downturn. While her company has looked into it, she said, "we just weren't comfortable with the whole process."

One of the drawbacks, Fuentes said, is the volatility of cryptocurrency value. "The value of crypto is constantly changing, so figuring out how much to pay someone was a real headache because in the morning it might be 2.5 ETH and by the afternoon it might be 4 ETH," she said, adding, "it would really complicate our tax situation in a way that we were not prepared for."

Another issue is security. In September, the White House released a Fact Sheet warning that "Digital assets pose meaningful risks for consumers, investors, and business." The Fact Sheet goes on to say that: "Outright fraud, scams, and 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 2021 than the year before."

"Practically speaking, plenty of things can go wrong in transferring crypto," said Alex More, an attorney with Carrington Coleman in Dallas. For instance, he said:

  • User error could result in the crypto being sent to the wrong address and it may then be unrecoverable.
  • Companies using third parties to facilitate payment would be subject to processing fees and additional counterparty risk.
  • Because of high price volatility there could be issues related to who bears the risk if the value declines rapidly between when a payment is due, made and ultimately received.
  • Employees compensated in crypto would have to report it on their taxes, which would be more complicated than reporting traditional payments.

There are legal risks as well, More said:

  • The legal status of crypto is still in flux and may vary depending on the cryptocurrency.
  • Some states, such as California, require that employers pay wages in cash or negotiable instrument in the form of U.S. currency, which crypto is not.
  • The IRS does not recognize crypto as legal currency, but rather as property.
  • The Securities and Exchange Commission treats some cryptocurrencies as securities, which raises other legal issues regarding compensation in securities.

"Generally, rather than paying employees directly in crypto, it would be safer for an employer to pay employees in cash but offer a path for employees to convert the cash to crypto if they prefer," More advised.

Whether or not cryptocurrency options are something you're considering as part of your compensation practices, it's important to stay attuned to what's happening in this area.

What HR Professionals Need to Know

 "Businesses are becoming more interested in the idea of transacting in cryptocurrency," Savage said. "As payment solutions are becoming more widely understood, it's important for HR professionals to learn the nomenclature and mechanics of how these new assets function. … HR professionals will also need to gain knowledge on the regulatory environment surrounding cryptocurrency payments as new compliance requirements are assessed."

There are a growing number of service providers, like Remote, that can help address these and other issues, 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 executed without errors," he said. "If an employer does not use a service provider, it is a more manual process that requires purchasing digital assets, holding them on a balance sheet, and performing price conversions to ensure employees are paid correctly."

In addition, More recommended, "any company considering paying workers in crypto should engage a compliance expert to make sure they are complying with applicable state and federal laws." Employees, he said, also "should engage a tax advisor familiar with crypto to make sure they report it correctly to the IRS, or alternatively familiarize themselves with the IRS guidance on this issue—just because others are doing it doesn't mean they're doing it correctly."

Services exist that help streamline the process. Such services may mitigate but will not likely eliminate the risks involved. Employees who want to be paid in crypto can propose it to their employers, and there are success stories of people who have persuaded their employers to pay them entirely in crypto.

It's important, at a minimum, that HR professionals are prepared to respond to potential inquiries and requests from employees related to payment through cryptocurrencies—even if that response is "no."

As Fuentes said: "Maybe in the future when crypto becomes a bit more stable and there are more established practices for paying employees in crypto, we'll jump on board, but for now, we're sticking with USD."

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


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