While paying employees with Bitcoin is indeed a growing trend, it’s not as simple as it may seem. Abandoning the conventional methods of compensating workers comes along with a whole new set of inconveniences and complications, most of which employers aren’t aware exist.
However, by educating yourself on the topic, you’ll be able to take advantage of all the benefits that decentralized currencies offer. Some companies already utilize Bitcoin payments and are experiencing these benefits firsthand. If you’re ready to join them, then continue reading.
Collaborate with a Specialized Company
The first step on your journey of introducing your employees to crypto payments should be a collaboration with a specialized company or an accountant. Either way, you need to find a company or an individual that is well educated on the subject and is specialized for this type of accounting.
A company like Bitwage is a good place to start. It is a well-established platform specializing in payroll and human resources services for the new digital era. The company offers a vast range of solutions for companies and individuals. Currently, Bitwage’s payroll funding supports Bitcoin (BTC), Ethereum (ETH) and several fiat currencies including the Euro, U.S. dollar, Russian ruble and Chinese yuan.
Taking this approach of working with a specialty company is advantageous for both employers and employees. Employees get their wages within 48 hours regardless of their location and employers are not required to go through an onboarding process. Bitwage made headlines in January 2019 for adding an option for U.S.-based employees who receive W-2s to opt for Bitcoin payments.
Back in 2014, BitPay launched an API that allowed employers to pay their workers in Bitcoin. However, the current version of the website no longer mentions the offer, which leaves Bitwage as the only option for paying employees in Bitcoin.
Another common practice for companies looking to start making cryptocurrency payments is hiring individuals who are well-versed in the crypto landscape.
Whether it’s a company or an accountant that’s going to be taking care of your Bitcoin payments, you’ll save yourself a headache by not having to worry about U.S. dollar conversions, Bitcoin transfers, capital gains taxes and so much more. Therefore, using a third party is an excellent option for paying your employees in Bitcoin.
Make Direct Bitcoin Payments
Alternatively, to avoid third-party services, you can implement direct cryptocurrency payments between you and your employees. With the obvious benefits of safe and fast transactions along with low-cost processing, it’s no wonder why Bitcoin is the cryptocurrency of choice for many companies.
To perform these straightforward payments, you and your employees will need to use a cryptocurrency wallet app. Our recommendation for a platform of this kind is the official wallet application by Bitcoin.com. The app is free and available to download on the Google Play Store and the Apple App Store.
For a desktop app, you should give Badger Wallet a try. If you want to use a different wallet app, be sure to read plenty of reviews before making your decision. Unfortunately, fraudulent wallets do exist, so you need to be careful to protect yourself and your money.
A major benefit of having a digital wallet is that it enables you to make payments to and receive payments from any Bitcoin wallet address.
Now, the tricky part about paying workers with Bitcoin via a wallet is that you’ll need to know Bitcoin’s value at the time you make your payments.
Crypto prices are extremely volatile. Therefore, deciding to compensate your employees with Bitcoin will require you to keep track of the fair market value of the currency. If you choose not to work with a company that will do the math for you, you’ll have to do it yourself to make sure that the amount of cryptocurrency you pay your employees is equivalent to the amount of fiat money you would have paid them otherwise.
Due to the instability of the market, such a practice can become burdensome as it’s very easy to make a mistake. If you’re still interested in trying it, we recommend proceeding carefully and paying considerable attention to fluctuations in the market.
Create Invoices
Just as is the case with traditional employee compensation methods, paying your employees with cryptocurrencies involves creating and sending invoices. When paying with crypto, your employees will need to create crypto invoices.
Within the crypto space nowadays, numerous platforms offer account services as well as tools for creating and sending invoices. Some popular services include are Coinpayments, Blockonomics, Gilded, CD Pay and Anypay.
Piixpay, on the other hand, is a platform that enables users to pay invoices and bills with digital assets. In order to do so, before sending the electronic payment, the user will be required to provide the name of the recipient, the bank account number of the recipient and the exact amount they are sending in fiat currency.
As a result of the growth of these platforms, it’s much easier for businesses today to give bonuses and pay wages fully or partially in cryptocurrencies. For example, influential companies like Airbnb, Augur and Uber are already clients of Bitwage.
Withhold Payroll Taxes
Paying workers with Bitcoin or any other cryptocurrency can get complicated as payroll and withholding taxes must always be paid in fiat currency. Calculating the gross payroll first is the easiest way to calculate the necessary withholding.
Choosing to pay your employees a fixed amount of Bitcoin will have you converting the value of the Bitcoins into U.S. dollars. Following, do a gross calculation to net check in U.S. dollars. The appropriate amount of taxes should be withheld.
Report Payroll-Related Expenses
When factoring in Bitcoin usage, reporting payroll-related expenses can be a complex process. Bitcoin is essentially considered an employer’s property, which means that purchases made with the cryptocurrency have to be traced.
This leads to the scenario where the reporting of capital gains and losses is absolutely necessary.
When you, as an employer, pay your employees with Bitcoin for their labor, you decide on the amount of Bitcoin based on its price at the moment the payment is made. However, during this time, you should also report either a capital loss or gain, the same way you would if you had sold the Bitcoin to a third party.
In the case of repetitive annual purchases of Bitcoin and having several employees that you pay with cryptocurrencies, the whole situation can get significantly more complicated.
Final Words
While there are seamless ways to pay employees with Bitcoin, it’s still not a mainstream choice. The reasons that most companies do not currently use this method are extensive, including the differences in taxes in different countries, the volatility of the market and the troubles that can arise from not having enough experience with performing such payments.
Whether it’s a good time to consider Bitcoin payments is a personal choice of the employer. When making the decision, they should keep in mind that as long as the employees are aware of the existing risks and considerations, this payment method can be quite beneficial for both participants.
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