Bitcoin, Ethereum and other digital currencies are becoming more popular as people are increasingly agreeing to receive their paychecks in these currencies.
Having surpassed $60,000 in value, Bitcoin reached its historical high in April 2021. The cryptocurrency is becoming an accepted payment method for wages and other fringe benefits for rank-and-file employees, such as bonuses and retirement savings, as major companies like PayPal and Microsoft accept payment in bitcoin.
Now, professional athletes, politicians, and everyday employees are getting all or part of their salaries this way.
The Green Bay Packers quarterback or the Uber driver can get paid in bitcoin, according to Jack Mallers, chief executive of Strike, a digital finance company.
As more people realize they can buy coffee with cryptocurrency, maybe they should also get paid in it, according to Garrick Hileman, head of research at Blockchain.com
What is crypto payroll?
Crypto payroll refers to the use of cryptocurrencies to pay salaries. Both full-time employees and freelancers hope to earn substantial income on bitcoin down the road. It is easy to exchange bitcoins. People can send bitcoins using their bitcoin addresses, and all these bitcoin transactions are permanent and traceable.
Meanwhile, as household commercial brands embrace bitcoin, employers are tempted to offer it as part of a bonus package. Although cryptocurrencies are gaining in popularity as modes of wage payments, they are fraught with the risk of volatility as well. Bitcoin alone has experienced massive surges and plummets in just the last few months.
When Elon Musk, Tesla‘s CEO and billionaire, publicly supported bitcoin and revealed he had spoken to North American bitcoin miners, only to later support Dogecoin, cryptocurrencies like bitcoin and Dogecoin spiked in value within a day. This volatility makes bitcoin an unreliable method of calculating wages and other fringe benefits.
Is crypto wage legal?
The biggest challenge with cryptocurrencies from a payroll standpoint is that there is no definitive answer to the question of whether cryptocurrencies, including bitcoin, are legal. Cryptocurrency is yet to be approved by any central bank, which means payroll departments cannot use bitcoin on par with other payment methods.
The process of getting paid in cryptocurrency
It is not common for bitcoins to be used for salaries on a large scale, but some employees have accepted it as a form of income. NFL player Russell Okung of the Carolina Panthers, among others, got a portion of his salary paid in cryptocurrency in 2020.
A salary like this could be treated as other income. If the employee were to sell the bitcoin once its value rose, they would have to pay tax at a capital gains rate of 20%, which is lower than the current top income tax rate of 35%.
In bitcoin salary, the appeal lies in the near-instant receipt of funds and the absence of third-party costs. It’s a one-on-one interaction between the employer and employee, in which both parties only have to secure their bitcoin wallets in order to receive payment. There are a number of services that allow creating standardized invoices that are automatically generated and sent, which facilitates the process of paying individual contractors.
