Paying salaries in crypto is a promising direction that opens new horizons for employers and employees. This bold decision helps connect businesses with talents all around the world. Businesses save time because they can hire staff that fits their talent requirements without thinking about how to convert money and send it as the salary for a new hire.
At the same time, remote employees can live and travel wherever they want without notifying anyone about this decision. But how to make this process fully legal? In this article, a Defiway crypto expert will tell you everything you need to know about paying salaries with cryptocurrencies.
Benefits of Paying Salaries in Crypto
Paying salaries in crypto has various advantages both for employees and employers. Crypto transactions are typically faster than classic banking methods. Employees will receive money much more quickly. Both parties will also face lower fees, which can save money for employers, so they can pay staff more with the same salary budget.
Cryptocurrencies are not tied to a particular region, which can benefit remote workers who like to travel. They will also have greater financial control and more potential for investment to create their passive income.
On the other hand, employers can streamline the payroll process. They can automate the payment process to eliminate the human factor that can lead to salary delays. All crypto transactions are secured through blockchain technology, which makes them resistant to hacking attempts or other fraud-like operations. It also attracts tech-savvy employees who like to explore new technologies and implement them into a workflow.
Risks of Paying Salaries in Crypto
There is nothing perfect in this world. And paying salaries in crypto is not an exception to this. It has drawbacks, such as a lack of regulation and tax risks. Cryptocurrency is a new evolving area that still doesn't have many regulations and laws like the classic financial industry. If both employer and employee choose to ignore tax obligations, they are at risk of getting high penalties for this behavior.
Also, both parties should understand volatility risks. Cryptocurrency prices can fluctuate dramatically in a short period. Moreover, even trustworthy crypto ecosystems may be scams, like the Terra ecosystem. So, choose carefully what cryptocurrency and service you will use in the payroll process.
If you are an employer, introduce your staff to blockchain rules, cyber safety, and how to operate and exchange crypto for fiat money. Otherwise, they will face many security risks, exposing their wallet to hackers or other cybercriminals.
How to Pay Salaries in Crypto
Are there any legal ways to pay a salary with Bitcoin, Ethereum, or other digital coins? Yes, employers can use direct payments, third-party payment processors, payroll services, or even crypto payroll cards. We recommend you use next tips while choosing the suitable option:
- Evaluate the needs of both parties.
- Research options that are legal for your region to ensure full compliance.
- Compare security measures and associated costs.
- Test your choice before fully implementing it into the workflow.
By following this easy instruction, you can find the most suitable option for your business. Here is the key information about each salary option type. With direct payments, employers can transfer digital coins from corporative crypto wallets to employees' wallets. They can be done quickly without third-party services if both parties use wallets for the same cryptocurrency.
But employees may face unexpected fees while managing and exchanging their salaries. This method doesn't have automatic tax withholding or compliance, so both parties need to create their way of paying taxes and legalize the salary enrollment process.
Many third-party payment processors specialize in crypto payments, offering tax withholding. Employees can receive payments directly to their wallets and don't worry about taxes or exchanging for more common cryptocurrency.
You can also use specialized payroll services that handle all payroll processes including compliance and tax withholding. Employees can directly receive money in their digital wallets or put part of their salary on deposits or withdraw it with third-party tools.
Defiway has its own PayRoll service where you can use all popular cryptocurrencies and send salaries to your staff without unwanted middlemen. You can automate payroll payments to eliminate the human factor and ensure employees get their salaries on time. Moreover, you'll get automated tax filing compliance suitable for your region, so you don't need to worry about correct taxation implementation in your workflow.
Many services provide cryptocurrency payment cards that are loaded with digital currency instead of fiat. It can be used for purchases in shops or withdrawals at ATMs that accept cryptocurrency.
The main disadvantage of payroll services is that they charge small fees. But they take you away from tax and regulatory compliance. It saves hours of your time monthly. The other common disadvantage is that both parties need to provide additional personal, business, and financial information to the external service. Choose a provider carefully and ensure that it stores your data safely.
Tax Implications of Paying Salaries in Crypto
Maintaining consistent tax compliance with crypto is still hard, but keeping your business legitimate is crucial. If you fail or "forgot" to withhold tax from the salary in crypto, you'll get penalties and fines. Both employers and employees should fill out taxation forms available in their regions.
Employers who want to start paying in crypto should seek the guidance of qualified tax professionals to ensure compliance with relevant regulations and laws. They should understand that cryptocurrency is treated more like property rather than currency. So, every payment process is a taxable event.
On the other hand, employees should stick to all regulations in this region. Especially, when it comes to freelance workers that are more independent than other staff. Both parties should maintain accurate payment records, including the cryptocurrency's fair market value at the payment time.
Wrapping up
Moving the salary process from fiat money to crypto is not the easiest task, but it's worth it. You can hire remote workers from different regions without concerns about how to pay them for their work. But, as Benjamin Franklin once said in his letter to Jean-Baptiste Le Roy, "In this world, nothing can be certain except death and taxes."
Ensure that both parties (employer and employee) will pay taxes in their region. You can hire a crypto accountant so they can implement correct taxation into the workflow. Or you can use a third-party service with built-in tax filing compliance. That's how you can be sure that you won't get any penalties from the IRS or similar taxation governor structure in your region.
Defiway has a PayRoll service that works with all popular cryptocurrencies and has automated tax filing compliance, employer/ee dashboards, payroll schedules, and more! Try it yourself to see how it helps your business to become even better!
