Should You Pay Your Employees in Bitcoin?

September 18, 2015
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2 min read

The number of places where one can spend bitcoin on legitimate goods and services continues to increase. Early adopters such as Overstock and Dell computers have been joined by Microsoft, and even academic institutions such as the University of Nicosia in Cyprus now accept the cryptocurrency.

But in order to spend it, you need to accumulate it. What better way to accomplish that than actually being paid in the currency as part of your salary? A few employers are leading the way in this regard, such as software-as-a-service (SaaS) software vendor Buffer, Structur3D Printing and Wisconsin-based coffee company Colectivo.

Setting Up the Currency

So how can you set things up so your staff can be paid in the currency? There are a few payment processors currently operating, including BitPay and Wagepoint, that will work with your accounting department to lay the foundation. These processors handle all the various Internet banking transfers for each of your employees that want to be paid with the cryptocurrency. Wagepoint alone said that it processes more than $75,000 in bitcoin salaries, which is still minuscule but indicates that it is a growing trend.

Bitcoin has some advantages that regular currencies don’t currently have. The fees to transfer your money into bitcoin are minuscule, even if you have to move money internationally. The transactions happen within seconds, which is great for our up-to-the-nanosecond population that can’t wait for anything, and it has a lot of support from the software community, with dozens of apps and service providers offering support.

Risks of Bitcoin

While being paid at least in part in the currency could connote a coolness factor, there are some risks. First, its value is very volatile: In the past, it has fluctuated between a few hundred dollars to more than $1,200 per bitcoin. That is a wider range than most government-backed currencies trade at. Second, because of these variations, you could end up seeing your stash of the currency drop to below what you would have gotten had you been on a straight dollar or other government-backed currency.

But if your home currency is going through some rough patches, it might make sense to hedge your salary with some bitcoin. There are laws about minimum wage requirements that could be triggered if you have a significant portion of your wages being paid in the currency and the value drops low enough.

In addition, transactions can’t easily be reversed, unlike typical credit card transactions — that could be awkward in certain situations. And then there’s what happens at tax time.

Tax Implications

What are the tax implications? Taxing authorities have different approaches, which vary by country and the currency in which your employees are paid. Some treat bitcoin as a fringe benefit rather than as part of their wages, while others look at bitcoin as a barter transaction. That’s what the Canadian revenue authority is currently doing, meaning that you must include the value of the barter as part of your income calculations.

Still others look at bitcoin ownership as a capital asset — similar to a stock or mutual fund — and taxes are assessed based on gains or losses when bitcoins are converted into your domestic currency. For help with this situation, you might want to look into a service called Libratax. This is a cloud system that connects to your employees’ bitcoin addresses via the Blockchain, downloads their transactions and automatically calculates the gains and losses.

Bitcoin is exciting and has gotten some important mindshare from a number of places. But the risks might outweigh the rewards, so it pays to move cautiously when it comes to actually compensating your staff with this currency.

David Strom
Security Evangelist

David is an award-winning writer, speaker, editor, video blogger, and online communications professional who also advises numerous startup and well-establish...
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